CIRE Magazine May Jun 2010
Upcoming SlideShare
Loading in...5
×
 

CIRE Magazine May Jun 2010

on

  • 4,148 views

In the latest CIRE (Commercial Investment Real Estate) magazine, coach and trainer Rod Santomassimo, CCIM offers commercial brokers a valuable resource: a plan to take charge of their careers. On ...

In the latest CIRE (Commercial Investment Real Estate) magazine, coach and trainer Rod Santomassimo, CCIM offers commercial brokers a valuable resource: a plan to take charge of their careers. On pages 36-38, Rod offers insights to CMS and business management systems, marketing strategies and targeting prospects, investing in human capital (in a efficient, effective way) and leveraging your company's debt and equity. A point Rod took from my experiences and beliefs was:

"A sales plan will consist of a targeted list, an approach to reach that list, and follow-up steps. Do you know who your ideal clients are and how you can secure a list of these ideal clients? Once you have your list, how are you going to contact them? Are you going to launch a mail/phone campaign, a phone/email campaign, or use a more personal approach?

Ask Jim Tucker, CCIM, of NetWorksCRE in Richmond, Va., and he will tell you commercial real estate is a "belly-to-belly" business. He is correct. Jim has a specific sales plan for reaching his targeted audience. Jim is not an average broker. He is the CEO of NetWorksCRE."

Rod Santomassimo, CCIM is president and founder of The Massimo Group, a professional coaching firm focused on commercial real estate, whom I have hired in the past to help me in my own professional goals. Rod can be reached at rod@massimo-group.com or through www.massimo-group.com. CIRE is the magazine of the CCIM Institute, published every other month.

