We have experienced at our creative offices that cater to tenants 5,000 to 15,000 that credit tenants are far and few between and many prospects are startups or later stage tech tenant startups. We have therefore had to handicap the viability of these tenants. This function is more important today because tech tenants resist posting any significant security. Here are some different classes from best to worst:
1. Profitable (very rare), still has significant cash , significant and rapidly growing revenues (with total rent olbigations under 5%), significant and rapidly growing and diversified customer base , growing revenues, high profit margins, buyout rumors, one of the major players in a certain unique technology.
2. Almost profitable but has everything else above.
3. Still has a significant burn but has at least 2 to 3 years left of burn runaway based on current cash levels and a survival plan if venture funding is cut off. It has everything else as shown above.
4. Has a rapidly growing and large customer base (or at least unique visits) and at least a 2 to 3 years left of burn runaway based on current cash levels and a reasonable survival plan if venture funding is cut off.
5. A new startup with a lot of cash and at least 2 or 3 years left of burn runaway based on current cash levels and a survival plan if venture funding is cut off.
6 A new startup with only one year of cash burn and a very ordinary concept
Employers and landlords will have and use new tools to help alleviate parking problems at Los Angeles offices. Here are some of the new tools in 2016.
Valets: Valet parking companies are getting more innovative in finding parking spaces, moving cars around, and parking cars farther away. One company called Luxe Valet will meet you at a location identified on an app on your phone and park your car for you. They now will do it daily for a flat fee monthly fee.
The Expo line, the light rail from Downtown to Santa Monica, is expected to begin operations in June 2016. Commencement of service will create big buzz. Over time as office and residential fill in near Expo Stations, more people will take the Expo to work. Eventually, Expo will connect with Pasadena thru the Regional Connector.
Uber is already shifting living patterns and how people get to work. Some people are moving to residences that are walking distance to work and abondoning their cars for Uber. Others are using Uber and Uber Pool to get to work. Many couples are now finding that they can abandon one of their cars and easily live with just one car.
Finally, autonomous cars are seriously being talked about in the near future of transportation.
Green Street Advisors believes real estate values have already reached its peak and are in the ninth inning. In fact, Green Street is forecasting a 5% decline in values in 2016. Green Street bases its call on the narrowing spread between non investment grade corporate bond yields and cap rates. The spread is historically low and signals a decline in property values. Along with this signal, REITS currently sell at a discount versus a premium to net asset value–a second historical signal of a correction. However, Green Street Advisors still sees operating fundamentals as strong with further potential rent growth and stable occupancies. You can read more below.
Commercial real estate investors are receiving ominous signals from the bond market:
Source: Credit-Market Swoon Sends Somber Message to Property Investors – Bloomberg Business
Apartment building prices are rising; renovation costs are rising, and rent growth may be slowing. For example, rents in Echo Park and Silver Lake are rising to the point that many of the YUPs (young creative professionals) may longer be able afford the rents. Other markets may start to experience affordability ceilings. One way to offer more affordable rents is by moving the boundaries of the neighborhood to adjacent areas where apartment building prices are lower. Gentrification is fanning out from West Adams to Los Felix/Silver Lake and from West Hollywood to Highland Park and adjacent areas.. Gentrification depends on the growth of higher paying jobs that are now occurring in tech and media and the service firms that support these industries. It may be time to start scaling back rent growth projections for the coming years.