Category: Commercial News

Hot Springs Bypass Extension Project Ahead of Schedule

Kelley Commercial Partners has two development opportunities that should be positively impacted by the bypass.

The Hot Springs Bypass Extension project resulted after a study by the Arkansas Highway Commission determined that improving or expanding Highway 7 through downtown Hot Springs was not an option. Currently, scenic Highway 7 travels directly through Hot Springs National Park, which makes up 5,550 acres and has 8 historic bathhouses, hiking trails, campgrounds, a visitors’ center, and much more. This alternative bypass would reduce traffic congestion through the downtown area and cut travel time between Hot Springs Village and the city of Hot Springs by more than half.

Funded by Connecting Arkansas Program and a Garland County Bond Issue

This $75 million project is funded in part by the Connecting Arkansas Program and a Garland County bond issue which was approved by voters in 2016. The 5.82 miles path connects the intersection of Highways 5 and 7 on the north end, to exit 6 on Highway 70 East on the south end. Overpasses will be located at Covenant Trail Rd., Mill Creek Rd., Denise Ln., and Quarry Mountain Rd. The north end of the extension will tie into a two-lane roundabout large enough to accommodate a tractor trailer. The roundabout project, scheduled to be completed in late 2023, will also widen 4.17 miles of Park Ave.

Roundabout at Hwys 5 & 7

Roundabout at Hwys 5 & 7

Bypass Officially Designated a Scenic Highway

The bypass meanders through the beautiful Ouachita Mountains and has been officially designated a scenic highway in 2021 by Act 675 from the Arkansas Legislature. It will facilitate access to retail and services in the city of Hot Springs for residents of Hot Springs Village, Jessieville, Fountain Lake, and surrounding areas, all while leaving the tourists and pedestrians in the historic downtown with a better and safer experience with less traffic congestion. Currently, Highway 128 provides a quick route to retail centers and other services in Saline County. Officials believe that this bypass project might help keep that spending, and the  tax dollars and jobs that come with it, in Garland County. Originally scheduled for completion by August 2022, the project is currently ahead of schedule and could open for the summer season of 2022.

Development Opportunities in Hot Springs

Kelley Commercial Partners has a unique redevelopment opportunity available just northeast of the roundabout. A ±2.24 acres lot with two buildings is offered for sale. The property has 411 feet of frontage on Highway 5/Park Ave. and is ideally suited for a convenience store or similar development. An additional ±9.16 acres of level land with 340 feet frontage are for sale on Highway 7 in Hot Springs Village across from Walmart Supercentre. For more information about these listings, visit our properties page.

Predictions about commercial real estate in Little Rock circa 2050

In this month’s issue of the Arkansas Times, Hank Kelley shared his thoughts about what the commercial real estate industry will look like in 2050. 

Hank Kelley, CEO

Hank Kelley, CEO

Connectivity

There is demand now — and will be in the future — for unique living and workspaces in multiple-story buildings so your space can be close to other residents and professionals, and to other recreational and educational uses. The way we “go to work” now will change over the next 30 years, and the need to have the same level of hard-wall separate office areas within a building will change. More emphasis will be placed on a building’s connectivity for virtual connections than exists today. Even today, mobile professionals regularly chart their destinations based on the connection to credible Wi-Fi. In 30 years, the need for high-quality connections will be a constant and core requirement.

The exterior of buildings will hopefully be a source of energy generation through advances in solar panel technology, but not at the expense of views within the spaces. More filtering will improve indoor air quality. Rooftop decks and balconies with sunscreen canopies will be the norm as people continue to want to be outdoors but become even more concerned about sun exposure.

Mixed-Use

I believe we will continue to see an evolution of larger office buildings to include a mixture in their uses. The cost of converting their use, though, will have to be feasible before developers will invest in the remodeling needed for conversion. The conversion of office buildings to residential and or hospitality (hotel) requires extensive plumbing and mechanical alterations, and those changes will only happen when adequate demand for those uses justifies the conversion cost. In the short run, we will see workspaces within the buildings compressed to more flexible work environments and, in some cases, with even more open floor spaces for cubicle and tabletop workspaces. Landlords will become more flexible on tenant expansion and contraction needs to retain their tenants and use the surplus space they have to attract growing businesses.