Statistics

Views

Total Views
4,148
Views on SlideShare
4,103
Embed Views
45

Actions

Likes
1
Downloads
38
Comments
0

1 Embed 45

http://jimtuckerccim.wordpress.com 45

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

CIRE Magazine May Jun 2010 CIRE Magazine May Jun 2010 Document Transcript

  • COMMERCIAL INVESTMENT May | June | 2010 Retail Rematch Investors emerge Investors emerge v m g from their corners in search of single-tenant opportunities. Who’s the Boss? You Are! Foreign Investors Eye U.S. Bargains Healthcare Reform for Properties www.ciremagazine.com The Magazine of the Institute
  • Introducing The New CCIM P R E P A R I N G T O N E G O T I AT E Online Self-Directed Interactive Course In this economic environment, nothing is as important to your immediate and long-term success in the commercial real estate industry as your ability to negotiate favorable deals and make impactful presentations. The new Preparing To Negotiate online, self-directed, interactive course shows you how to incorporate CCIM’s renowned three-step, interest-based Negotiations Model into your business — without taking valuable time away from it. Developed by commercial real estate professionals for commercial real estate professionals, this course will teach you the tools and strategies these successful practitioners are already using to effectively close their deals. After completing Preparing To Negotiate, you will be able to: Apply the CCIM interest-based Negotiations Model to your preparation for negotiations. Interpret CCIM interest analysis chart elements, and consider creative solutions for identified interests and issues. Assess risks and action plans for potential conflicts. Don’t compromise on tomorrow: get the skills you need now to negotiate your way through the coming year! Get complete details and register now at CCIM.com/preparing-negotiate CCIM Institute Equipping the world’s best minds in commercial real estate
  • COMMERCIAL INVESTMENT May.June.2010 Vol. XXIX No. 3 6 26 Lenders say ¬ they will open their wallets this year. COVER STORY In the 22 Property FEATURES Retail Ring Prescriptions Investors move off A little preventative medicine may protect asset health. the ropes to fight by Rich Rosfelder for quality deals. 32 International Influx COLUMNS by Beth Mattson-Teig Low prices attract foreign 2 President’s Desk real estate investors. 12 CCIM Q&A by Philip G. Skinner and 14 Financing Focus Abe J. Schear 16 Investment Analysis 18 Legal Briefs 36 Step It Up! 20 Technology Solutions Cover: Brand X Pictures/Photolibrary; Above: I Love Images/Corbis Take your career in a new direction. D E PA RT M E N T S by Rod N. Santomassimo, CCIM 4 In This Issue 39 The Case for 6 Market Trends 42 Regional Outlook Conversion 44 International Beat Office makeovers add value. 45 Buyers Guide by Reed Miller and Ken Boyle 46 Deal Makers 48 CCIM Connections May | June | 2010 1
  • @ PRESIDENT’ S DESK Change the Way You Work Only m @ CCIM MEMBERS: Mailed along with this magazine is the instruction book for the next gen- eration of CCIM member benefits: the CCIMREDEX User Guide. Learn- ing to use this commercial property data exchange is the best investment you can make in your future. It will change the way you work. “Te real value of CCIMREDEX is the third-party applications,” says CCIMREDEX Director Todd A. Kuhlmann, CCIM. “You enter your What’s online with property data once, and you can promote it, publish it, and analyze it in Commercial Investment Real Estate many different programs.” Data entered into CCIMREDEX is pushed www.ciremagazine.com magazine? out to national commercial property listing services such as Catylist, • Cap Rate Crazy — Is direct capitalization CommercialSource.com, CoStar, Property Line, RealUp, pushing values even lower? Appraiser Brian D. Frank, CCIM, GAA, discusses the TotalCommercial.com, and Proxio, an international real underlying weakness of using cap rates to estate platform where it is translated into 12 languages. determine property value. CCIMREDEX also gives CCIM members access to • Drop the Puck! — Native Minnesotan several marketing and analysis programs. Turn to page and CEO of Chief Real Estate Co. Michael 20 to learn more about these services. And to understand Houge, CCIM, SIOR, compares the the thought process behind CCIMREDEX, read Kuhl- commercial real estate market to a hockey game. Buyers and sellers want to get back mann’s interview on page 12. on the ice but lenders are frozen in fear. CCIMREDEX was developed for CCIM members by CCIM mem- • Retail Overstock — What do other CCIMs bers. It is a service of the institute’s wholly-owned subsidiary, CCIM around the country say about their local TECH, which also operates STDBonline, CCIM’s most popular member retail markets? Read the comments that benefit. Nearly 11 years ago, the institute committed time and resources didn’t make it into the cover story. to developing STDB, one of the premier online real estate resources • CCIM Connections Continued — Find out with more than 25 databases, including demographics, aerials, business how CCIMs leverage STDBonline and other information, and mapping tools. Te institute is following the same member benefits for profitable deal-making. path with CCIMREDEX, which is integrated with STDB, providing Online. All the Time. CCIM members with the industry’s most complete technology resource Only @ ciremagazine.com. — at no additional cost. You owe it to your business to take advantage of this tremendous CCIM member benefit. COMMERCIAL INVESTMENT May | June | 2010 Richard E. Juge, CCIM President, CCIM Institute Retail rjuge@ccim.com Rematch Investors emerge from their corners in search of single-tenant opportunities. Who’s the Boss? You Are! Foreign Only Investors Eye U.S. Bargains Go to www.ccimredex.com to view Todd Kuhlmann’s video on Healthcare the benefits of CCIMREDEX and to sign up for a CCIMREDEX Reform for Properties @ Webinar. www.ciremagazine.com T  he Magazine of the  Institute  May | June | 2010 Commercial Investment Real Estate
  • For the first time ever, CCIM CCIM members are Institute and CCIM TECH will invited to: share a large booth in the Reserve a Table Leasing Mall with plenty of Register for a comfortable and functional Demonstration space just for CCIM members. Participate in a Live Deal-Making Session As a CCIM member, you can: Reserve tables for meetings and Mark your calendar to doing deals also attend these CCIM Attend demonstrations showcasing learning opportunities: powerful technology tools (including the new CCIMREDEX) Retail Decisions: Location, Timing and Run STDBonline reports for ICSC Demographics Sunday, May 23, 9:45-10:45 am RECon Market and Financial Feasibility – Finding More Participate in a deal-making session Tenants & Attaining CCIM Designation Attend a cocktail reception (co-hosted by CCIM and ICSC) So come by Booth # C201 H ST (H Street right by 19th Sunday, May 23, 1:30pm to 4:30pm Avenue and the Food Court) and see how CCIM and CCIM Visit: web.CCIM.com/icsc to learn more. TECH have created an environment at ICSC RECon for you to make connections with the industry’s finest and access Be sure to stop by the CCIM TECH all the resources you need to close a deal that day! Booth # S3813 in the Trade Expo CCIM Institute Equipping the world’s best minds in commercial real estate
  • COMMERCIAL INVESTMENT Commercial Investment The CCIM Institute, an Real Estate, the member affi liate of the National IN THIS publication of the CCIM Association of Realtors, confers ISSUE Institute, reports on market the Certified Commercial trends and analysis, current Investment Member developments in the field, and designation to commercial real successful business strategies. estate professionals who have Reporter Beth Mattson-Teig found extensive training and industry CIRE Staff strong demand for single-tenant net-lease retail properties as she Interim Executive Vice President experience and complete a spoke to CCIMs for this issue’s cover story. Turn to p.26 to read why rigorous study program. Susan J. Groeneveld, CCIM investors are getting back into ¬ Senior Director of Communications Executive Officers “Retail is down, but the game. How can you pro- Jennifer Norbut President tect your asset’s health from jnorbut@ccim.com by no means Richard E. Juge, CCIM an epidemic of declining fun- Executive Editor Metairie, Louisiana out.” p.26 Sara Drummond damentals? Associate Editor President-Elect Rich Rosfelder searches for sdrummond@ccim.com Frank N. Simpson, CCIM the cure on p.22. Associate Editor Gainesville, Georgia Rich Rosfelder First Vice President rrosfelder@ccim.com Leil Koch, CCIM Lahaina, Hawaii FEATURED WRITERS Contributing Editors Linda Bryson, LEED-AP Treasurer Sara Harris Craig Blorstad, CCIM Dennis LaMantia Bloomington, Indiana Co-authors of “International Influx” on p.32, Jonathan Littrell Shawn Mayberry Philip G. Skinner and Abe J. Schear are part- Editorial Review Board Jennifer Tullius ners in the law firm Arnall Golden Gregory in John W. Waldeck Jr. Adrian A. Arriaga, CCIM Atlanta with extensive commercial real estate Donald G. Arsenault, CCIM Design Consultant Roger B. Broderick, CCIM experience, including work- David B. Eaton, CCIM ing with foreign investors Jeff Engelstad, CCIM Skinner with U.S. holdings. Tey co- Commercial Investment Real Estate Paul G.W. Fetscher, CCIM chair AGG’s cross-border practice group. (ISSN 1524-3249) is published Tony M. Guglielmo, CCIM bimonthly by the CCIM Institute of Thomas E. Hankins, CCIM If you’re ¬ the National Association of Realtors, James L. Helsel, CCIM “The wave of foreign ready to 430 N. Michigan Avenue, J. Howard King, CCIM investment should jump-start Schear Chicago, IL 60611-4092. Robert Knight, CCIM Periodicals postage paid at Chicago, your brokerage career, read George C. Larsen, CCIM benefit depressed U.S. CCIM Rod Santomassimo’s Ill., and additional mailing offices. Kevin G. Lenze, CCIM Ride-along mail enclosed. real estate markets” p.32 no-nonsense advice on p.36 Postmaster: Send address changes Mark L. Levine, CCIM Charles A. Mack, CCIM for elevating your brand and to Commercial Investment Real Estate, 430 N. Michigan Avenue, Len Magnani, CCIM your business. Rod heads up the Massimo Group, a professional Michael T. McLean, CCIM Chicago, IL 60611-4092. coaching firm exclusively focused on commercial real estate James J. Piro, CCIM Subscriptions: brokerage. $45 for nonmembers in U.S.; David L. Schank, CCIM Reed Miller and Ken Boyle are managing part- $55 for nonmembers in Canada and Carol Rockhold Shoemaker, ners of Hanover Real Estate Partners, which repo- Mexico. Call (800) 532-8633. For CCIM reprints, call (312) 321-4460. Robert M. Stone, CCIM sitions undervalued institutional-grade assets. On The opinions expressed in signed p.39, they explore remaking single-tenant office articles and materials appearing in Reader Services: All dues-paying Santomassimo properties for multitenant use. Commercial Investment Real Estate, members of the CCIM Institute receive including specific references to Commercial Investment Real Estate products and services, are those of the magazine six times a year as a mem- authors and not necessarily those of ber benefit. Subscribe, purchase back Commercial Investment Real Estate, issues, or order customized article the CCIM Institute, or the National reprints: www.ciremagazine.com or Association of Realtors. podcast © 2010 by the CCIM Institute. (800) 532-8633 x4507. Make address All rights reserved. changes: magazine@ccim.com or Editorial address: 430 N. Michigan (800) 532-8633 x4507. Request reprint permissions: rrosfelder@ccim. Only @ http://podcast.ccim.com Avenue, Chicago, IL 60611-4092; (312) 321-4460; magazine@ccim. com. Submit articles and editorial Marcus & Millichap’s retail specialist Bernard Haddigan updates this issue’s com; www.ciremagazine.com. ideas: sdrummond@ccim.com. look at the retail investment market. For advertising information, contact: Kathleen Thomas at (202) 721-1497 or kthomas@ccim.com.  May | June | 2010 Commercial Investment Real Estate
  • Prudential Commercial Real Estate They’re the three most important words in commercial real estate right now. Because in a challenging market, having a powerful and recognized name can open a lot of doors. See why, now more than ever, your most valuable asset is a name people trust. Visit prudentialrealestate.com/commercial or call 866-224-8895 to find Commercial out how to become part of the Prudential Commercial Real Estate network. Real Estate Acquisition & Disposition | Relocation | Lease Administration | Capital Services | Property Development Market Research | Energy & Sustainability | Location & Site Selection © 2010 Prudential Financial, Inc. and its related entities. An independently owned and operated broker member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. Used under license.
  • MARKE T TRENDS l Is Lending Back? Lenders are ready to loosen the purse strings, according to Jones Lang LaSalle’s 1Q10 survey of 60 of the industry’s top loan originators. In a survey of life companies, CMBS originators, pri- H. Armstrong Roberts/Getty Images vate equity, commercial banks, and government agencies, 43 percent responded that their loan production would range from $1 billion to $3 billion this year. Te number of lenders expecting to lend more than $4 billion jumped from 9.3 percent in 2009 to 15.2 percent in 2010. Expected loan-to-value ratios averaged between 50 percent and 70 percent and estimated debt coverage ratios ranged from a high of 2.25 on hotels from life companies to 1.15 on multifamily from private equity. Teir preferred asset? Twenty-seven percent voted for multifamily, followed by 22 percent for retail, 21 percent office, 15 percent industrial, 11 percent hotels, and 4 percent other. Worth Quoting Briefly Noted “In 2010, the United States should see sig- nificant foreign capital coming from Asia Hospitality — The number of major hotel sales fell 83 (especially China and Korea), German percent in 2009 from the market’s peak in 2007, the largest decline in 20 years, according to an HVS survey. investment funds, and the Middle East. … The majority of 2009 assets sold between $10 million and Industry organizations have been work- $50 million. ing to assure that U.S. tax policy does not Industrial — Texas, Ohio, Illinois, California, and Penn- discourage foreign investment.” sylvania top the list of U.S. states that saw the most new logistics and warehouse distribution facilities built in the — Deloitte 2010 Real Estate Outlook Deloitte 2010 Deloitte Outloo past two years, says Site Selection Online. Multifamily — Local buyers will drive sales activity among smaller private investment deals because lend- ers continue to favor investors with experience manag- ing apartments in their home markets, says Marcus & Millichap. Office — In 16 of 18 office markets surveyed, all participants said they offered a free rent concession, according to the 1Q10 Korpacz Real Estate Investor Survey. Average amount of free rent topped out at 7.8 months in Atlanta and Manhattan and 7.6 in Chicago. The lowest amount was 3.7 months in Los Angeles. Retail — Retail development will reach just William Whitehurst/Photolibrary 70 million sf this year, the lowest amount on record, according to Marcus & Millichap. On top of 2009’s 107 million sf of completions, the restricted supply may help fundamentals to start recovering in 2011.  May | June | 2010
  • The Most Respected Curriculum CCIM’s high-powered designation curriculum now has evolved to a whole new location: online, anywhere you choose. The Best Instructors Online CI 101, 102, 103 and 104 are now open for registration. And with sessions The Most Convenient Online scheduled twice a week for five consecutive weeks, you’ll have plenty of time to Classroom reflect on the instruction and to ask questions. All For An Affordable Cost You’ll also interact, build relationships and network with classmates and expert instructors who are successful practitioners within the commercial real estate industry. Save the time and expense of travel and register for an online course today. Go to CCIM.com/content/online-courses now. Upcoming Online Course Schedule CI 101 Session A: June 9 - July 14 Wed + Mon 12-2 pm CST exam open July 14 - 21 Session B: July 29 - Aug 30 Thurs + Mon 4-6 pm CST exam open Aug 30 - Sept 7 Session C: Aug 18 - Sept 22 Wed + Mon 12-2 pm CST exam open Sept 22 - 29 Session D: Oct 21 - Nov 23 Thur + Tue 4-6 pm CST exam open Nov 23 - Dec 1 Session E: Nov 16- Dec 21 Tue + Thur at 6-8 pm CST exam open Dec 21 - 29 CI 102 Session A: Aug 4 - Sept 8 Wed + Mon 4-6 pm CST exam open Sept 8 - 15 CI 103 Session A: July 8 - Aug 10 Thur + Tue 4-6 pm CST exam open Aug 10 - 17 CCIM Institute Session B: Aug 4 - Sept 8 Wed + Mon 2-4 pm CST exam open Sept 8 - 15 Equipping the world’s best minds CI 104 Session A: June 23 - July 28 Wed + Mon 4-6 pm CST exam open July 28 - Aug 4 in commercial real estate Session B: Aug 5 - Sept 7 Thurs + Tue 4-6 pm CST exam open Sept 7 - 14
  • MARKE T TREND S Import-Export Percentages Since 2008 Port % Imports % Exports Los Angeles/ 70.1 Long Beach, Calif. 29.9 New York/ New Jersey 35.7 64.3 Export Advantage Te decline in global trade hit the nation’s industrial markets hard, but Seattle/ 59.3 not equally hard, according to a Colliers International report. Dur- Tacoma, Wash. 40.7 ing the global slowdown of the past two years, vacancy rates in port city industrial markets climbed faster than in the overall industrial 51.6 market. Tis points up the clear correlation between trade and indus- Savannah, Ga. 48.4 trial demand. For every 1 percent change in port TEUs, the standard 52.1 measure of shipping trade, industrial demand changes 0.33 percent. So Charleston, S.C. 47.9 the recent 15 percent decrease in TEUs resulted in a 5 percent decline in port city industrial occupancy. But not all port cities experienced Houston 42.1 the decline equally. In fact, those focusing on exports fared better 57.9 than those concentrating on imports, as exports to foreign countries 0 10 20 30 40 50 60 70 80 remained fairly stable throughout the recession. Source: Colliers International à Funds Smart Reads Target Negotiauctions pretty much describes the commercial real estate deal-making process — continually rearranging the deal until it Andrew Unangst/Getty Images Hotel Buys works for all parties. It’s the deal-making mechanism for the future, says author and Harvard professor Guhan Subramanian, who adds: From Magna “Sophisticated deal makers … engage in a carefully thought- Hospitality s Hospitality’s $75 through sequencing strategy: Get all the pieces lined up to the Una million to Blackstone point where, when you go in the room, it’s basically a done deal.” Equity’s $10.9 billion, some 38 equity groups are devoting dollars to picking up hotel assets Cap Rates Stabilize this year. To access Geographically, 16 markets reported a decline in capitalization rates, while 12 reported the complete list of increases, according to the 1Q10 Korpacz Real Estate Investor Survey. Going forward, inves- fund names and target tors in 19 markets expect cap rates to hold steady for the next six months, up from two property types go to markets in 4Q09. www.hotelnewsnow. PROPERTY TYPE 1Q10 AVERAGE CAP RATE (%) CHANGE FROM 4Q09 (BP) com. Apartment 7.85 –18 CBD office 8.35 +11 Strip center 8.49 –4 Warehouse 8.73 –7 Medical office 8.78 –13 Net lease 8.86 –8 Aggregate 8.42 –7 Commercial Investment Real Estate
