JLL Capital Markets announced today that Kobalt Investment Company LLC, a Dallas-based commercial real estate investment firm, has acquired a controlling interest in the Rio Norte Shopping Center, located in the high-growth border town of Laredo, Texas.

Kobalt partnered with Dallas’ Stonefield Investment Advisors LLC and San Antonio’s Espada Real Estate to acquire the 222,291-square-foot Class A retail center. JLL represented the seller in the transaction.

Located directly off Interstate 35, the center is in the heart of Laredo’s retail core that includes one of the nation’s top Walmart Supercenters and the Mall del Norte, a 1.2 million-square-foot super-regional mall. Anchored by the top-performing Ross Dress for Less in Texas, Rio Norte Shopping Center is also home to Michael’s, Petco, Dollar Tree, Shoe Carnival, Five Below, dd’s discounts, Spec’s and more.

JLL’s Retail Capital Markets Investment Sales and Advisory team was led by Senior Managing Director Adam Howells and Associate Matthew Barge.

After years of turbulence, the future of the office sector is now clearer than it has been for some time. Investors who once adopted a wait-and-see approach are gradually coming to terms with the new realities of valuations and office utilization, according to the June U.S. office market report from CommercialEdge. 

Most metrics that track office utilization have plateaued in the last year. Kastle’s closely tracked Back to Work Barometer has not seen any significant recent increases in the top 10 surveyed markets. Remote and hybrid work have become the standard for many firms, and this trend appears increasingly permanent. Further compounding problems for office owners is that The Fed now expects to cut the benchmark interest rate just once this year. With many owners looking to extend or renegotiate loans, rates remaining elevated for longer than expected spells trouble.  

The anticipated wave of distress has still not materialized, with many factors causing pain in the office sector to slowly reveal themselves rather than hit all at once. Lease terms that can stretch up to 10 years mean that some tenants are still locked into pre-pandemic agreements and have yet to make an official decision on downsizing. Additionally, the process of negotiating extensions and modifications can take months.  

According to Trepp, 6.9% of office CMBS loans were delinquent in May, up from 4% in May 2023. Our office real estate outlook predicts that distress will continue to become more noticeable through at least the end of next year.  

The lack of comparable sales might have also contributed to slower sales activity. In 2021 and 2022, there were about 4,000 office transactions each year. Last year, sales fell by half to just over 2,000.  

As of May this year, there have been 600 sales, an increasing number of which are being sold at discounts. In 2023, over 20% of office buildings sold for less than their previous purchase price. In 2024, this figure has risen to nearly 30%. 

One silver lining for owners of existing office buildings is that the new office supply pipeline — competition for tenants in a weak market — will soon dry up, according to office real estate outlooks. Around 80 million square feet are underway currently, a figure that is much lower than in pre-pandemic years and one that will shrink further as projects deliver.

To date, CommercialEdge has recorded only 6.2 million square feet of new office construction in 2024. 

The national average full-service equivalent listing rate was $37.72 per square foot in April, an increase of six cents from the previous month, but down 1.7% year-over-year, according to our latest U.S. office market report. 

The rates for A and A+ office spaces have decreased by 4.3% from last year, currently standing at $44.91 per square foot. Class B office rates have inched up by 0.5% to $30.52 per square foot, and Class C spaces have seen an increase of 1.2% to $23.65 year-over-year in May.  

Offices in Central Business Districts have experienced the most substantial decrease in rents, falling by 6.9% year-over-year to $47.64 per square foot. Meanwhile, urban offices saw a year-over-year uptick of 1.8% to $44.89 per square foot, whereas suburban office spaces decreased by 1% year-over-year to $30.62 per square foot. 

The national office vacancy rate was 17.8%, an increase of 80 basis points year-over-year. The U.S. office vacancy rates have increased sharply in tech markets since the turmoil that upended the industry at the end of 2022. Some of the highest rates were recorded in San Francisco (25.2%, up 510 basis points year-over-year), Seattle (23%, up 350 bps) and the Bay Area (20%, up 230 bps). 

Evelyn Jozsa is a creative writer covering commercial real estate trends and insights in the U.S. for CommercialEdge. She has been covering the CRE industry since 2017. Reach her via email.

 JLL Capital Markets announced today that it has closed on the sale of 11000 Equity Drive, a 63,693-square-foot, Class-A office building in West Houston, Texas.

JLL represented the seller in the transaction. Satterfield & Pontikes Construction, the original developer of the property, purchased the asset with plans to occupy the entire facility.

Completed in 2006 and renovated in 2019, 11000 Equity Drive is a state-of-the-art, three-story building with efficient floorplates and modern design.

The property is situated within the 150-acre Westway Park, which is located just off the Sam Houston Parkway in West Houston. This location provides tenants accessibility to all of Greater Houston’s employment hubs and easy access to some of Houston’s most prestigious residential communities, including the Memorial Villages and Tanglewood. Additionally, 11000 Equity Dr. is close to an abundance of retail, dining and entertainment options as well as a handful of business class hotels.