The office buildings and existing residential condo buildings in Little Rock’s Central Business District represent the highest density of population per mile in our city and region, and companies will continue to be attracted by the excellent accessibility to both I-30 and I-40. People who live in midrise and high-rise buildings in the Central Business District enjoy walkable amenities now — the Central Arkansas Library, the Robinson Center, the Arkansas Museum of Fine Arts — and we believe the demand for walkable amenities will grow over time.

“’Hoteling’ of office space and rotation of in-office and out-of-office workdays will become more of a norm.”

As regards trends toward remote working, we don’t believe the majority of companies will choose a completely remote workforce because of the challenges in maintaining the culture needed to compete. “Hoteling” of office space and rotation of in-office and out-of-office workdays will become more of a norm. We continue to believe there is value in the separation of workspace and living space. The networking component of “going to work” is now and will continue to be a valuable need for workers and companies.

Energy Efficiency

We will see great advances in products and technology to conserve and generate energy, water and land at both the individual user level, but also at the utility provider level. We are hopeful those advances will reduce operating costs and help preserve our natural resources. The office building industry has been active in conservation efforts through the LEED certification process. Maintaining buildings to operate at peak efficiency will become a requirement to own and operate a building, and utility providers will charge non-compliant building owners penalties for excessive consumption.

We expect that fewer people will own their own cars, meaning we will see less of a need for parking spaces.

Finally, inflation will increase interest rates on the debt and the cost of services to maintain existing buildings. Some building owners are not prepared for their debt and operating expenses to increase, as they have been trying to maintain current rent levels with tenants. This means less income is available to pay debt and reinvest in building upgrades needed to maintain an efficient and attractive building. The squeeze of increasing costs will challenge some building owners and cause a change in ownership if those owners don’t have adequate reserves. Tenants will seek out buildings with owners who have the financial resources and desire to reinvest in their properties.

Hank Kelley is CEO and Executive Broker at Kelley Commercial Partners, and has been working in brokerage and property management in Little Rock for 36 years.

Opportunity Zones: The Basics

What are opportunity zones?

Opportunity zones were created by congress as part of the Tax Cuts and Jobs Act of 2017 to spur economic growth in economically distressed communities. In April of 2018, Gov. Asa Hutchinson proposed 85 tracts around the state be designated as official Opportunity Zones in Arkansas. By December of that year, the US Department of the Treasury confirmed this proposal and all 85 tracts were designated as Qualified Opportunity Zones (QOZs). There are more than 8,700 designated zones nationwide that provide tax incentives for private investment in low-income communities. Opportunity Zone properties around the state vary greatly. They include urban/downtown, industrial, suburban, and rural areas—but each QOZ shares the same need of a spur in economic growth and job creation. Click here to view an interactive map of opportunity zones in Arkansas.

How do they work?

Investors who wish to take advantage of this program have 180 days to reinvest any prior eligible capital gains into a Qualified Opportunity Fund (QOF) and by doing so, they receive several tax incentives on those gains. The QOF is created to invest in an opportunity zone property with at least 90 percent of its assets dedicated to the QOZ. By reinvesting all or a portion of their gains into a QOF, the investor’s capital gains tax may be deferred until the sale of the QOZ investment or until December 31, 2026, whichever comes first. If the QOZ is held for five years, the investor will benefit from a 10% exclusion of the deferred gain; holding it for seven years will increase the exclusion to 15%. Investors who hold the QOZ for at least 10 years will eliminate paying a capital gains tax on appreciation of the QOZ property.

Who benefits?

Investors benefit from the preferential tax treatment while communities benefit from property improvements, job creation, and new businesses. Small businesses operating in the opportunity zone may also benefit with an equity investment from a QOF. There are requirements that must be met to qualify as an Opportunity Zone Business (QOZB), which are outlined in detail in the New Proposed Regulations.