  • Let others react to market conditions with a bunker mentality. Right now is your perfect opportunity to become stronger, faster and more effective with the new, evolved CCIM curriculum. The advanced learning methods and applications will put you light years ahead with knowledge that can be put to work the day you finish the course. Register now by visiting CCIM.com/CourseSchedule or calling our Solution Center at (800) 621.7027, ext. 3100. CI Intro CI 101 CI 103 To learn more about all Pittsburgh PA May 17-18 Birmingham AL May 17-21 Houston TX Jun 7-11 the career launching San Diego CA May 17-18 Orlando FL Jun 14-18 Pleasanton CA Jun 14-18 benefits that come from Lansing MI May 19-20 Baltimore MD Jun 21-25 Albany NY Jun 21, 22, 24-26 being plugged into the Mississauga ON May 19-20 Chicago IL Jul 12-16 Glendale CA Jun 25, 26, 28-30 world’s most powerful Washington DC May 25-26 Addison TX Jul 19-23 Austin TX Jul 19-23 network, go to CCIM.com Las Vegas NV May 27-28 Las Vegas NV Jul 26-30 Fishkill NY Jun 3-4 CI 104 Indianapolis IN Jun 7-8 CI 102 Chicago IL May 17-21 Mission Viejo CA Jun 9-10 Austin TX May 17-21 Scottsdale AZ Jun 7-11 Addison TX Jun 17-18 Minneapolis MN Jun 7, 8, 10-12 Stamford CT Jun 10, 11, 14-16 Gulfport MS Jun 24-25 Santa Ana CA Jun 7-11 Addison TX Jun 14-18 Pembroke Pines FL Jun 24-25 Boston MA Jun 7-11 Louisville KY Jun 14, 15, 17-19 Los Angeles CA Jul 8-9 Denver CO Jun 10, 11, 14-16 Madison WI Jun 14, 15, 17-19 San Francisco CA Jul 14-15 Charleston SC Jun 14-18 Washington DC Jun 14-18 Memphis TN Jul 22-23 Atlanta GA Jun 21-25 Atlanta GA Jul 19-23 Port St. Lucie FL Jul 29-30 Nashville TN Jun 21-25 San Antonio TX Jul 21-25 CCIM Institute Tampa FL Jul 19-23 San Francisco CA Jul 26-30 Schedule subject to change without Equipping the world’s notice. For the most up-to-date schedule, best minds in visit CCIM.com/CourseSchedule. commercial real estate
  • MARKE T TREND S Beyond the Beltway: Where the Government Works Top General Services Administration leasing markets outside of Washington, D.C., Maryland, and Virginia State 2009 leased office sf Change from 2008 (sf) Mauricio Simonetti/Getty Images California 10,266,025 146,887 Texas 9,351,863 650,863 Florida 6,542,955 566,499 New York 6,405,228 204,598 Georgia 5,843,917 52,236 Source: Jones Lang LaSalle Trending Upward Dallas-Fort Worth is poised to become a world capital Apartment transactions in the well-populated greater than $500,000 future due to available land for development and $116,420 pro-business attitudes, says Joel Kotkin, author of The Next Hundred Million: Ã$88,859 America in 2050. The $101,661 growing U.S. population — estimated to reach 400 million by 2050 — may be just the engine that keeps the U.S. economy chugging along. Kotkin sees the $73,233 demographic diversity of Weighted New York and other major average gateway cities spreading price throughout the country. per unit Vacancy Forecast (%) Property 2009 2010 2011 Office 15.7 17.3 17.4 1Q10 Industrial 13.2 14.6 14.5 1Q09 Retail 12.0 12.7 12.7 1Q08 1Q07 Multifamily 7.4 7.0 6.1 Source: PPR, A CoStar company Source: National Association of Realtors/CBRE Econometric Advisors  May | June | 2010 Commercial Investment Real Estate
  • THE NEW CCIM ‘SAVE YOUR SEAT’ PLAN IS THE PERFECT WAY TO: ■ Manage your cash flow: lock in your class with an initial deposit of just $100 then wait to pay the balance until you actually take the class ■ Plan ahead without paying ahead: add your next class without worrying about paying for the entire cost now ■ Be flexible: if your plans change you have the option of applying your deposit to any upcoming class or to next year’s dues Don’t miss this chance to interact and build relationships with classmates and expert instructors who are successful practitioners within the commercial real estate industry. Sign up for your next class and Save Your Seat today with a simple deposit of only $100. To find out more, go to web.CCIM.com/SaveaSeat or call toll-free now: (800) 621-7027, ext. 3100. CCIM Institute Equipping the world’s best minds in commercial real estate
  • CCIM Q&A REDEX Rolls Out o by Jennifer Norbut On March 31, CCIM TECH launched CCIMREDEX, an online prop- erty listing and marketing database that is poised to revolutionize Todd Kuhlmann, CCIM the way CCIM designees and candidates do business. Commercial Investment Real Estate asked Todd Kuhlmann, CCIM, vice presi- creating their own personal property data- base, and select individual CCIMREDEX dent of Dallas-based CCIM TECH and director of CCIMREDEX, to users to collaborate on a property. share his insights on this new member benefit and the opportuni- ties it provides exclusively for CCIM members. CIRE: How does CCIM’s other top technology tool, STDBonline.com, CIRE: What will CCIM members gain CIRE: What advantages does integrate with CCIMREDEX? by using CCIMREDEX? CCIMREDEX offer over other local, Kuhlmann: STDB provides CCIMs with Kuhlmann: The top three benefits of regional, and national commercial tools to analyze markets, determine the CCIMREDEX will be different for each user, information exchanges? demand for real estate and products in those depending on whether they are owners, buy- Kuhlmann: Most CIEs allow brokers, and markets, and track their growth and trends. ers, or listing brokers. CCIMREDEX is ideal in some cases, the general public, to search CCIMREDEX users can maintain specific for owners and managers who want to track for commercial properties within a spe- their properties and buyers who are com- cific area. However, CCIMREDEX was not paring multiple properties for acquisition. designed to replace or compete with CIEs. Listing brokers greatly increase exposure It was designed to be a members-only data for their listings when they submit them to exchange for CCIM designees and candi- CCIMREDEX because they are pushed out dates that integrates with third-party appli- to numerous listing services, commercial cations such as CIEs and marketing and information exchanges, and syndication analysis tools. sites. Most importantly, CCIMREDEX com- property information, perform detailed anal- pletely streamlines and maximizes the ysis and marketing for a property, and dis- listing process for CCIM members. For tribute the property information to multiple REDEX RESOURCES example, many brokers spend a great deal listing services. In other words, STDB helps CCIMREDEX LEARNING CENTER of time entering property information into our members identify demand for the market (www.ccimredexlearningcenter.com) provides: numerous listing services and CIE systems and CCIMREDEX complements this with • Online Flash tutorials to increase their exposure opportunities. the supply that is available in the market. • Training videos But with CCIMREDEX, CCIM members • On-demand instructional Webinars enter their property listings one time and CIRE: Tell us more about • Online Quick-Start Information Guide the listings are automatically pushed to an CCIMREDEX’s property marketing • Schedule for on-site classroom training in array of integrated listing services and CIEs features. select cities nationwide. Our users also can choose not to Kuhlmann: The marketing tools allow publish their records and listings, effectively users to create brochures, fliers, and Flash  May | June | 2010 Commercial Investment Real Estate
  • “CCIMREDEX is like the iPhone—it Tese may include more e-mail marketing tools such as CCIM’s MailBridge tech- integrates property information with nology and listing services such as local third-party applications.” CIEs. Web presentations for their listings and with multiple third-party applications. As Jennifer Norbut is senior director of com- allow users to distribute property informa- we receive feedback from our members on munications for CCIM Institute. If you have a tion using postal and e-mail services. Te how they use CCIMREDEX, more third- story worth sharing in CCIM Q&A, send it to analysis tools also allow users to complete a party application tools will be integrated. jnorbut@ccim.com. financial or lease analysis of a property and obtain an environmental summary report. (Read Technology Solutions on page 20 for more details on CCIMREDEX tools.) CIRE: What’s the best way for CCIM members to learn how to use Weathering the Storm. CCIMREDEX? Kuhlmann: The more members know about how to use this exciting product, the Resilient. Reliable. Ready. more they will see the tremendous value it provides in their business. To assist CCIMs, we have established the CCIMREDEX Learning Center (www.ccimredexlearn- ingcenter.com), which includes detailed tutorials for each CCIMREDEX function. (See sidebar.) A series of instructional on- demand Webinars and Flash video tutorials also are available for members in the online Learning Center. CCIM Technologies also has a full-time support staff available by ...reliable through tough economic times, Grandbridge remains strong. Our unique market position and phone — (469) 232-2615 — and e-mail wide variety of business platforms, mixed with our broad investor base and stable, secure ownership, enables (support@ccimredex.com) to assist mem- Grandbridge to structure and execute the right loan for our clients—for each and every transaction. bers who have questions. Grandbridge — your source of commercial and multifamily real estate funding in today’s $18,147,500 CIRE: You’ve said that CCIMREDEX Lewisville, TX technology is evolving all the time. turbulent financial environment. 270-Unit Multifamily What types of features might CCIMs Re nance • Fannie Mae DUS® Lending Agency expect to see in the future? • Freddie Mac Program Plus® Lending Kuhlmann: CCIMREDEX was designed to $5,900,000 integrate and evolve. A good analogy is to • Freddie Mac Targeted Louisville, KY think of CCIMREDEX like the iPhone — it Affordable Housing Lending 244,750 Sq.Ft. Industrial was built to integrate property information • MAP- and LEAN-approved FHA Lending New Loan Origination Insurance Company • Insurance Company Lending • Proprietary Lending • Bank Lending INTEGRATED CIE S AND LISTING SERVICES Property listings entered into CCIM- grand opportunities REDEX can be distributed to Catylist, Atlanta 404.602.1389 • Birmingham 205.978.1840 • Charleston 843.886.4391 • Charlotte 704.379.6900 • Chicago 312.322.1220 • Columbus 614.358.4100 • Dallas 214.346.0200 CommercialSource.com, CoStar, Ft. Lauderdale 954.389.7822 • Greenville 864.288.5396 • Houston 713.993.1300 • Indianapolis 317.237.5370 • Jacksonville 904.652.2206 • Kansas City 913.677.2001 • Louisville 502.589.1233 Proxio, TotalCommercial.com, Madison 608.827.7747 • Milwaukee 262.785.8440 Minneapolis 612.341.7880 • Mobile 251.473.1831 • Naples 239.947.5077 • Nashville 615.377.8989 • Norcross 678.906.4070 Norfolk 757.625.8181 • Orlando 407.772.0750 • Pittsburgh 412.391.3366 • Raleigh 919.871.6300 • Tampa 813.281.8767 • Washington, D.C./Baltimore 703.677.3900 • www.gbrecap.com PropertyLine, and RealUp. Loans are subject to credit approval. ciremagazine.com May | June | 2010 
  • FINANCING FOCUS Equity Injection Tax credit programs boost funding for qualified properties. by John W. Waldeck Jr. t The dominos continue to fall in the commercial real estate mar- ket, leaving lenders exceptionally conservative in making loans for new projects. Loan-to-value ratios in the 50 percent range are not uncommon. In fact, some would say that outright rejections are the norm. But not all news is bad. Opportunities exist in segments that can take advantage of exist- ing and evolving federal and state tax credit programs, such as historic tax credits and new markets tax credits. Qualifying projects have the advantage of significant equity creation, which bridges the difficult loan-to-equity gap in today’s market. Tere is a catch, however: Not all projects will qualify. For federal and state historic tax credits, as the name implies, an existing, qual- ifying property’s restoration must conform to standards issued by the U.S. Department of the Interior. For new markets tax credits, proj- ects must be located in a low-income census tract (many urban centers qualify). Renewable and green energy credit programs also may generate credits at the state and federal level. Steve Allen/Getty Images Historic Tax Credits Developers may use federal historic tax credits to raise equity equal to either 10 per- cent or 20 percent of the project’s rehabilita-  May | June | 2010 Commercial Investment Real Estate
  • additional layers of financing from commu- ¶ nity development sources. Getting a hotel The number of renewable energy and green tax deal done in the current environment is vir- tually impossible, yet with the twin engines credits continues to grow. of HTC/NMTC bolstering the financing it became a reality. tion expenditures. Land and purchase costs in a number of respects. As contrasted with do not count, and rehab expenditures must HTC, NMTC are available to the taxpayer Other Credit-Based exceed the developer’s basis in the project. over a seven-year period in an amount equal Financing Te majority of projects use the 20 percent to 39 percent of the qualified investment (5 The number of renewable energy and credit, which is available for certified historic percent per year for three years; 6 percent per green tax credits continues to grow. structures or qualifying structures that are year for the next four years). Developers on the cutting edge of afford- in certified historic districts. Additionally, Also, NMTC are allocated annually on a able housing tax credits have successfully such funding requests require a three-part competitive basis, requiring the developer used solar panel technology to qualify for application, which is approved by the state to approach a successful allocatee with the tax credits or outright grants to reduce historic preservation office and the National project request. Park Service. Te federal credit is automatic. Tese allocatees may If developers follow the proper guidelines include banks, com- and application, the 20 percent credit may munity develop- Where to Go Next be taken in the year in which the project is ment corporations, • www.nps.gov/history/hps/tps/tax/index.htm placed in service. State programs may be port and develop- • www.cdfifund.gov automatic or based on competition. ment authorities, • www.dsireusa.org HTC equity comes into the project in the and the National form of a capital contribution made by an Trust for Historic investor in the project, usually C corpora- Preservation. tions with taxable income — many still are Investment may be direct or through a lev- energy costs to tenants and pay for other- very active in the market. Tese investors eraged structure. Due to the structure’s com- wise cost-prohibitive installations, giving contribute at the rate of 75 cents to 95 cents plexity, fees and expenses can be significant; hope that commercial real estate projects for each dollar of credit passed through to the the project’s size needs to be large enough to could also be suitable candidates for such investor. Te investor remains in the project justify the costs incurred. installations. for the five-year tax-credit-recapture period, The beauty of NMTC in a real estate For commercial and industrial projects during which time there can be no sale or project is that these credits can be com- that generate jobs, the more-traditional disposition of the property. bined with HTC in an appropriate project enterprise zone tax abatements and jobs Numerous HTC projects would never (residential components are significantly creation tax credits ofen are available at the have been completed, let alone limited) to further boost the state or local levels. Te tax-burden reduc- realized, without this program. equity component to the point tion changes the pro formas of such projects For example, in Cleveland much Tudor that the equity gap is nearly for the better, increasing appraisal numbers of the nationally publicized East Fourth Street District (which Arms filled. A developer’s typical in a time when every dollar is critical. equity contribution would not Prospects are dim for near- or even includes the House of Blues in a Financing be sufficient. But with the push mid-term restoration of more customary ¶ former Woolworth building and given by the tax credit equity loan-to-value ratios. Tis means only those Iron Chef Michael Symon’s Lola pieces, the project will green- projects with significant equity to plug the Restaurant) was restored and light, notwithstanding a con- gap will be built. Because such development converted to an urban mixed- $3.3 million servative loan-to-value ratio. doldrums often translate into developer use retail and residential devel- in federal HTC A recent example is a Cleve- demise, it’s time to take a look at tax credit opment, employing a combina- $4.4 million land hotel financing that closed programs and qualifying development to tion of federal and state HTC. in state HTC in early fall 2009. Te project, generate some lifeblood in the commercial $4 million the conversion of the 1930s-era marketplace. New Markets NMTC Tudor Arms into a Doubletree Tax Credits Hotel, featured HTC, NMTC, a John W. Waldeck Jr. is a partner and prac- While new markets tax credits $8.9 million conventional construction loan tice head of the real estate section at Walter also may fill equity gaps, they mortgage at approximately a 50 percent & Haverfield LLP in Cleveland. Contact him at differ from historic tax credits Source: Cleveland.com loan-to-value ratio, and some jwaldeck@walterhave.com. ciremagazine.com May | June | 2010 
  • INVESTMENT ANALYSIS Physical Fitness Equity investors need a tougher due diligence workout. by Linda Bryson, LEED-AP c Commercial real estate investors conduct many types of due diligence, such as financial, legal, and physical. Regarding the latter, many investors assume that if they follow the current physical due diligence standard, ASTM guideline E2018-08, Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process, they will be adequately protected. What you and your clients should understand is that this standard represents the lowest common denominator of physical due diligence and is only appropriate for investors with a high risk approach, equity investors should elect to enhance the percentage of repre- sentative observations conducted by the field observers, since, in ASTM’s standard, the field observer does not survey 100 percent of a given repetitive sys- tem or component. ASTM’s minimum threshold is 10 percent of repeti- tive systems such as apartment units, common areas, or tolerance. Investors whose risk tolerance is lower retail spaces. Such than, for example, that of a commercial mortgage- observations should backed securities issuer, will want to ratchet the be carried out to the investigation up several notches. extent that the field observer can offer Inadequate Observation ofen takes a team a confident opin- At least 90 percent of all CMBS and balance- approach, much ion as to the general sheet lenders’ due diligence complies with in the same way condition of recur- E2018-08, but because the standard was buildings are designed. ring components. For designed as a baseline it is rarely adequate At a minimum, the an equity deal, this might for those taking an equity position. The team should include involve observing perhaps standard describes a “walk-through” sur- an architectural engi- 25 percent or more of spe- vey of a building’s readily observable and neer, a mechanical cific areas. easily accessible components and systems. It engineer, an elevator was never intended to be sufficient for par- consultant/technician if Record Research ties with a lower risk tolerance for incur- applicable, and a roof- Off-site research is another ring costs to remedy undisclosed physical ing technician or consultant. area not required by the deficiencies. ASTM’s standard specifically Depending on such factors ASTM standard, but it is ofen acknowledges these limitations. as the asset’s age, design, just as important as the walk-through An ASTM baseline survey typically is con- materials, and scope, the survey. Interviews with building ser- ducted by a field observer, who is described team also may include a vice firms about various systems, SAKIstyle/Getty Images as a “generalist” having knowledge about curtain wall consultant, including conveying, roofing, heating, various building systems. However, due a fire/life-safety code consultant, ventilation, and air conditioning, diligence conducted on behalf of equity and other technical specialists. fire suppression/sprinkler, build- investors — those in a first-loss position — In addition to insisting on a team ing security, building automation,  May | June | 2010 Commercial Investment Real Estate