The JLL Capital Markets Investment Sales and Advisory team was led by Senior Director Rick Goings and Senior Managing Director Jeff Hollinden.

Austin Regional Clinic (ARC) has embarked on a transformative project to replace a prefabricated metal building at its Ben White Boulevard location with a two-story, state-of-the-art medical office building. The Central Texas healthcare provider hired Lawrence Group Architects to perform a feasibility study and design for the new building.

Lawrence Group began the project by performing a detailed feasibility study of existing buildings on the site and assessing the area for programmatic and infrastructural conditions. The study informed ARC administrators to opt for a new building, bypassing a costly adaptive reuse option.

The 63,000-square-foot project will mark ARC’s debut of an Ambulatory Surgery Center which will occupy half of the clinic’s first level. The remainder of the building’s space will feature a comprehensive suite of specialty care services such as dermatology, podiatry, cardiology, musculoskeletal, gastrointestinal and more.

Currently progressing through the City of Austin’s permitting approval process, construction on the medical office building is expected to begin in July 2024.

The patient-centered design incorporates locally sourced materials, such as the use of limestone veneer with dark metal panels to reflect ARC’s community-focused values, plus wood panels throughout the interior that provide a welcoming ambiance for patients and staff alike.

The project is designed to achieve an Austin Energy Green Building (AEGB) 3 Stars rating through the use of sustainable materials, energy efficient systems, and natural daylighting.

The retail sector continues to surprise, with savvy entrepreneurs opening experience-based concepts that continue to draw crowds.

Just consider the performance of this sector in Nebraska’s largest city. Omaha’s retail sector remains a strong performer, with many retailers new to the market now targeting the city and its suburbs.

Sam Rolfe, associate broker with The Lerner Company, said that demand from tenants for retail space remains high throughout the market.

“Vacancies in good retail spaces are few and far between,” Rolfe said. “It’s not easy to find good second-generation space in major shopping centers, grocery-anchored centers or centers in high-traffic, high-accessibility areas. Those spots go quickly.”

Rolfe pointed to the restaurant slice of the retail sector. Restaurant tenants are increasingly looking for second-generation space in Omaha but are often struggling to find it. This space is attractive because of how costly it can be for restaurant users to build a space from scratch.

“You’ll read doomsday headlines about the real estate market today,” Rolfe said. “But we are quite a bit sheltered from that in Omaha. We are still a community where people want to get up and go shopping. They want to see people from the neighborhood and get out of their homes. You still get that small-town feel in Omaha even though we are a respectably large market.”

Rolfe said that he saw the strength of Omaha’s retail sector first-hand when he recently attended ICSC Las Vegas. At the vendor showcase, he continually encountered retailers who wanted to set up shop in Omaha.

That is a difference from years past in which many national retailers didn’t include Omaha in their expansion plans.

National retailers that once focused mostly on the coasts are now targeting Omaha and the Midwest, Rolfe said. They like the stability and resilience of cities such as Omaha.

This doesn’t mean that there isn’t some slowdown in the Omaha retail sector. Investment sales, thanks to higher interest rates, remain down in this sector, Rolfe said.

“For investment sales to start to happen in larger numbers again, people are going to have to come to terms with how the world is now and not how it was a year-and-a-half or two years ago,” Rolfe said. “It is a waiting game now. People are waiting to see what the Fed does and how people react to that. But regardless of what the Fed does, there has to be a coming to terms with how things are. People have to adjust their strategies based on that.”

And what are customers looking for when it comes to new retail concepts in Omaha? Rolfe said that experiential real estate remains popular. That includes concepts such as indoor miniature golf, pickleball courts, indoor golf simulators and high-end arcades and bowling alleys targeted toward adults.

Quick-service restaurant concepts are also popular, Rolfe said. He pointed to Buffalo Wild Wings, which is now offering a grab-and-go concept in Omaha.

“It seems that retailers in the food area are increasingly moving in one of two directions,” Rolfe said. “They are either pumping out food and having people come through and grab it or they are offering additional elements of entertainment and experience to keep them in the restaurant. The middle ground is losing steam.”

Rolfe said that he expects Omaha’s retail sector to remain strong in the coming years. He pointed to a new development planned along North 120^th Street between Maple and Fort streets. Named Tranquility Commons, this project will bring new retailers, restaurants and hotels to this section of Omaha, though construction is not expected to begin on this phase of the development until sometime in 2027.

Jason Fisher, chief executive officer with Cushman & Wakefield/The Lund Company in Omaha, said that as in all markets, certain commercial sectors are performing better than others in Omaha.

He pointed to the retail sector. Outside of large, indoor shopping malls, the retail sector here is thriving, Fisher said, with a vacancy rate as low as he can remember.

“Years ago, the storyline was that we were witnessing the death of brick-and-mortar retail,” Fisher said. “It has actually proven to be the opposite.”

Experiential retail has helped the sector, Fisher said, with companies that offer experiences such as Topgolf doing big business in the market. As Fisher said, you can’t provide an experience like bowling, knocking golf balls in the air or competing in pickleball online.