The Opportunity Zones program is a unique and effective economic development tool and an important part of making our communities and neighborhoods stronger, safer, and more economically healthy. As Opportunity Zones grow and prosper, the communities around them reap the benefits, which in turn, benefits everyone.

Learn more:

IRS: Opportunity Zones

Arkansas Economic Opportunity Zones

The information provided here in is not to be construed or relied upon as legal or tax advice.

 

Landlord representation strategically positions property in the market

Landlord representation is just one aspect of the full range of brokerage services provided by our agents at Kelley Commercial Partners. Landlords, property owners, and investors in the know utilize our services to gain a better understanding of the market and, armed with the expertise and knowledge our agents provide, optimize the return on their investments. “We help property owners make informed decisions by strategically positioning their property in the market to achieve the best results,” said Daryl Peeples, president and partner at KCP.

Daryl Peeples, President, Principal Broker, Partner

“We help property owners make informed decisions by strategically positioning their property in the market to achieve the best results,” said Daryl Peeples, president and partner at KCP.

The first step in our process is evaluating your property and understanding your unique goals. After a tour of the property, agents will perform a thorough market analysis, make recommendations for any improvements or repairs, discuss competitive lease rates, current occupancy rates, and identify all possible tenants. This knowledge builds the foundation of our next step: an effective marketing plan.

Marketing your property through Kelley Commercial Partners includes high-quality photography, prominent signage, a property brochure, and exposure on our website and the nation’s leading commercial real estate search engines including Costar and Crexi. For retail property owners, we have a direct connection to a large network of retail partners across the country through our exclusive membership in ChainLinks Retail Advisors. Additional digital marketing includes regularly scheduled email campaigns sent to targeted lists of prospects as well as social media posts to our growing number of followers. Throughout the marketing process, agents keep you informed with open lines of communication and they are available at any time to address questions or concerns.

With a marketing plan in place, the real work for you and your property begins. Agents begin prospecting the most viable leads, conduct showings, screen prospects, negotiate rates, draft lease agreements, and perform all due diligence involved in the leasing process.

Even for the experienced landlord, leasing a property can be a time-consuming process and finding the ideal tenant can be a challenge. With our agents on your side, you can rest assured that we are committed to our fiduciary responsibility to you and we will work to serve your best interests.

Kelley Commercial: Creativity, repurposing rules CRE market in 2021

As seen in The Daily Record

March 15 – 21, 2021

by Dwain Hebda

 

Of all the industries shaped by the events of last year, the impact of COVID-19 on commercial real estate is arguably the most profound. Beyond just impacting a tenant’s ability to pay, 2020 represented a seismic shift in how companies think about leased space and the role of such spaces in the still-dawning era of mass work from home arrangements and the ubiquity of residential retail delivery.

As a result, commercial real estate companies find themselves with the daunting task of reimagining their inventory right along with tenant and public usage patterns, even as the battered economy begins to plod along toward recovery.

The Daily Record sat down with several partners of Kelley Commercial Partners in Little Rock to catch a glimpse of where the market currently stands and what successful commercial real estate (CRE) firms must do to ride the change current brought on by the pandemic.

Change is the only constant

In almost every conceivable way, CRE has transformed market thinking in ways large and small, from the size of space footprints to the way those spaces are configured.

“Heading into the pandemic, I don’t believe that I really saw a lot of people trying to downsize their footprint. Everything was pretty much going on as normal, depending on the type of business that they’re in,” said Cheryl White, senior property manager.

“What we’re seeing on renewables is that a lot of the tenants are either wanting to downsize because so many people are at home and wanting to remain at home,” said White. “Or (they are) trying to work with them while they transition to see what they’re going to let their employees do, whether they’re going to let them remain at home or if they’re going to try to bring them back into the office setting.”

White said CRE companies that demonstrate sensitivity to tenants’ needs as they bring their people back or look for a new space will be critical. This means being flexible on office modifications that promote social distancing or making other investments that speak to health issues within a building.

“We’ve really tried to assure our tenants that we’re doing what we can with our building to promote health and safety,” she said. “From our cleaning and janitorial to having hand sanitizers in the building, we want to make it to where they feel safe enough to come to the office. We ask that they wear their mask and going through all of that protocol as well.”