  • cooling towers, water treatment, plumbing, buyers in this down market. Most bargain his own due diligence to renegotiate the pur- and electrical, provide significant informa- hunters correctly recognize that they are chase price. tion that would not be discovered during a purchasing properties below replacement cost However, depending on the exit strategy and walk-through. Tese firms also have access and as is under adverse time constraints. Teir length of the intended hold, most sellers will to service records indicating the frequency emphasis, many times, is simply to secure the expend minimal monies for conducting their of certain repairs and costs, chronic call- asset under contract. Due to the competitive- own due diligence, if they conduct any at all. back problems, pending repairs or replace- ness of the market in identifying such prop- Almost always, the scope of disclosure reports ments, proposals submitted to ownership erties, the Property Condition Report — the is reduced. For example, it usually is conducted but never executed, equipment obsolescence product of a Property Condition Assessment by a single field observer, and it is not unusual (both functional and economic), upgrades — cannot be used to renegotiate the purchase for sellers or their agents to forego interviewing necessary to comply with local codes or price as a result of discovering physical defi- on-site building maintenance personnel and revised applicable standards, and more. ciencies. Terefore, the discovery of physical off-site building service firms or to keep quiet Researchers also should conduct interviews deficiencies ofen is moot unless they will about known physical deficiencies. with local building and fire code enforce- materially impact tenancy. Te scope and intensity of due diligence ment officers and look into building depart- Property Condition Reports prepared on varies with the objectives of the entity retain- ment files for open building code violations behalf of sellers, also referred to as disclosure ing the due diligence services. It’s a business or mandated improvements to comply with reports, have become quite common over the decision. Due diligence exercised for one recent or pending code upgrades. past five years. Sellers use them to present party might not be sufficient for another. While generalists may be knowledgeable an asset to potential buyers with physical Make sure your clients know the difference. about certain systems due to their educa- deficiencies disclosed along with the ask- tional background or work experience, they ing price, which takes the deficiencies into Linda Bryson, LEED-AP, is a principal for IVI may have minimal, if any, knowledge about consideration. Tis technique ofen is used International and manager of its due diligence other building systems or components. Some to prevent a potential buyer from using a group. Contact her at linda.bryson@ivi-intl. investors say they will only bring in specialty deficiency discovered during the course of com. consultants if the generalist spots something significant or questionable. However, it is very probable that a generalist may not be able to recognize the existence of a signifi- cant physical deficiency in certain building systems because many are simply too com- plex. No architect or engineer is knowledge- able about all building codes or systems. Cleared What’s Sufficient? A paradox among balance sheet lenders today is the more conservative the under- writing and the higher the appraised value for Takeoff. Business today is all about speed to market. With the zoning, infrastructure of the collateral, the less physical due dili- and improvements already in place, we can help your ideas take flight by gence exercised regardless of the asset’s locating on one of our outlots or setting up shop in a former Walmart physical size. As an example, a lender who recently took a first mortgage position on a or Sam’s Club. 250,000-square-foot Midtown Manhattan Why choose anywhere else? Call today and let’s get down to business. office building was emphatic that the physi- cal due diligence budget not exceed $3,000, even though the asset had an appraised value of about $100 million. Absent inter- nal guidelines, it is common for lenders to require the same level — and spend the same amount — for physical due diligence on assets as varied as a 30,000-sf strip center and a 20-story hotel. walmartrealty.com | 479-204-2020 Not only are lenders conducting minimal due diligence, but so are many opportunistic ciremagazine.com May | June | 2010 
  • LEGAL BRIEFS Receiver’s Role Who plays this part in the distressed property drama? by Jennifer Tullius and Jonathan Littrell w Within the chaos of foreclosures and deeds in lieu, lenders are utilizing receivers to minimize losses, maximize property values, and reduce potential liability on properties in default. It is no great surprise that an ever-growing number of commercial real estate professionals are expanding their résumés to include receivership to capitalize on this trend. What is surprising, however, is the apparent lack of understanding of the actual role, benefits, and drawbacks of appointing a receiver over real property. Landing the Part erty that serves as collateral for a loan in Tat amount is then added to the borrower’s principal loan balance. Learning the Lines A receiver’s primary duty is to secure the property, prevent waste, and collect rents. In general, the receiver is required to follow the court’s order, which may include specific authority to manage the property, collect rents, and provide monthly accountings. In some instances, the court may grant the receiver authority to enter into leases and In most states, a real estate receiver is a default. Once appointed by the court, the position the property for sale. court-appointed individual who is given receiver completely displaces the borrower Once appointed, the receiver must take custodial responsibility over real prop- and becomes responsible for the tangible custody of the property, which may include and intangible assets changing locks, securing operating accounts, related to the property. and retrieving property-related documents Owing a fiduciary duty from the borrower. Depending on the situa- to the court and parties tion, obtaining control can be rather simple involved in the litiga- or very difficult. Te key for the receiver is to tion, the receiver makes act quickly so that the borrower cannot cause all decisions regarding harm to the property. management and opera- Afer securing the property, the receiver tions, including leasing, should promptly inspect it and prepare a improvements, and in report summarizing the property’s general some cases, positioning condition and itemizing personal property of the property for sale. the borrower. Te receiver also should send Receivers’ fees and a letter to the tenants notifying them of the fees for third-party pro- change in control, providing a new point fessionals hired by the of contact, and, ideally, arranging a time to receiver typically are paid meet with them individually to establish a out of available cash-flow relationship and discuss areas of concern. Image Source/Photolibrary from the property’s oper- Other items that generally require the ations. If the property is receiver’s immediate attention include the cash negative, the lender transfer of utility bills, placement of prop- ofen will advance funds erty insurance, hiring of a third-party man- to pay the receiver’s fees. agement company, maintaining or entering  May | June | 2010 Commercial Investment Real Estate
  • RECEIVERS BEWA R E The receiver’s primary duty is to safeguard the property’s assets, but he must not act beyond his authority or neglect his duties. For example, if the receiver has the power to sell the property, he or she should obtain court approval of the broker, the terms of the sale, and the buyer. Likewise, property improvements, especially those requiring large capital expenditures, require court approval. If a receiver intends to bring a lawsuit to protect, recover, or obtain possession of assets belonging to the receivership that are in the hands of another party, again he or she needs court approval. Failure to do so may result in the other party bringing a lawsuit against the receiver. Receivers also can be held liable if they fail to comply with the orders of the receivership court. Liability may not be limited to a civil lawsuit; it could also result in criminal action if the receiver’s conduct is found to be illegal by the court. Other potential concerns include failing to obtain adequate insurance to protect the receivership assets, taking possession of assets that are not the property of the receivership estate, or transferring receivership property to a party not entitled to receive the property or where the receivership court has not approved such transfer. When in doubt of what action should be taken, the receiver should always apply for instructions from the receivership court. —by Sara Harris, an attorney at Rutter Hobbs & Davidoff. Contact her at sharris@rutterhobbs.com. into new service contracts with vendors, and legal counsel and third-party management other issues concerning the property’s over- costs. However, because a receiver is typically Coming Next all operation and security. a professional asset manager with strategic Upon termination of the receivership partnerships with third-party vendors, the (generally as a result of a foreclosure, cure of the underlying default, or borrower’s bank- property is more likely to become cash posi- tive upon the appointment of the receiver, Issue ruptcy filing), the receiver will be required to which in turn may reduce the amount of the Midyear Market Update — file a final accounting and motion for order lender’s out-of-pocket expenses. Where do we go from here? discharging the receiver. Another potential drawback is lack of con- trol. Because receivers are agents of the court, Finding Financing — How Good Career Move? their interests may not always align with the to connect with today’s cash Both the borrower and the lender typically interests of the other parties. For example, if benefit from the appointment of a receiver. the receiver determines that it is in the best Industrial Outlook — Will More specifically, the borrower’s liability interest of all parties to sell the asset and the this sector recover first? will be reduced or in some cases elimi- court agrees, the receiver may be granted Technology Solutions — A receiver’s primary duty is to secure the Mobile apps for commercial real estate property, prevent waste, and collect rents. Read these articles and much nated, if the receiver is able to fully reha- authority to do so even over the borrower more in the July/August 2010 bilitate the property. Te lender will benefit or lender’s objection. However, maintaining issue of Commercial Investment from the protection of the asset and possi- open communication is a good way to ensure Real Estate, The Magazine of bly an increase in the asset’s value that will a lender’s goals remain aligned with, or at the the CCIM Institute. decrease deficiencies. very least considered by, the receiver. Although the benefits of appointing a Not a member of CCIM Institute? receiver generally outweigh the drawbacks, Jennifer Tullius and Jonathan Littrell are attor- Then subscribe now at www. receivership can be a costly endeavor. In neys with Raines Law Group in Beverly Hills, ciremagazine.com. addition to the receiver’s fees, there may be Calif. Contact them at jtullius@raineslawgroup. other professionals’ fees such as the receiver’s com and jlittrell@raineslawgroup.com. ciremagazine.com May | June | 2010 
  • TECHNOLOGY SOLUTIONS Afer gathering pertinent property infor- mation, users also can create PDF brochure covers with photos and company logos. In REDEX addition, CCIM designees will have full access to REI Wise’s other MarketEdge investment and lease analysis tools. For more information, visit www.reiwise.com. Extras Environmental Record Search When CCIM members visit sites they’re plan- r by Rich Rosfelder ning to list, they may notice that something is a little off. Perhaps there’s an unpleasant odor Roll out the red carpet: CCIMREDEX, CCIM Institute’s real estate or a radioactive glow. Whatever the case, they can research these natural and unnatural data exchange platform, has arrived. In addition to a host of listing mysteries through CCIMREDEX. “Anyone services, this newest member benefit also integrates several mar- who posts a listing can order a free environ- keting and analysis programs that offer discounted (and sometimes mental risk summary of the area,” says Eric free) services to designees and candidates. We’re shining the spot- Kieselbach of ERS. Tis report color codes light on the special features that make CCIMREDEX an even more potential areas of environmental contami- efficient and valuable business-building tool. nation on a quarter-mile radius street map. Red symbols denote locations that currently are contaminated; yellow symbols indicate REI Wise locations that have been listed by an agency “Over the last several years we have been but may not be contaminated; and green striving to make our online platform a symbols tag locations that have active envi- seamless solution for the financial analy- ronmental permits or have been contami- sis and marketing of investment and lease nated in the past. “If you run the report and opportunities,” says John D. Freyder, chief see only green symbols, it’s all clear and you executive officer of REI Wise. CCIMREDEX can proceed,” Kieselbach explains. “If you see users have seamless — and free — access to red and yellow symbols, you can purchase REI Wise’s Flash Web site template, invest- an Environmental Lender-Check report,” ment analysis tool, and customizable bro- which is delivered via e-mail and includes chure covers. Te Web site template uses a risk analysis. For more information, visit the information entered in CCIMRE- www.reccheck.com. DEX to create a custom Web presenta- tion that includes pages for a property MindMatrix summary, investment information, With its own brand of special effects, Mind- photos, and contact information. Matrix provides marketing automation The Analyze Now! widget uses sofware for commercial real estate listings. purchase price, annual income/ CCIMREDEX users have free access to the expenses, down payment, inter- program’s Web-to-print and Flash Web site est rate, and other information components. Based on listing information, from CCIMREDEX listings the former allows users to create high- and to calculate key financials low-resolution PDFs of fliers, postcards, and chart annual cash newsletters, and offering documents flow, cumulative wealth, that can be professionally printed or Photodisc/Photolibrary and equity vs. debt. converted to an e-book. Te latter lets users turn the aforementioned marketing materials into a dynamic Flash Web site.  May | June | 2010 Commercial Investment Real Estate
  • MindMatrix also offers e-mail campaign management services starting at $15 per How do you get the most out month. Afer creating html brochures or of CCIMREDEX? Read the newsletters, “you can see which properties a quick-start information person clicks on, allowing you to tailor your follow-up pitch based on their level of inter- guide mailed along with this issue of est,” says Harbinder Khera CEO of Mind- CIRE or visit http://ccimredex.epubxpress.com. Matrix. For more information, visit www. mindmatrix.net. ClientLook real-time collaboration,” Griffin adds. Cli- we will take care of all the printing and “Te real appeal of our service is that it’s entLook also offers desktop assistant and mailing for them,” says Joshua Carlsen of super simple,” says Michael Griffin, presi- e-mail reader applications. For more infor- ExpressCopy.com. “It’s truly a hands-free dent and CEO of ClientLook, an online mation, visit www.clientlook.com. marketing solution.” In addition to post- project collaboration and documentation card design and mailing, the company system geared toward commercial real ExpressCopy.com offers f liers, brochures, and campaign estate pros. With the push of a button, CCIMREDEX users who want to promote mailing services. For more information, CCIMREDEX listings are sent to the Cli- their listings via direct mail also have visit www.expresscopy.com. entLook portal, where all project updates, access to ExpressCopy.com, which offers a correspondence, and documents can be 20 percent discount on the fi rst order and Rich Rosfelder is associate editor of Commer- tracked and shared with colleagues and a 48-hour turnaround. “Tey can order cial Investment Real Estate. Send your tech clients. “It provides the opportunity for any of our products in just minutes, and ideas to rrosfelder@ccim.com. Identify commercial Looking for information property owners and on unlisted property? their current contact information! • PeopleFinder Unlimited - current addresses and phone numbers for property owners • Corporations - contact information for corporate of⇒cers and directors • Property - recorder and assessor information Manage your research costs with Merlin’s affordable and ⇑exible pricing options. Contact Merlin today for a FREE TRIAL! TM INFORMATION SERVICES Data solutions providing information about people, businesses & assets -%2,). ).&/2-!4)/. 3%26)#%3 s    s 777-%2,).$!4!#/- ciremagazine.com May | June | 2010 