“Experiential retail is popping up all over Omaha,” Fisher said. “And that is a good thing for the retail sector.”

Fisher pointed, too, at the area’s industrial sector. The vacancy rate for this sector remains low, even though tenant demand for warehouse and manufacturing space has slowed slightly. The industrial market here has also delivered a significant amount of square footage in recent years, which is also slowing demand for new space.

As Fisher said, for the first time in a long time, the supply of industrial space in Omaha is outpacing the demand for it.

But even with that trend, the industrial vacancy rate is low. Fisher said in the first quarter of this year, Omaha’s industrial vacancy rate was still under 3%. For the last two-and-a-half years, this vacancy rate was at or below 4%, he said.

Fisher said that he expects industrial starts to continue to slow here until the demand from tenants rises again.

“It’s a natural slowdown while our development community waits for the absorption to catch up,” Fisher said. “In 2021 and 2022, demand was significantly outpacing supply. This feels like a natural correction. There are broader reasons for some of the slowdown in tenant demand, too. The distribution world is a little slower year-over-year. People are delaying and pausing some projects that were potentially in the works. It’s like everyone is taking a breath.”

The office market here is seeing more challenges, of course, as it is across the country, Fisher said. But the sector, as others say, is still showing resiliency despite these challenges.

Fisher said that he is seeing robust demand from tenants interested in renting out higher-quality space. The flight-to-quality movement that has seized the office sector is playing out in Omaha, too, Fisher said.

“When CEOs decided to bring back employees into the office whether on a hybrid system or full-time, there was an emphasis placed on making the office commute-worthy,” he said. “A lot of businesses made moves. During the last year, that flight-to-quality created a lower vacancy rate in our office sector. Our office market right now is being propped up by Class-A space the flight to quality.”

Vacancy rates in Omaha’s multifamily sector have ticked up slightly, Fisher said. Much of that is because of the significant amount of new supply that has been delivered in Omaha. Much of the new apartment products have been delivered on the fringes of the Omaha market, mainly in the west suburban areas. Fisher said that Omaha saw a record number of apartment deliveries in 2023.

This new product has increased vacancy rates slightly and slowed the growth of monthly apartment rents, Fisher said.

“It’s going to take a while to get all those new deliveries fully absorbed,” Fisher said. “There are also some new-construction projects on their heels. We expect there to be a little softness in absorption in the multifamily sector, especially in the suburban areas, for the foreseeable future here.”

Like others, Fisher is waiting, too, for investment sales to pick up in Omaha’s commercial real estate market. That hasn’t happened yet, even with the Fed stabilizing its benchmark interest rate.

Fisher said that there is a lot of capital siting on the sidelines today. Investors will deploy those dollars eventually, he said.

“It feels like once the convergence of seller expectations and significant capital needed to be placed happens, we might see transaction activity break loose,” Fisher said. “We are fortunate to be in the Midwest. The slowdown in transactions isn’t as severe in the Midwest as it is in other parts of the country. But we have definitely seen investment volume fall. Transaction activity is sluggish.”

Fisher did say that there is demand in the Omaha market for sale-leaseback transactions in the office sector. During the last 12 months, these transaction types have helped prop up Omaha’s investment-sales numbers, Fisher said.

Fisher said that the Lund Company operates in six states. The company recently received 37 offers on a multifamily property in Texas. Fisher said that is a sign that there is capital ready to be placed once investors again understand what a normal market in today’s environment looks like.

“Properties that are on the market are getting a lot of eyes on them,” Fisher said.

JLL Capital Markets arranged acquisition financing for Monticello Apartments, a newly renovated, 1970-vintage, 116-unit, multifamily community in Fort Worth, Texas.

JLL worked on behalf of the borrower, Price Realty, to secure the five-year, fixed-rate financing through Freddie Mac. The loan will be serviced by Jones Lang LaSalle Multifamily, LLC, a Freddie Mac Optigo℠ lender.

Monticello Apartments is located at 154 N. Bailey Ave. just off of State Highway 199 in the Intown Fort Worth / University submarket. The property has outstanding access to several major thoroughfares, including Interstates 30 and 35, and is close to some of Fort Worth’s largest employers, including Lockheed Martin and Fort Worth ISD. Additionally, Monticello Apartments is surrounded by a collection of lifestyle amenities, including Montgomery Plaza, The River District, Fort Worth Convention Center, Sundance Square and The Dickies Arena.

The property consists of 22 two-story apartment buildings with 56 one-bedroom and 60 two-bedroom units, averaging 952 square feet each. Units feature walk-in closets, patios or balconies, washer/dyers, stainless steel appliances and air conditioning. Monticello Apartments also offers on-site amenities, including a swimming pool, laundry facility, covered parking and on-site management and maintenance.

The JLL Capital Markets Debt Advisory team representing the borrower was led by Senior Managing Director John Brownlee, Director Bo Beidleman, Associate Blake Morrison and Analyst Aaron Craig.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment sales and advisory, debt advisory, equity advisory or a recapitalization. The firm has more than 3,000 Capital Markets specialists worldwide with offices in nearly 50 countries.