Even so, most CRE firms are still in a reactive posture when it comes to such measures, given the large amount of uncertainty that still surrounds COVID-19. This puts pressure on management companies and building owners alike to remain light on their feet to adapt and adopt, quickly.

“As it relates to the near future, I’m not sure anybody can really guess or estimate what’s going to happen because we don’t know what’s going to happen with policy making or how the government’s going to address a lot of tenants’ needs,” said Nick Kelley, executive vice president. “People who have been getting [stimulus] help from the government, may no longer get it. It’s hard to know what’s going to happen in a lot of the spaces that we manage.”

“I do see encouraging outlooks, as it relates to commercial real estate. There’s been an increase in activity with the announcement of the vaccines. But the truth is, the immediate future is going to be hard to know because we don’t know what’s going to happen with the pandemic.”

Challenges related, but not identical

Specific needs within the CRE market, while all stemming from the same challenge of COVID-19, continue to vary widely. Not all segments come under duress at the same time or to the same degree, demanding something more than one-size-fits-all solutions.

“The three segments of the market that we deal with are all different: retail, office and industrial,” said J. Daryl Peeples, president and principal broker. “At the start of COVID, I spent a majority of my time dealing with retail as it was the retail tenants that couldn’t pay rent. So, we were working with our clients and with our landlords on a daily basis, negotiating rent forgiveness or rent deferral or a combination of those two things and trying to negotiate something on the back end of the lease to give them a little bit of relief.”

“The office spaces were dark, but office tenants, by and large, were paying rent. We weren’t dealing with the nonpayment of rent in our office environment,” continued the local real estate executive. “Today, the larger firms haven’t come back yet, but some of the smaller firms have. So, you’ve got the needs of that segment of the office market and then the segment that hasn’t come back to work.”

Peeples said the industrial market, by contrast, is one of great opportunity, particularly as it pertains to distribution and other flex-type spaces. It’s an example of one segment’s loss is another one’s gain.

“National companies, in general, are trying to focus on distribution, rather than having a retail presence,” he said. “It’s delivery to the homes and trying to improve their distribution of their products. I think they’ll be looking for more flex-type space to provide that product directly to their customers, rather than through a retail environment and that’s a very active market that we want to participate in.”

To that end, Central Arkansas has a distinct advantage with amenities such as the Port of Little Rock and other large footprints that have successfully lured the likes of Amazon.

“Little Rock’s been on a consistent growth pattern for 25-plus years,” Kelley said. “We get back to that rate with a slight uptick because of some of the industries that have started to look at Little Rock as a great opportunity thanks to our shipping ability, our intermodal transport. The Little Rock Port provides a service that’s second to none in the country and people are starting to catch wind of it and taking notice of it.”

“As the community adopts these new people moving in, these new companies and new employees, I think there will be an even greater push for Little Rock to continue to grow in that sector, which will benefit all of us.”

Adapt, adapt, adapt

Capitol Center 12th Floor Executive Suites

Kelley Commercial Partners is converting the 12th floor of Simmons Tower to executive suites which offer professional, affordable spaces with flexible terms. The remodel should be completed by April 1, 2021.

All the partners interviewed agreed that some of the changes that have occurred as a result of COVID-19 are likely to be the norm rather than the exception going forward. The CRE companies that thrive in this new environment are those that can nimbly adapt to fundamentally new ground rules, be it in lease terms, office design or repurposing spaces for alternate uses.

“We have managed to increase and put some new tenants in and it’s all been because the landlord was willing to meet the needs of the tenant and give them the flexibility that made them comfortable to move in,” said Maggie Hogan, chief financial officer. “When people get back open, we’re going to see combinations where maybe not everyone has a private office because they don’t work everyday from the office. Or, people will still want to have an office, but maybe those offices are shared offices throughout the month.”

“I think the trend toward having higher density [in offices] is going to be less, even when COVID’s over. People are going to be a lot more aware, should another pandemic come around, of what we have to do to make sure that we’re prepared. I think people are going to be much more aware that it’s a possibility of having to make changes and being able to adapt quickly to changing situations.”