  • Property PrescriptionsFollow these doctors’ orders to improve asset health. by Rich Rosfelder T oday, CCIM asset managers are no longer just asset managers; they’re asset-value physicians. For some, this means providing emergency, life-saving care: “As a court- appointed receiver, my role is ofen like a battlefield surgeon’s,” says Aaron Weiner, CCIM, CPM, LEED-AP, senior vice president of Weiner Property & Management Co. in Irvine, Calif. “Te first order of business is to staunch the bleeding and address the infec- tion.” Luckily, Weiner always wears a dark suit. Outside of the distressed-assets war zone, however, property owners and managers play the role of general practitioner. Tey check a property’s vital signs, recommend preventative mea- sures, and call in a specialist when necessary. If an asset looks weathered and needs a boost, they might even recommend cosmetic surgery. In all cases, whether the property is stable, on life support, or somewhere in between, the goal is to avert emergencies and increase immunity  May | June | 2010 Commercial Investment Real Estate
  • against plummeting values. ver. “Tere are ofen positive assumptions in internal rate of return “All savings translate into added or net present value projections that income will increase at a given value,” Weiner says, but in this epi- rate and expenses will not rise as fast as reality might prognosti- demic of declining fundamentals, cate,” he explains. “Tus, the interest rates are too optimistic, and reduced expenses may not be enough the appreciation projection is unreasonable.” Once adjusted, these to ward off value-eating afflictions projections can reveal a more realistic picture of a property’s value such as unexpected vacancies, deferred and its cash-flow potential. maintenance, and unrealistic pro for- mas. Owners and managers must monitor even the healthiest properties. But like every patient, every property requires a slightly differ- ent approach. CCIMs were asked to share procedures 2. Prescribe the Best Use “It is crucial that the asset always undergo what our firm calls the they’ve successfully used to preserve asset value. Te follow- functionality stress test,” says J.R. Chantengco, CCIM, president and ing strategies constitute a checklist for all property doctors faced managing director of Te Triwest Group in San Diego. “Tis unique with lagging fundamentals, looming loans, and an asset with the process, which can be applied during any stage of the real estate life will to live. cycle, validates whether an asset’s current use is actually the most relevant in today’s marketplace.” When a property fails this test, it may be time to reposition. 1. Examine the Financials If the foundation of any property preservation plan is to reduce For example, when Hanlin took over the 40,000-sf Madison Med- plex building in Madison, Ala., it was 90 percent occupied by medi- cal tenants. But within two years, four tenants lef to buy their own expenses without compromising value, a forensic analysis of an properties. Hanlin and his team tried to entice other medical users, asset’s financials may be the best place to start. “Te income ledger but the economy and the property’s distance from a hospital kept reveals if the property is being marketed at a competitive level, if them at bay. leases are being properly administered with respect to operating It was time to reposition. “We knew the property’s medical office expense billings, and whether delinquencies have been addressed,” features such as ample parking and canopies were attractive to non- Weiner says. “Te expense side of the ledger will reveal whether medical tenants,” Hanlin says. Tey capitalized on these features by the appropriate services are being rendered at the property at the renaming the property Madison Professional Center and targeting appropriate level.” a variety of office tenants. Within six months, a government con- Roy Hanlin, CCIM, CPM, of Coldwell Banker McLain Real Estate tractor leased 3,000 sf, and other non-medical users have expressed Digital Vision Photography/Veer; Maciej Frolow/Photolibrary in Huntsville, Ala., always looks for a lag between operating costs interest. and actual expenses when he reviews financials. “Te budget versus actual operating expenses should be reviewed at least quarterly,” he says. Typically tenant charges for operating expenses are set at the beginning of the year, based on budget projections. “If the actual costs are exceeding the budgeted projections, you can notify the tenant to 3. Target the Right Tenants For years, Rob Kost, CCIM, vice president of Sherman Associates increase the monthly payments,” Hanlin adds. in Minneapolis, struggled to fill the retail space in his company’s An asset may be sound in the short term but headed for trouble Midwest mixed-use properties. “These locations are certainly in the future. Avoid potential pitfalls by reviewing the assumptions not cookie-cutter arrangements for national firms,” he explains. built into the financials, which are ofen unrealistic, says Mark Lee Mom-and-pop retailers, on the other hand, ofen thrived in these Levine, CCIM, director of the Burns School at the University of Den- spaces, bolstering the properties’ occupancy and rents. Gradually, ciremagazine.com May | June | 2010 
  • “Assumptions built into projections are often unrealistic.” — Mark Lee Levine, CCIM, director of the Burns School at the University of Denver Kost began to focus almost exclusively recently oversaw the makeover of a med- on local tenants. “We are bending our ical office building in Anaheim, Calif., credit underwriting to get these folks in that had suffered from lax enforcement the door,” he says. “Our ownership has of signage guidelines and low tenant stan- made a conscious decision to take some dards. “Afer getting rid of the marginal risks with these ventures.” Kost currently practices and massage parlors, we retro- is working with a coffee shop, bakery, fitted the entry doors … with windows primary-care clinic, barber shop, and and fiberglass pediments and pilasters,” restaurant — “all home-grown start-up he says. “Tis simple change significantly companies.” improved the building’s professional Depending on the property, however, image.” Marketed as office condomini- targeting local tenants may be too risky. ums, the property is now occupied by a When Skip Duemeland, CCIM, chief variety of reputable medical and dental executive officer of Duemelands Com- practices. mercial in Bismarck, N.D., creates an asset-value business plan, the first things he asks are, “Can tenants pay the bills consistently, with a corpo- rate guarantee, and can they maintain a 20-year lease?” Mom-and- pop operations ofen can’t guarantee anything — especially in this 5. Detox Sustainable upgrades are hot right now — and for good reason. economy. Tey can help owners and tenants save money on utilities, they’re Te lack of financing in the current market creates an opportu- often eligible for tax credits, and they make properties more nity to target potential owner-occupiers in need of funding. Vance marketable. C. Southard, CCIM, of Te Moser Group in Indian Trail, N.C., and Te key concern when considering expensive modifications like his team utilize an “economic stimulus package,” offering up to 90 solar installations, highly efficient heating, ventilation, and air- percent financing for qualified buyers. “We serve as the bank to create conditioning systems, and xeriscaping is the return on investment, a stream of interest and take away a major roadblock,” he says. “Tis, which can be unclear. “One can quantify items like the savings on in turn, has propped up the value of our properties, opened up many utilities,” Levine says. “Other items, such as better air quality leading high-level discussions, and resulted in transactions.” to less time off for employees, are more difficult to quantify.” Vicki Beal McDonald, CCIM, asset manager with Foundation Communities in Austin, Texas, recognizes the limitations of these 4. Nip and Tuck It’s not always what’s on the inside that counts. Lee Y. Wheeler III, ROI analyses — especially for multifamily properties, where tenants ofen foot utility bills — but contends that sustainable upgrades can pay off. McDonald manages a 16-building portfolio that includes CCIM, president of NAI Fidelis in Beaumont, Texas, focuses on 2,163 multifamily units and 20,000 sf of office space. During the last cosmetic changes and parking lot upgrades, which usually trans- five years, seven solar photovoltaic installations were added to prop- late into higher rents and longer lease terms. “Stucco or an exterior erties in the portfolio, offsetting the cumulative utility expenses by insulation and finishing system … can turn a metal warehouse into more than $27,000. Also, rainwater harvesting and xeriscaping at one a nice retail shopping center,” he explains. “And tenants love to see of the multifamily properties have kept the utility cost for irrigation owners investing in their success.” at a very low $48 per month. “Since we have an older portfolio, these Making the property beautiful, however, doesn’t necessarily come and other utility cost savings can be another way to attract residents,” at a high price. “Ofen overlooked is the most basic and cheapest McDonald says. upgrade of all: exterior painting,” Weiner explains. “A contemporary color scheme can change a building’s image more than any other improvement.” Adding increased functionality can set a property apart from the pack. Duemeland built his area’s largest loading dock on a distribu- 6. Boost Tax Immunity When it comes to taxes, asset managers can use a variety of tools to tion warehouse. “We have extensively upgraded the project and now increase their savings. have a more desirable tenant that may pay more,” he says. Weiner points out that with the help of an experienced firm, compo- New doors also can be a gateway to increased value. Weiner nent valuation can be a very effective means of preserving asset value.  May | June | 2010 Commercial Investment Real Estate
  • “All savings translate into added value.” — Aaron Weiner, CCIM, CPM, LEED-AP, of Weiner Property & Management Co. in Irvine, Calif. “It’s low hanging fruit that every property project, my team discovered that the subject owner should avail themselves of,” he says. property falls within the city’s redevelopment Wheeler recommends an extensive district and would qualify for tax-increment review of the appraisal district files. “Many bond financing and affordable housing mistakes can be found and corrected in funds,” says Chantengco. Te property also favor of the property,” he says. For exam- is in the state’s enterprise zone, making it ple, square footage numbers can be over- eligible for net income deduction for any estimated, which affects the property value loan made on the asset, including bridge or and taxation level. mezzanine financing and up to $10,000 per Cost segregation is another readily avail- employee in tax credits. Along with state and able tax tool. Hanlin commissioned a study municipal programs, owners and developers when he consulted on the purchase of a single- should investigate U.S. Department of Hous- use restaurant property. It cost $15,000 but ing and Urban Development financing, Sec- saved the owners $45,000 — not a bad ROI. tion 42 tax credits, Section 8 rental housing But Hanlin is quick to note that “if you’re not vouchers, Small Business Administration planning to hold the building for a while, this loans, and historic preservation and new strategy might not make sense” because in some circumstances the markets tax credits as potential funding sources. property taxes can be recaptured. And finally, don’t overlook anything, in particular, the potential for Rich Rosfelder is associate editor of Commercial Investment Real tax credits and other government programs. “In researching a recent Estate. DON’T GET LEFT OUT, CELEBRATE WITH US Register for any BOMI International-sponsored course Celebrating 40 Years between April 5 and July 5 and receive $40 off your course registration*. of Education Excellence Visit www.bomi.org, or call 1.800.235.BOMI (2664) and join in on the celebration today! * This offer is not valid with any other offer or discount; offer applies to BOMI International-sponsored courses in the US only. Offer is only valid between April 5, 2010 and July 5, 2010. All BOMI International policies and testing fees apply. ciremagazine.com May | June | 2010 
  • In the Retail Ring Investors emerge from their corners in search of single-tenant opportunities. by Beth Mattson-Teig  May May | June | 2010 a Commercial Investment Real Estate
  • Te retail property investment mar- ket looks a little like a battered prize fighter these days. It’s down, but by no means out. Given the one-two punch of the credit crisis and the tepid economic recovery, retail investment sales are well off the 2007 peak of $78 billion. Transaction volume tumbled to $32 billion in 2008 and fell almost by half again in 2009 to around $17 billion, according to Marcus & Millichap. But slowly investors are moving off the ropes, drawn partly by investment sales at Colliers International in Orlando, Fla. “If that opportunities in the single-tenant niche. Buyers are fighting for well- continues we could have, perhaps not a great year, but a good year located properties in major markets and strong in-fill locations that — certainly better than 2009.” are leased to national credit tenants such as CVS, Walgreens, Burger Te majority of action is on two fronts. One segment of the market is King, and McDonald’s. “When you look at properties priced below small investors looking for safety: single-tenant properties structured $5 million or even $3 million, there is still a lot of money on the with triple-net leases. Te other group is comprised of opportunistic acquisitions side,” says Bernard Haddigan, a Marcus & Millichap buyers shopping for value-add deals among distressed assets. managing director in Atlanta. One reason for increased activity among net-lease properties is that In fact, retail properties priced between $1 million and $10 mil- 1031 buyers have started to return. Over the past two years, it didn’t lion represented the lion’s share of 2009’s retail property sales — 94.5 make sense for owners to sell property such as apartments and land, percent of the 4,554 individual transactions in total retail sales. In which is what drives the majority of 1031 deals. “Today, those owners comparison, properties priced between $10 million and $20 million are starting to sell again for one reason or another — not a tremen- accounted for 3.5 percent of transactions, and those properties priced dous amount, but enough to keep cap rates stable,” says Deborah K. above $20 million represented just 2 percent, according to Marcus Vannelli, CCIM, director of net-lease sales at Minneapolis-based & Millichap. Upland Real Estate Group. One key factor propping up the single-tenant sector is that many of those buyers are not looking for leverage. “Tey are looking for stability and cash flow, so they don’t mind putting more equity into Single-Tenant Players the deal to get their monthly cash flow checks,” Haddigan says. 2010 NEW U.S. AVERAGE CAP RATE RETAILER STORE ROLLOUT FOR RETAIL CATEGORY Returning to the Ring Walgreens 250 7.5% Overall retail investment activity increased during the early part Dollar General 600 8.5 – 8.9% of 2010 with a rise in both the supply of properties on the market 7-Eleven 250 7.0 – 7.5% and more interest from buyers. “What is surprising me is that I McDonald’s 150 7.5 – 8.0% have been busier in the last 45 days than I was during the last six Source: Marcus & Millichap, CNNMoney.com months of last year,” says Cynthia Shelton, CCIM, CRE, director of ciremagazine.com May | June | 2010 
  • U.S. Retail Snapshot COMPLETIONS (SF) VACANCY RATE Another explanation for the bump in activity is that people sim- ply are tired of sitting on the sidelines. “A lot of people mentally 2006 215,845,210 6.9% buried 2009, and now they are more optimistic,” says Jerry A. Wil- 2007 189,974,323 7.1% liams Jr., CCIM, a vice president at Grubb & Ellis in San Antonio. 2008 207,553,748 8.3% Part of the buyer interest has resulted from the narrowing bid/ask 2009 97,483,903 9.9% gap in pricing, Williams believes, as well as the fact that some lenders are returning. “In 2009, almost no one was lending, but now we’re 2010* 70,000,000 10.4% starting to see regional banks and credit unions opening up lending * Forecast Sources: Marcus & Millichap, CoStar Group for the right asset,” he says. Last year was a learning curve for lenders and the commercial real estate industry as a whole, notes Mike Milano, CCIM, MAI, all-cash offers waiting in case the initial transaction fell through,” managing director of retail investment sales at Colliers Interna- Vannelli says. tional in Clearwater, Fla. “As the mountain of distressed proper- McDonald’s is one of the few exceptions that are still commanding ties started to build, lenders were not sure what to do with them,” cap rates below 6.0 percent. Te bulk of the net-lease investment mar- Milano says. “Now lenders are going to start moving properties out, ket has seen cap rates increase 150 to 200 basis points amid tougher and I expect distressed sales to start picking up around the second underwriting standards and economic uncertainty. Tree years and third quarters.” ago, Walgreens stores were trading at cap rates between 5.7 percent and 6.3 percent. Today, Walgreens are up about 200 basis points to Prizefighter Strategies between 7.7 percent and 8.4 percent. “Tat would be considered the Single-tenant properties structured with triple-net leases are actively baseline of the easiest to sell and even on those deals the prices have trading, and there has been a definite flight to quality as buyers gone down and cap rates have gone up,” Haddigan says. gravitate toward solid credit tenants and top locations in a still- Investors are being very cautious in underwriting both the credit shaky economy. “Most buyers are acquiring investment-grade-rated and the location. Most buyers today only are looking at solid urban tenants only,” Vannelli says. Tat appetite has helped keep pricing locations or in-fill locations in first- or second-ring suburbs with good strong for top tenants in good locations. demographics. Tey are attracted to core markets such as Washing- For example, McDonald’s ground leases are being snapped up ton, D.C., New York, Houston, San Francisco, and Chicago. At the quickly even though capitalization rates have remained near historic same time, most remain wary of investing in secondary and tertiary lows around 5.5 percent to 5.7 percent. Te problem is that those pre- markets: Even double-digit cap rates are not enticing them. “Almost mium properties remain in short supply. “We recently sold a McDon- every investor I’ve closed a deal with over the past 12 months either ald’s ground lease in Florida at full price with seven more full-price, used to live where the property is located, currently lives there, has family nearby, or vacations there,” Vannelli says. “Tis gives them additional comfort that even if the tenant fails they know the market will survive.” U.S. Retail Transactions by Price Category Te return to conservative underwriting is having a big $1–$9.9 million $10–$19.9 million $20 million+ impact on pricing. Colliers International currently is market- 12,000 ing a single-tenant property occupied by a national book and 10,531 game retailer in Orlando. Te store is likely to sell for a 14 per- 10,008 10,000 cent cap rate because the operator only has six years lef on the 8,919 lease. “With everyone skeptical of the retail market, buyers are 7,559 wondering if the tenant will make it through for the six years, 8,000 Total Transactions 7,355 and if they do, will they renew?” Shelton says. 5,880 6,000 The Battered and Bruised 4,435 4,554 Te volume of distressed properties continues to pile up on 4,000 3,330 3,284 lender balance sheets. Banks alone reported $41.7 billion in commercial mortgages that were in default at the end of 4Q09, according to Real Capital Analytics. Tat default rate repre- 2,000 sents 3.8 percent of all outstanding loan balances on commer- cial properties, which is a 16-year high for the nation’s bank Corbis/Photolibrary 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 lenders. However, banks have been slow to write down those troubled assets and push them out into the sale market. Sources: Marcus & Millichap, CoStar Group, Real Capital Analytics As a result, the distressed deals have yet to materialize as  May | June | 2010 Commercial Investment Real Estate
  • many bargain hunters had hoped. “Tere is U.S. Retail Dollar Volume by Price Category a lot of paralysis on the bank side, because they can’t afford to take the losses,” Had- $1–$9.9 million $10–$19.9 million $20 million+ digan says. Te banks don’t want to take $80 77.7 the write down, because they don’t have the reserves to make sure they have their 70 65.7 depositors’ balances covered. “As distress 63.9 Total Dollar Volume (billions) continues to accumulate, it will force some 60 58.1 people to act,” Haddigan says. “So I think the second half of 2010 is going to be a more 50 46.4 active acquisition market.” Florida is a big retail market hit hard 40 32.0 by the recession. Many in the commercial 27.3 30 real estate industry are watching to see how 24.8 that market deals with its heavy load of dis- 20 17.1 15.1 tressed properties. “Banks and owners are just starting to realize that they will have to 10 take a hit in order to dispose of assets that are now worth less than the debt in most cases,” 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Shelton says. “Te income-producing assets Sources: Marcus & Millichap, CoStar Group, Real Capital Analytics are starting to have offers generated, but at values that shock many.” Is Retail Leasing Down for the Count? Shaky consumer confidence and a national unemployment rate hovering around 10 percent continue to pummel the retail industry. Yet the rate of decline appears to be slowing as the economy gains steam. “Leasing activity had begun to pick up at the end of third quarter 2009 but trailed off significantly in the fourth quarter,” says Jerry A. Williams Jr., CCIM, a vice president at Grubb & Ellis Co. in San Antonio. “The new year has brought a new influx of activity, and we hope the trend follows through the summer months in order to sustain the momentum.” The retail vacancy rate reached 9.9 percent at the end of 2009, the highest level in more than a decade, and vacancies may inch higher to 10.6 percent by year-end, according to Marcus & Millichap. The vacancies along with rising concessions have caused effective rents to drop 7 percent in 2009 with effective rents projected to fall another 4.2 percent this year. Even though national statistics paint a struggling retail market, local and regional retailers as well as quick-service restaurants are fueling leasing activity in many parts of the country. “We are seeing very little new deal activity from national retailers,” says Jordan M. Spiegel, CCIM, president of Sunburst Advisors in New York. “A good portion of the national tenants that are already saturated in the New York marketplace have allowed their leases on older, unprofitable stores to expire.” Major retailers such as Starbucks, Ann Taylor, The Gap, and Foot Locker are among those that have vacated locations throughout New York in recent months. In comparison, regional and local retailers such as Crumbs Bake Shop, Planet Fitness, and BonChon Chicken have remained fairly active, leasing new stores throughout Manhattan and the outer boroughs, Spiegel adds. The retail industry is still struggling under the weight of 6,600 retail store closings in 2008 and another 6,200 closings in 2009, according to data from Marcus & Millichap and the International Council of Shopping Centers. Although the tide of store closings has likely peaked, the volume of vacant big-box space continues to be an issue for landlords because there are not enough large-format retailers to absorb the big blocks of empty space. “Unless that space is filled with creative re-uses, such as medical use, churches, and skating rinks, a lot of that space needs to be knocked down,” says Bernard Haddigan, a managing director at Marcus & Millichap in Atlanta.
  • U.S. Retail Price and Cap Rate Trends SINGLE-TENANT TRENDS MULTITENANT TRENDS $250 10% 200 10% Average price Cap rate Average price Cap rate 200 Average price per square foot Average price per square foot 9 150 9 Average cap rate Average cap rate 150 8 100 8 100 7 50 7 50 0 6 0 6 2000 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 2000 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 Note: Includes sales $1 million and above Note: Includes sales $1 million and above Sources: Marcus & Millichap, CoStar Group Sources: Marcus & Millichap, CoStar Group For example, Colliers Interna- prior to closing. Commercial tional is listing a 45,000-sf non- As of Feb. 1, 2010 Alliance was able to find equity grocery-anchored neighborhood from a small group of investors center in Fort Myers, Fla., being Total troubled retail assets: that enabled it to purchase the sold at the request of the lender $43 billion property all cash. Te firm has through a court-appointed since leased the vacant grocer to receiver. Te property sold for Amount resolved: a charter school and re-platted $3.8 million in 2003, $8.8 million in 2006, and now will likely fetch $1.1 billion the 9-acre site to include four pad sites. The developer has Source: Real Capital Analytics a price of around $3 million. sold one pad site to Jack-in-the- “We anticipate seeing a lot more product coming to the market,” Box, has another site under contract to a national quick-service Milano says. “Lenders now are more attuned to the fact that the best restaurant chain, and is working on additional deals. In the end, way to get out of their problem is to take the write-down and sell it.” Commercial Alliance expects to deliver about a 30 percent return to investors. “Tat is an example of how you have to be creative to Knock-Out Opportunities make deals in this market,” Cotta says. Persistence is paying off for investors who have access to capital. Ultimately, 2010 likely will be a year of transition as the retail Commercial Alliance traditionally works as a developer of single- industry as a whole stems the tide of deteriorating occupancies and tenant properties for restaurants and drugstore tenants. Te firm rents and searches for solid footing before it can start to recover. “I currently is pursuing prime corner locations with the potential to see the retail market trending sideways for the next 12 months, not redevelop or reposition real estate. getting much better but not worse either,” Cotta says. “Once those “We’re seeing a lot of opportunities to buy good sites that we first deals start going through and we can gauge the success of those wouldn’t even have been able to bid on before,” says Kristian Cotta, transactions,” he adds, “then the activity will pick up as everyone else CCIM, director of acquisitions at Commercial Alliance in Scottsdale, will want to take advantage of the opportunities that are hiding.” Ariz. Two to three years ago, the overheated investment market had produced bidding wars for well-located corner sites. Today, Com- Beth Mattson-Teig is a freelance writer in Minneapolis, Minn. mercial Alliance is finding itself in more situations where it is the sole bidder. “Now small to midsize companies can compete on a level playing field,” he adds. For example, Commercial Alliance was poised to purchase a Where is retail investment headed in the next six Only @ months? Marcus & Millichap’s Bernard Haddigan tells us vacant grocery store in Corpus Christi, Texas, at the onset of the in a follow-up podcast at www.ciremagazine.com. credit crisis in November 2008. Te lender backed out two weeks  May | June | 2010 Commercial Investment Real Estate
  • The land on which the iconic Chrysler Building sits is owned by The Cooper Union. The building last sold in 2008 to the Abu Dhabi Investment Council as part of an $800 million deal.
  • by Philip G. Skinner and Abe J. Schear International Commercial Investment Real Estate
  • A rising tide of foreign real estate investment may help to lift all U.S. markets. T he role of foreign investors in the U.S. real estate market ebbs and flows with a host of factors. Tough not quite as predictable as the tide, its movement ofen is in tan- dem with the market’s fundamental drivers. Currently two factors — the decline in commercial real estate prices and the constraints on available capital to finance or refinance — align to make this a very favorable time for foreign investors with sources FOREIGN of equity or debt to acquire U.S. real property. When these aspects of the U.S. market are coupled with global fac- INVESTMENT tors such as favorable currency exchange rates, instability of various PREFERENCES kinds in other countries, and the desire to achieve both product and Top U.S. Cities geographic diversification on a worldwide scale, the time appears to Washington, D.C. be ripe for foreign investment capital to come to the U.S. New York Te answers to certain key questions about the prospects for for- San Francisco eign investment in U.S. real estate in the next year or two will help Boston stateside commercial real estate professionals understand the current Los Angeles trend and perhaps profit from it. Top Property Types Multifamily Is the current market climate likely to attract more Office attention from foreign investors? Industrial Foreign investors looking to the U.S. now likely are experienced Retail OJO Images/Photolibrary investors who have invested in a number of countries around the Hotel world. Tese savvy investors believe that they can take advantage of Association of Foreign Investors the problems that the U.S. commercial real estate industry currently in Real Estate, January 2010 is facing. Tey believe that the U.S. offers the best global opportu- survey nity for capital appreciation at this time, while also being the safest ciremagazine.com May | June | 2010 
  • country in which to invest. Tey can be aggressive and effective U.S. real estate markets find and define the bottom of the current negotiators and can wield their foreignness as both a sword and a cycle and help lead to an eventual recovery. shield in negotiations. Tey know how to make a deal but also are willing to walk away if the deal doesn’t suit them. What types of properties interest foreign investors? U.S. market dynamics clearly give any investor who has capital Discussions with Israeli and European investors over the course of the or access to ready capital the opportunity to make investments in last year indicate a wide variety of U.S. real estate investment inter- good properties at a greatly reduced cost basis, and ofen well below est. Core central business district office properties in major markets, replacement cost. We should expect that many foreign investors will multifamily/residential in locations with projected long-term positive take advantage of this opportunity in the next two to three years. Tis demographics, and retail, including both grocery-anchored neighbor- wave of investment will have the beneficial effect of helping depressedhood retail as well as major mall properties, came up most frequently. Industrial, hospitality, and mixed-use proj- ects came up far less frequently. A DONE DEAL In 2009, Profimex, an Israeli private equity firm that has co-invested in an Regardless of property type, foreign investors uniformly are interested in taking advantage of depressed U.S. prices, as well as estimated $26 billion worth of properties worldwide, raised half of the $6 million a scarcity of financing, to drive good deals purchase price for Northwoods Business Center in Atlanta. With an additional in the next year or two. Tey believe that in $700,000 of equity from U.S. investors, the newly formed partnership’s 60 many cases property valuations are the low- percent equity secured a commercial loan on acceptable terms for the remaining est they have been in 15 or even 20 years, not- 40 percent of the purchase price. Because of the low leverage, existing rents, withstanding the fact that many properties net operating income, and positive cash flow from the property, the investors have ongoing solid cash flow and stable rental are realizing an annualized 8 percent return. The property and transaction income in place. characteristics made the deal attractive to the foreign investors: The investment Foreign investors also prefer off-market could immediately yield a solid return, while it had upside potential because the opportunities or properties that are being property was not 100 percent leased. quietly marketed, rather than those where Like any investor, Profimex had to approve the deal from several different they have to bid competitively in the open perspectives: The purchase price, operating budget, lease risk, internal rate of market. Foreign investors are not afraid to return, and exit assumptions all had to be acceptable. The property type and use discounted debt acquisitions as an indi- location had to fit the investors’ appetite, as did the existing leases, current rect vehicle that ultimately will lead either to vacancies, and lease-up assumptions. The investors had to have full confidence acquisition of the underlying assets or favor- in the proposed joint venture structure and the U.S. strategic partner, who would able loan repayment terms. run and manage the property on a day-to-day basis. Both U.S. principals made multiple trips to Israel to meet with Profimex What deal structures work best? to establish mutual trust and confidence. Building such strategic alliances to Many of the larger foreign investors with suf- develop a commonality of interest and mutual goals helps ensure trust and ficient capital are interested in direct invest- confidence. Foreign investors in particular rely on their U.S. attorneys, brokers, ments or co-investments with U.S. strategic property managers, and other experts and consultants to be their eyes, ears, partners. Regardless of the type of joint ven- and active representatives. Those that do a good job are awarded with repeat ture vehicle used, the foreign investor typi- business, which is the best recommendation that can be given to a service cally wants to be the majority partner with provider. control over major decisions, allowing its U.S.  May | June | 2010 Commercial Investment Real Estate
  • Largest Global Real Estate Markets GLOBAL INVESTMENT VOLUME ANNUAL COUNTRY strategic partner to have day-to-day (IN $ MILLIONS) CHANGE (%) operational control and responsibil- 2008 2009 ity, including the right to earn arm’s- China 64,392 156,195 142.6 length fees for necessary services United Kingdom 41,380 38,802 -6.2 including property management and leasing services. For cash-strapped United States 106,028 38,354 -63.8 U.S. property owners that may be Source: Cushman & Wakefield faced with looming debt maturities, cutting a 90/10 or a similar deal with a foreign investor that will allow the U.S. partner to retain some Some of these investors held off investing in the U.S. from 2004 ownership, earn leasing and management fees, and also have a profit to 2007, as commercial real estate here became more overheated. participation based upon a typical waterfall distribution can liter- During this time some foreign investors felt that other areas of the ally save the day. Of course, many foreign investors might look to world offered greater upside potential and less downside risk than negotiate with lenders on such deals to acquire the debt, based on a the U.S., including areas that were considered to be emerging mar- loan-to-own strategy. kets in Eastern Europe, India, China, and Brazil. Now the tide has turned: Many emerging-market economies have been shaken by the What are the biggest challenges in putting together a worldwide financial crisis, and U.S. prices have come down to what foreign investment deal? some investors view as historic levels, creating capital appreciation Challenges ofen relate to the learning curve: helping foreign inves- opportunities that only come around once in a generation. tors understand the market, submarket, and property conditions that characterize a particular investment and dictate the time to make the What skills are needed to succeed with deal; familiarizing them with the relevant U.S. deal process, includ- foreign investment deals? ing the use of non-binding letters of intent followed by full contract Te skills are the same as those used when dealing with U.S. inves- negotiations, a due diligence period, and a closing period; helping tors. But such skills have to be packaged in a manner that is at the them select, engage, and work with brokers, surveyors, environmental same time clear, convincing, informative, articulate, direct, helpful, consultants, and title insurance agents and companies, among oth- patient, and deal-oriented. Also, one must be aware of the differences ers, all of whom may play different roles than in the investors’ home in the level of involvement of various professionals. For example, in countries and may cost more than they anticipate; and structuring a number of other countries lawyers play a greater or lesser role than the joint venture relationship between a foreign investor and its pro- they typically play in U.S. transactions. Civil law systems ofen use posed U.S. strategic partner. All take time, patience, and expertise to civil law notaries, who play a much greater transaction role than U.S. help coordinate the foreign investor’s path through what may be an notaries. Title insurance, which is universally desired or required here unfamiliar and uncomfortable landscape. in the U.S., may be an unfamiliar deal requirement and an unantici- pated deal cost for some foreign investors. Good communication and What geographic markets interest foreign investors? sensitivity to cultural differences can help to minimize or avoid mis- Generally foreign investors who don’t have strong strategic alliances understandings and manage expectations of the foreign investor. with U.S.-based partners are interested in major U.S. markets and core CBD areas that they already are familiar with, such as New What kinds of connections facilitate York City, Boston, Washington, D.C., San Francisco, and Los Ange- foreign investment deals? les. Tese are areas they believe will rebound well in the next five to Developing a plan that will introduce you to foreign investors and seven years, if not sooner. their brokers, attorneys, or other professionals locally or overseas A strong alliance with a U.S. partner can widen the focus to include is the best way to create a favorable environment for working with a variety of products in a greater array of market areas, with the foreign investors. Trade associations, foreign chambers of com- foreign investor relying upon its U.S. partner to identify appropriate merce, consulate offices, and other groups exist in which these kinds markets and properties. of interaction can occur over time. Te time to work on these rela- tionships is now, before a deal is at hand. By doing so, you and your What foreign investors are looking at U.S. properties? foreign investor partner or client can be poised to strike when the Traditionally, investors from around the world have looked to the time is right, rather than having to complete negotiations with each U.S. as a safe haven for commercial real estate investment. Investors other first. OJO Images/Photolibrary from Germany, Holland, Israel and other Middle Eastern countries, Canada, Japan, and China have been historically active. Currently Philip G. Skinner and Abe J. Schear are partners and members of the investors from many of these locales who are in strong financial commercial real estate practice team and co-chairs of the cross-border shape are looking at the U.S. based on the belief that the timing is practice team in the law firm Arnall Golden Gregory in Atlanta. Contact again right for them to invest. them at philip.skinner@agg.com and abeschear@agg.com. ciremagazine.com May | June | 2010 