Peeples said repurposing of spaces will be of paramount importance moving forward. For instance, Kelley Commercial has transitioned several floors of Little Rock office space into “flex space,” what company leaders describe as an “office Airbnb” where drop in and short-term clients can utilize office amenities.

Similar repurposing is in demand. In a retail sector pummeled by online shopping and home delivery, yesterday’s retail store or bank branch is increasingly finding new life as something entirely different.

“The market tells you what’s going to work and what’s not going to work,” said Peeples. “Medical’s an excellent example. Health care entities are very active and are looking for 2,000- to 4,000-square-feet and landlords very quickly have to say, ‘Okay, what’s it going to take to accommodate that tenant?’ It might take a significant amount of money to refurbish a property for that type of use, but landlords are quick to adjust to the market.”

4261 Stockton Dr, NLR

Stockton Medical Plaza at 4261 Stockton Drive in North Little Rock offers a great location and space ideal for health care providers.

“From my perspective, anything that’s B-retail is eligible to be converted to service office use, medical use, et cetera,” said Hank Kelley, Jr. CEO and executive broker. “This is a fantastic opportunity for the hospitals, the medical practices and the clinics that need retail-like locations to go grab some of those locations at a fraction of what they would spend to go build a building.”

“Look at all the bank branches that are around. They’re being repurposed. Why are they being repurposed? Because, they’re at some of the best locations that exist in the market. Most of them have drive thrus. In the restaurant world, if you have a vacant restaurant building that has a drive thru already built into it, somebody’s looking into that. I don’t care what part of town you’re in, somebody’s looking to do a drive thru business.”

More questions than answers

The pandemic situation still poses far more unknowns than concrete trends, the partners said, both for the company and for present and future tenants. From economic recovery to health aspects and availability of vaccines to as-yet unimagined government and regulatory changes, the CRE market is fluid at best.

“Today, you’re saying, ‘Well, what’s going to happen with the office market?’ I think that’s yet to be determined and I think the challenge will be in the next few years, as we deal with lease renewals on these offices,” Peeples said. “What is that going to look like now that these larger firms have had a year of working remotely? How’s that working for them? Is the savings of rent worth continuing to work in that environment?”

“We don’t know the answer to that yet. I think people are still in a wait and see mode before they make any decisions on where they’re going to lease space. We’re hopeful that in the second half of this year, the leasing activity will pick up.”

Hank Kelley said uncertainty in the market can also work in the company’s favor when talking to prospective clients trying to decide between building a new headquarters and leasing existing space.

“The availability of capital is more important now than it’s ever been,” he said. “On one hand, if I go to the bank and borrow 50% of the cost of the project, I have banks lining up to make that loan to me because there’s no risk to it.”

“But most people want to borrow 75% loan-to-value and the banks and the lenders are very risk-averse right now. Even though they don’t have a lot of loan losses, they can see where the potential for loan losses lies on the horizon and they’re being very cautious about what they’re lending.”

And even if a project can access capital, Hank Kelley said, clients are finding money isn’t going as far given higher construction costs such as materials and labor, only some of which is pandemic–related. Therein, he said, is CRE’s ace in the hole.

“The advantage we have as managers and owners of existing buildings is that the cost of our space is maybe 50 percent of what the cost of a new building is now,” he said. “We deliver extraordinary value to the users of those buildings, as compared to if they decide to move and go build something themselves. The last resort of any client that I’ve got is to come out of the ground with a new building on a piece of ground right now, unless it’s build-to-suit where no other building can be adapted to the client’s needs. We’re developing several of those right now and we’re glad to have that as part of our business.”

“But even then, any client that comes to me and says, ‘I’m thinking about relocating,’ I make them go through buildings that are existing to see if a building can be upgraded or remodeled because the end solution is going to cost them a fraction of what it would cost them to build from the ground up. So, there is hope for these buildings that are may be dormant right now. When the market comes back, existing spaces will have a real advantage.”