  • by Rod N. Santomassimo, CCIM Step It Up! Follow this plan to take charge of your career.
  • How’s business? Pretty simple question isn’t it? Every day someone asks this or a similar question that seems innocent enough. And, like the vast majority of commercial real estate practitioners, you probably respond with a simple answer: “Business is slow” or “Hanging in there” or hopefully “Never better.” Ideally though, you should consider this simple question — How’s business? — as one of the most important questions to ask yourself. Most commercial real estate brokers and agents are legally independent contractors and, as such, are self-employed. It doesn’t matter if you are a seasoned veteran or the newest agent in the office: You are the chief executive officer of Me, Inc. Congratulations! What does this mean exactly? Tink of any CEO that you personally know or have read about. What are their responsibili- ties? Certainly they have to craf a company vision. Tey also must enact a sound operational plan to sustain current revenues and support growth. In addition, the CEO oversees the company’s marketing, sales, human capital, and financial plans. No one said being a CEO was easy. But is this too much to expect from the average commercial real estate professional, who doesn’t have the infrastructure to account for all of the elements noted above? Perhaps it is. But then again, that is why that broker or agent is average. Aver- age performers chase deals. Average performers work transaction to transaction and wouldn’t dare consider investing in their business unless they receive a commission. Average performers treat their craf as a hobby, not as a business. Average performers view themselves as employees looking for their broker or company to generate business for them. Who wants to be average? Not you: You’re the CEO of Me, Inc. So what can you do to build an infrastructure to support Me, Inc.? Let’s start with the operational plan. Know Your Numbers top-producing sectors and reallocate my No. 1 resource — time. Te operational plan is the framework upon which you should con- Access to this information, if reviewed and implemented consistently, duct your personal brokerage business. As CEO, you must work on can expedite efforts, which in turn expedite closings. your business (strategy) and in your business (transactions). To do this as effectively as possible, an infrastructure must be put into Promote Yourself place, utilized, and refined. For commercial real estate pros, the Commercial brokerage success is dependent on four factors: your operational plan can be supported by a sound customer relationship role, your area, your monetary infrastructure, and your presence. management database. In today’s ever-changing marketplace, presence is becoming the Today there are a variety of off-the-shelf products that can essen- foremost factor in winning business. tially run an individual’s brokerage business. And no, Microsof Since your personal or team presence is so essential, you need Outlook is not one of them. A database, if used correctly, is actually a comprehensive marketing program. Yes, the program should be less about the data and more about consistent utilization. As CEO of consistent with your commercial broker’s policies and branding the Massimo Group, each morning I turn on my monitors and am guidelines, but it should focus on you. greeted by an up-to-date dashboard of information that displays the A regular contributor to this magazine on personal marketing is vital levers in my business. In this dashboard are charts, graphs, and Alex Ruggieri, CCIM, of Sperry Van Ness in Champaign, Ill. Ask lists that include: Alex for his business plan and he is sure to give you his marketing • daily prioritized to-dos; plan first. Alex knows where, when, how, how ofen, and how much • my current sales and net income to date as measured against tar- he will be promoting his business throughout the year. Alex is not geted goals; an average broker. He is CEO of the Ruggieri Team. • my pipeline with weighted averages for closing; and • my opportunities with key prospects highlighted. Stay on Target As a colleague once told me, your database should The When I travel across the country, I always hear brokers not simply track data, it should generate commissions. simple and agents say they need to “prospect more.” It sounds Te simple fact is top performers do not “wing it.” good, but it means nothing. What is more? And is You can’t wing it to win it. Consistent access to the fact is top more really the answer? Usually it’s not a matter performers do Fancy/Photolibrary information noted above provides me with a con- of prospecting more. It’s a matter of prospecting sistent measurement of my progress against targets. not “wing better. You can make 100 calls a day and still not If we are falling behind, I can quickly recognize it and it.” become a top performer. Sure, you may find a deal, but adjust. If we are ahead of plan, I can easily identify our even a blind squirrel finds a nut every now and then. ciremagazine.com May | June | 2010 
  • A sales plan will consist of a target list, an approach to reach that Capitalize to Thrive list, and follow-up steps. Do you know who your ideal clients are and A financial plan is not a commission goal. My chief financial officer how you can secure a list of these ideal clients? Once you have your always reminds me that “we don’t pay bills with revenue.” Average list, how are you going to contact them? Are you going to launch brokers look at their year in terms of commissions. A CEO looks at a mail/phone campaign, a phone/e-mail campaign, or use a more their business in terms of profit margins. Tey budget for invest- personal approach? ments (cash outlays) over the year. Tey understand that invest- Ask Jim Tucker, CCIM, of NetworksCRE in Richmond, Va., and he ments drive revenues. will tell you commercial real estate is a “belly-to-belly” business. He is Commissions obviously can be created by spending little or no correct. Jim has a specific sales plan for reaching his target audience. capital. If you have a solid relationship that leads to a transaction — Jim is not an average broker. He is the CEO of NetworksCRE. perhaps a tenant representation assignment — your personal cash outlay can be minimal. However, to sustain a business you must Team Up invest in the business. And there are only two ways to capitalize a When I ask prospects and clients what their human capital plan business: equity and debt. Top performers understand that leveraging is, they ofen say: “A human capital plan? Are you kidding me? I debt can greatly enhance their opportunities for success. am just a sole agent with only 18 months in the business.” Average For commercial real estate pros, debt can come in several forms. brokers do not invest in themselves or hire outside assistance, and You can take a line of credit, either from a bank or, less formally, a as a result they continue to be, well, average. family member. Other forms of debt may include your savings, a If you are reading this article, you are probably a CCIM designee second mortgage on your house, or a loan on your life insurance or candidate. Congratulations: You have invested in yourself! But was policy. Don’t get me wrong: I am certainly not endorsing financial this part of your plan, or simply something you wanted to do? Don’t risk. However, CEOs take calculated risks. Tey understand that, in get me wrong. Attaining the CCIM designation was one of the most a down market, investing in a more aggressive marketing campaign rewarding events in my long career in commercial real estate. But it will separate them from their competition. Tey also understand that wasn’t just a personal goal — it was part of my plan. Te return on financing their business strictly on revenue, especially in a cyclical this investment has been significant. sector such as brokerage, is unrealistic. Tere are many options for investing in a human capital plan. As In addition, CEOs understand their personal financial projections. noted above, a CEO must look at the company goals and set up the Tey look at metrics such as net new under contract and average days infrastructure to support the attainment of these goals. As CEO of on market. As CEO of Me, Inc., you must understand these metrics as Me, Inc., you cannot do it all. You need to outsource well. At any given time you should know what your personal checking wherever and whenever possible. Tis is a small account will look like 30, 60, 90, and even 180 days forward. You must Top investment, and there are many tools available understand your pipeline and the probabilities and timing of each deal performers today to leverage your time to focus on more closing. You must have contingency plans if transactions are delayed or understand productive tasks that drive revenue. dismissed. Te average broker waits to see how a transaction evolves that leveraging For example, I recently needed a veri- and then reacts. Te CEO proactively plans for success and evaluates fied list of 2,500 contacts. All I had were alternative paths based on forecasted performance. debt can the contacts’ name and company. To prop- Certainly there are many other facets to being the CEO of Me, Inc. enhance their erly market to this list, I needed addresses, Te five elements noted above, however, are the most essential. Each success. phone numbers, Web sites, and e-mail component of your personal business is supported by and/or drives the addresses. Does this sound familiar? Doing this other. I would suggest starting with your financial plan. From there you myself was not an option. My time, like yours, is can craf an operational plan, and the other plans will follow. too valuable. I contacted Elance (www.elance.com) to secure propos- Understand that you are responsible for the livelihood of all your als from virtual assistants around the world. I contracted a service employees, even if you are the only one. As CEO you have to craf the provider and received my list three days later. It cost $200 — total! I brand and reputation of Me, Inc. You have to provide the infrastruc- have since provided this VA with a series of tasks and all have been ture for your company’s success and a foundation for its growth. completed in a professional and timely manner. More importantly, So the next time someone asks you “How’s business?” you have two they have all been completed within budget. choices. Either you can give them a standard reply, such as “not bad,” or I have a human capital plan with a budget for both personal invest- you can ask them which division of your corporation they would like to ments and outsourcing of services. I have a team behind me, but 90 know about. Either way, as CEO of Me, Inc., you are in control. percent of them are virtual assistants or independent contractors. My marketing department is located in Virginia; my Web design team is Rod N. Santomassimo, CCIM, is founder and president of The Massimo in North Carolina; my data research department is in India; my cold Group, a professional coaching firm focused on commercial real estate. caller was in Hawaii and now is in Michigan. I’m a sole practitioner Contact him at rod@massimo-group.com. For more information, visit in one way, but I’m also the CEO of the Massimo Group. www.massimo-group.com.  May | June | 2010 Commercial Investment Real Estate
  • by Reed Miller and Ken Boyle The Case for Conversion Owners add value by repositioning single-tenant office assets as multitenant properties. In today’s economy, owning or leasing your own building is a luxury that few companies can afford. Most corporate real estate budgets have been slashed and companies are cautious with the dollars they spend and the real estate they choose to occupy. To reduce costs, companies that formerly occupied their own buildings exclusively are now open to shar- ing space in multitenanted assets. Some single-tenant occupants are considering ways to downsize by either subletting or restructuring their existing leases to give back space. Companies with new space requirements Tom Merton/Photolibrary that previously would have developed build-to-suit properties now are looking at available space in multi- tenant properties. As a result, property owners have an opportunity to turn single-tenant buildings into multitenant assets May | June | 2010 
  • that better fit the needs of today’s office space users. In our experience, We completely demolished and rebuilt several floors in a staged such conversions are tremendous value-add propositions: Tey lessen process and then relocated the tenants as the new space was com- the risk of being dependent on one tenant, and they offer a chance to pleted. While this complicated sequencing proved challenging, all reconfigure space for today’s market as well as for less-typical ten- of the tenants are now occupying first-generation space. ants. In addition, owners can replace mechanicals, add sustainable We also renovated the lobbies and bathrooms to make them more features, reconfigure common areas, and upgrade finishes to make a suitable for shared tenant use. Te final touches, including a new property more competitive in the leasing market. For former single- main lobby entrance and elevator upgrades, are expected to be under- tenant corporate owners or users, this arrangement allows companies taken in the near future. to focus on their core business operations, eliminate their real estate In-Shape Fitness opened its facility in January. Other tenants responsibilities, and reduce occupancy expenses. include law firms and county government offices, drawn by the For real estate owners with long-term hold strategies, this is a great property’s location near the courthouse. Te building has been way to recession-proof office properties against today’s uncertain credited with breathing new life into downtown Stockton, and the economic outlook. We look at three properties we have converted tenants are pleased to have an updated facility with a health club in from single-tenant to multitenant use to meet the growing demand the building. for downsized, shared office space arrangements. What’s Cooking? Getting In-Shape In San Antonio, Texas, we acquired two 60,000-sf office buildings Previously net-leased to Wells Fargo, a seven-story, 87,000-square- last year that were net-leased to a large regional bank. Both build- foot office building in Stockton, Calif., was repositioned as a mul- ings contained bank branches and the older of the two would have titenant office tower. We negotiated new direct leases with several been difficult to re-lease as bank space. It did attract a culinary of the subtenants and a major long-term lease with regional fitness school however; afer the school signed a 10-year lease, the bank was company In-Shape to occupy almost 34,000 sf, including a ground- converted into kitchen and restaurant space and the upper floors level state-of-the-art fitness center and two floors for its corporate were converted into classroom space. In addition, both buildings’ headquarters. common areas and building systems were upgraded to meet mul- titenant needs, and more than half the leasable area has been rented. Marathon Project One of our more notable transitions was the Marathon Oil Tower in Houston, Texas, which we successfully converted several years ago from a single-tenant net-leased 1.1 million-sf, 41-story office building to a multitenant facility. Over the years, the needs of Marathon Oil changed and as they required less and less space, they sought to sublease to other companies to offset expenses. Tis was not a situation they wanted to continue. We negotiated a mutually favorable transac- tion: Marathon signed a new long-term lease for approximately two-thirds of the building, and we assumed the management and leasing, which aligned with our ownership position. Following this restructuring, we evaluated and renegotiated lease agreements with several of the subtenants and entered into several new leases with highly respected companies. We invested millions of dollars into upgrading the property and making Robert Daly/Photolibrary it more appropriate for shared use. We also took the opportunity to identify and implement cost- effective energy conservation measures, which included upgrading the lighting and mechanical systems.  May | June | 2010 Commercial Investment Real Estate
  • CHANGING CORPORATE NEEDS The working patterns of American corporations have changed dramatically over the past few years. Many companies have downsized, reducing the amount of required square footage. The evolution of mobile technology also has allowed a growing number of employees to work from home or remote offices. Reports predict that in 2010, the number of workers telecommuting at least one day a week will rise above 100 million, compared with just 4.4 million in 2003, according to the American Inter- active Research Group. Fewer workers in the office creates different space requirements. Some companies have opted to increase the amount of commuter space they offer, so telecommuters lose their full-time space and use common space when in the office. This means less office space is required and more cubicles or open, shared desk space is needed. In addition, some companies now require space for telecon- ferencing, social gatherings, even child care, in some instances. In the current economic environment, companies are now more open than ever to sharing their office space, offering underutilized or shadow space for sublease. Since most companies lack expertise in marketing this space, there is an opportunity for real estate operators and owners to help manage the process. Restructuring net-leased properties provides these companies with an exit strategy that enables them to significantly reduce their leasing costs. These companies can refo- cus their efforts on their core business operations while we focus on our core business, commercial real estate. Analyzing the Asset Executing the Plan For owners considering transitioning properties to multitenant sta- As a value-add commercial real estate company, Hanover Real tus, in-depth property evaluation is essential, as not all properties Estate Partners funds its own acquisitions and renovations. As are candidates for conversion. Unusual mechanical or physical char- part of our strategy, we also negotiate long-term leases and create acteristics might make them a poor fit at best. In addition, a prop- a marketing plan for every property, working with local brokers to erty must be well positioned in its market so that a variety of tenants ensure they are familiar with our plans for the updated property will be attracted to its location. Shallow or thin markets, or those and the various ways it could be used. We host broker lunches at dominated by a single industry, need to be carefully assessed. the property so that they can get a feel for the space and review Te property’s mechanical and structural systems require special architectural renderings or models that illustrate how the space attention to determine, in a cost-effective manner, whether they can can be transformed to accommodate a particular tenant’s needs. As meet the needs of the redevelopment. Poorly designed or improperly owners who are active in the management, operations, and leasing maintained systems will result in uncomfortable and angry tenants, of our properties, we take pride in attending and participating in causing damage to a building’s reputation that shiny new lobbies various local activities. can’t offset. It’s also important to be responsive when introducing a property During the actual transition, focus on the common areas, such to the market. Local tenants and their representatives need to know as lobbies, elevators, and restrooms, to ensure that the space flows that although we may not be located in their market, we respond together and provides a comfortable atmosphere for the various ten- promptly to requests or problems. ants. Also establish a new set of building standards and finishes that While a single-tenant building is far less complicated to own are in keeping with the character of the building and market. Tis and manage, in today’s market it is much easier to re-tenant a allows tenants to customize offices to fit their needs. building with multiple tenants than it is to fi nd another single Assemble and rely on a qualified, experienced team of local profes- large user. By focusing on converting single-tenant net-leased sionals, such as brokers, architects, engineers, and project managers, buildings into multitenant buildings, we are able to lower the risk to discuss repositioning options. Teir input will be of great value associated with single-tenant properties and provide diversity when brainstorming and implementing the repositioning strategy. and stability. Tis initial design and idea-gathering phase consumes the most time. All ideas are discussed and vetted and evolve slowly. When you have Reed Miller and Ken Boyle are managing partners of Hanover identified an anchor or large tenant, ideas start to take shape more Real Estate Partners, a privately owned real estate investment quickly to accommodate them. Accordingly, a conversion can take company headquartered in Greenwich, Conn. Contact them at anywhere from a few months to well over a year. www.hanover-partners.com. ciremagazine.com May | June | 2010 
  • REGIONAL OUTLOOK WEST Austin, Texas, received the top score in Portfolio.com/bizjournals’s “small- business vitality” ranking of the top 100 U.S. metros. Austin has added more small businesses than any other metro in the country and expanded its job base by 15.6 percent between 2004 and 2009. The Texas capital saw a 19.5 percent gain in population between 2003 and 2008, nearly four times the national population increase average. Á S O U T H South Florida Multifamily Update • 45 South Florida multifamily assets traded last year, a 48 percent increase over 2008. • 60 percent were traditional class B assets bought by private equity groups as long- term holds seeking cap rates of 7.25 per- cent to 8 percent with leveraged returns in the mid-teens. • 40 percent were fractured condominium assets bought by foreign equity with a three- to ve-year hold period targeting a 20 percent to 25 percent all-cash IRR. Source: CBRE • N AT I O N A L Lowest Vacancy Rates, 1Q10 Property Market Rate (%) National average (%) Office New York 8.4 16.9 Industrial Los Angeles 8.6 14.3 Retail San Francisco 6.6 12.6 Multifamily Pittsburgh 4.6 7.3 Source: National Association of Realtors/CBRE  May | June | 2010 Commercial Investment Real Estate
  • Á Â E A S T W E S T N.J. Industrial Distressed Retail Assets Construction Las Vegas $2.16 billion 216,000 sf Under construction Hawaii $1.9 billion 126,000 sf Preleased 41.7% New-construction vacancy Los Angeles $1.2 billion Source: Cushman & Wakefield San Francisco/Bay Area $870 million Source: CBRE Á S O U T H “10% to 15% of the A foreign investor paid $26 million for a 93 [Chicago] suburban percent stake in Atlanta’s famed Greenbriar Mall, saving it from foreclosure. One of the city’s office market today first enclosed malls, Greenbriar also was the first mall to feature a Chick-fil-A restaurant, an early can be classified as proponent of the food court concept. “zombie buildings” — meaning the owners don’t have money to fund tenant Á build-outs or leasing E A S T commissions.” Feds Drive D.C. Markets —ChicagoRealEstateDaily.com Trough the General Services Administration, the federal government is one of the biggest office space users in the metropolitan D.C. area. Financial regulation, healthcare reform, energy policy, and defense spending are the crucial areas that will drive increased GSA Ã space use throughout the region and the U.S. M I D W E S T E A S T Chicago Suburban Metro DC GSA Lease Analysis Office Blocked REGION GSA % OF % INCREASE 2009 MARKET 2009 GSA MARKET 2008–09 RENT ($PSF) RENT ($PSF) Plummeting office-using employment has pushed suburban Chicago’s large Washington, D.C. 19.8 0.3 46.92 39.15 blocks of available office space to its high- Suburban Maryland 10.3 5.2 27.01 27.73 est level in 10 years, according to Studley. As of 4Q09, 91 blocks of 50,000 sf or more Northern Virginia 13.3 1.6 28.99 30.74 were available, a total of more than 10.7 Total metro area 14.7 1.6 33.41 33.92 million sf. And tenants are ready to move: Source: Jones Lang LaSalle Class A leasing jumped 41.8 percent over the previous quarter, filling 429,601 sf. ciremagazine.com May | June | 2010 
  • INTERNATIONAL U.S. developer Tishman Speyer BE AT already has leased half of the first- phase office space in the Castelo Branco Office Park, a six-tower, 27-acre develop- ment in suburban Sao Paulo. “58% of U.S. investors are Brazil’s Big Deal domestically focused, with 16% preferring BRICs Lead the Way Asia and 12% Te BRICs — the combined economies of Brazil, Russia, India, and China — are leading targeting the global real estate recovery, according to Jones Lang LaSalle’s Global Market Perspective. Tose economies are expected to grow by an average of 8 percent this year. Goldman Sachs Europe.” predicts that nearly two billion BRIC residents will join the middle class by 2030, spurring — Raymond Torto, demand for residential, retail, and warehouse properties. Foreign investors are already global chief economist returning to these countries’ top cities. for CB Richard Ellis BRIC-A-BRAC FACTS 4Q09 Reading Is Fundamental Office Office Te new library in Denmark’s main port city of Aarhus is a good example of Top markets yields (%) vacancy (%) how today’s civic facilities can be destination draws for revamping downtowns. Beijing 9.0 28.1 This “urban mediaspace” will Shanghai 6.1 11.5 anchor an industrial waterfront redevelopment that will include Bangalore 9.9 11.4 retail and restaurants. To find Mumbai 10.2 13.9 more about mixed-use libraries, read “New Libraries Revitalize Rio de Janeiro 11.0 4.8 Cities” at www.miller-mccune. Moscow 12.0 18.9 com. Source: Jones Lang LaSalle Markets to ¬ Brazil— Tis South American powerhouse with an estimated 5 percent annual growth rate is attracting both foreign and domestic investors to its top cities of Rio de Janeiro and Sao Paulo, says Jones Lang LaSalle. Rio was one Watch of the few major global markets to show double-digit class A office rent growth in 2009. ¬ London — Te economy of Europe’s top financial center should start to grow this year, with new financial-sector jobs sustaining its improving office space demand, according to CB Richard Ellis. CBD vacancy rates have fallen from 15.6 percent to 13.5 percent. However, new users soon may be squeezed out of the market with only 2.3 million sf of new space coming on line this year and 1 million sf in 2011 — the lowest increase in 25 years. Tis limited supply should set the stage for rising rents in 2011 and 2012.  May | June | 2010 Commercial Investment Real Estate
  • BUYERS GUIDE LoopNet on Your iPhone Accessing LoopNet’s 745,000 listings, the company’s iPhone application gives users location-sensitive, on-the-spot commer- Slick cial property information. When the iPhone’s built-in GPS is activated, the app Headset displays nearby for-sale and for-lease properties. A custom search function also allows users to retrieve Only slightly longer than an AA battery, the information about proper- Novero Lexington Bluetooth headset has brushed- ties in other locations and steel and piano-black accents and ships with an Italian leather case. Te device’s dual filter by property type, microphones reduce noise, making for more pleasant conversations. With a fully charged price, or size. Afer select- battery, the Lexington allows 20 hours of talk time. Included are car and wall chargers, car ing a property, users can mount, USB cable, and eight ear loops. Contact Novero for cost information. view images, listing infor- Contact Novero at www.novero.com or (678) 338-4423. mation, and directions. Currently only available for iPhones, the app is free. Contact LoopNet at (888) 567-7442 or www.loopnet.com. Portable Printing Measuring 1 inch by 2 inches by 11 inches and weighing less than two pounds, Planon’s PrintStik PS950ME portable black-and-white printer fits neatly into glove boxes and laptop bags. Te printer uses direct thermal printing, eliminating the Cash-Flow need for bulky toner cartridges. Fully charged, the printer can print about 30 pages at three pages per minute, so it isn’t intended Compass for multipage STDB reports, for example. It’s also compatible with USB and Bluetooth devices, including Blackberries. PrintStik’s price ranges from $199.99 for a basic unit Projection is a commercial real estate sof- to $349.99 for a model that includes a 12-volt car charger. ware program that provides cash-flow fore- Contact Planon at www.planon.com or (888) 507-3926 casting, transaction analysis, and property valuation features. Te program organizes rent rolls, stores qualitative information related to asset valuation, and compares up Milking the Cash Cow to four years of historical data. Using various “Check’s in the mail.” Tat’s what Brian Patton, CCIM, wants you assumptions, a present-value discounting to hear afer reading his book, Mailbox Moo-La: How Real Estate matrix runs sensitivity testing calculations Cash Cows Put Money in Your Mailbox. Trough personal anec- to determine the value of money throughout dotes, Patton explains how you can recognize commercial real estate the analysis. Projection’s reporting interface opportunities and successfully manage them afer purchase. Com- allows users to drag and drop individual mercial real estate isn’t just a matter of understanding net present windows to customize the program’s look. value and cap rates, according to Patton. It also requires a firmness Afer a 15-day free trial, the program’s price in dealing with tenants, described in Chapter 6, and other people ranges from $1,295 for one license to $3,995 skills. Te second half of Mailbox Moo-La contains practice problems for a server version, which includes three to test readers’ understanding of the strategies outlined in Part 1. floating licenses. An easy-to-read resource for first-time property investors, the book Contact Influx Sofware at (830) 446-3589 or costs $14.99. www.influxsofware.com. Contact the author at www.mailboxmoo-la.com. ciremagazine.com May | June | 2010 
  • DE AL MAKERS Retail Partners Cool Springs The Biggest Deal LLC. Nachman also repre- sented Philip M. Nachman LLC in the more than $1.5 million purchase of 7,000 sf of ³ Jeremy G. Woods, CCIM, of Summit Realty retail property in Pasadena, Group in Indianapolis and two partners represented Texas, from Lost Boulder Partners LLC. Belkin International in the 10-year, more than $25 Lyle D. Chamberlain, million lease of a 798,096-sf distribution facility in CCIM, of Sperry Van Ness Plainfield, Ind., from ProLogis. in Reno, Nev., represented an undisclosed buyer in the $1.7 million purchase of a 2,800-sf retail property in Susanville, ´ Andrew Office D. Martin, Retail Calif., from Jack in the Box. ³ Soozi BIG Deal CCIM, of BIG Deal Jones-Walker, ´ Trisha A. Cassidy R.J. Neary, CCIM, and Ryan CCIM, and Talbot, CCIM, Turley in M. Zabrowski, CCIM, of ¶ Bobbi of GPE Commer- Indianapo- Investors Realty in Omaha, Miracle, CCIM, cial Advisors in lis and a Neb., represented Goodwill of Commercial Scottsdale, Ariz., represented partner represented Backhaul Industries in the $6 million Executives in Western America Commercial Direct LLC in the more than purchase of a 69,808-sf retail Las Vegas repre- LLC in the 10-year, more than $2.2 million lease of 16,213 sf property in Omaha from Seldin sented Charles- $4.6 million lease of a 18,367- of office space in Indianapolis Investments LLC. ton Marketplace Malcai LLC sf office space in Mesa, Ariz., from Jefferson Plaza LLC. Andy R. Fishler, CCIM, of in the more than 15-year, to Country Club Medical Group. Te Boerke Co. in Milwaukee more than $1.5 million lease ³ David represented two undisclosed of 10,395 sf of retail space in Ballard, CCIM, sellers in the more than $5.6 Las Vegas to La Espiga de Oro. of Reata Real million sale of a 94,500-sf J. Tyson Glasser, CCIM, Estate Services retail property in Menomonee of RealtyLink in Greenville, in San Antonio Falls, Wis., to Continental S.C., represented Hardee’s represented First Park Ten µ Timothy M. Brown, Fund 202 LLC. in the more than $1.1 mil- LLC in the 5-year, more than CCIM, and John G. Thomas F. Campenni, lion sale of a 2,854-sf retail $4.2 million lease of 65,000 sf Hoagland, CCIM, of CCIM, of Tomas F. Cam- property in Greenville, S.C., to of office space in San Antonio Hoagland Commercial Real- penni Co. in Stuart, Fla., a private investor group. to Transcom North America. tors in Louisville, Ky., repre- represented the lessee, CGP ¶ Matthew B. Fenster, CCIM, of Paragon Corporate sented Neuroscience Institute Real Estate LLC in the more Enterprises, and an undis- closed lessor in the 10-year, Industrial Realty Services in Troy, Mich., than $2.2 million purchase more than $3.5 million lease BIG Deal represented Dayco Products of a 33,000-sf office property of a 1,750-sf retail property in ´ Whitney E. LLC in the 11-year, $2.4 mil- in Louisville from AAA East New York. Kerr Jr., CCIM, lion lease of 25,124 sf of office Central. ³ Arthur of Colliers Turley space in Troy to Troy Indus- Joseph Muratore, CCIM, Stuart Nach- Martin Tucker trial LLC. of Benchmark Commer- man, CCIM, of in Kansas City, cial Real Estate Services in Long and Foster Mo., represented Glazers Modesto, Calif., represented Commercial Wholesale Distributors in the an undisclosed seller in the in Vienna, Va., represented 10-year, $7.2 million lease more than $1.7 million sale Pauline Nachman LP in the of 210,000 sf of warehouse of 16,000 sf of office space in 10-year, more than $3 mil- space in Kansas City, Mo., Tracy, Calif., to Orthopedic lion lease of 4,750 sf of retail from an undisclosed lessor. Properties Two LLC. space in Franklin, Tenn., from Kerr also represented Payless  May | June | 2010 Commercial Investment Real Estate
  • ShoeSource in the $4.5 million ´ Jack A. Alex Nottmeier, CCIM, of sale of 812,000 sf warehouse Haley, CCIM, Neal Turner Realty in Bowling property in Kansas City, Mo., of Lee & Associ- Green, Ky., represented Desa to PTMW. ates in Orange, Manufacturing in the $1.6 Calif., and a million sale of a 212,000-sf µ T. Patrick Murray, CCIM, partner represented D5W in manufacturing facility in of Real Estate Investment Team the more than $3.4 million Bowling Green to an undis- in Fayetteville, N.C., repre- purchase of a 33,415-sf indus- closed buyer. sented Ted and Sony McWil- trial building in Santa Ana, Susan Singer, CCIM, of liams in the more than $1.1 µ Terrance W. Bixler, Calif., from an undisclosed Bradford Commercial Real million sale of a 32-unit apart- CCIM, of Te Tomas A. seller. Estate Services in Dallas rep- ment building in Fayetteville to Duke Co. in Farmington resented Acquiport DFWIP Angel’s Court Apartments LLC. Hills, Mich., represented Paul in the more than 5-year, Opfermann PEO Holdings LLC in the $5.4 million sale more than $1.1 million lease of 48,838 sf of warehouse Financing of a 124,000-sf warehouse space in Richardson, Texas, to Paul B. Natalizio, CCIM, of in Canton, Mich., to Charles Optex Systems. Cornerstone Realty Con- Hawes Properties LLC. sultants in Malden, Mass., James P. Center, CCIM, of Grubb & Ellis Co. in City of µ Wesley Cox, CCIM, and Multifamily arranged the more than $1.5 million financing of a 28-unit Industry, Calif., represented Henry H. Hanna III, CCIM, BIG Deal apartment building in Malden the lessee, United Stationers of Sperry Van Ness–Miller ³ John W. Preiss, for an undisclosed buyer. Supply Co., and the lessor, Commercial Real Estate in CCIM, of The Preiss Grand Avenue Venture LLC, Salisbury, Md., represented Co. in Raleigh, N.C., Submit transactions to Deal Makers, CIRE, 430 N. Michigan Ave., Chicago, IL 60611; in the more than 4-year, $4.6 the seller, Regina USA, and represented Preiss-Wal PAT III e-mail to dealmakers@ccim.com; or fax million lease of a 214,177-sf the buyer, GKD-USA, in the in the $6.3 million purchase to (312) 373-8219. Include a high-res digital color property photo or head shot if warehouse property in Indus- more than $1.7 million sale of of a 164-unit student-housing available. try, Calif. a 65,705-sf industrial facility property in Statesboro, Ga., in Cambridge, Md. from Midland Bank. Advertisers’ Index 1-800-The-Sign.com .................19 Building Owners and Managers CCIM ROI Institute International .............25 CCIM Course Schedule ...............9 CCIM Education ........................ 11 CCIM ICSC RECon Booth ............3 ³ “STDBonline is an inte- CCIM Online Curriculum..............7 µ R.J. Neary, CCIM, and CCIM Preparing to Ryan M. Zabrowski, CCIM, gral part of my day-to-day Negotiate Course............ cover 2 CIRE Subscriptions ....................19 of Investors Realty in Omaha, business,” says Kenneth Education Foundation of Neb., represented Goodwill M. Kujawa, CCIM, of the CCIM Institute ..................31 Industries in the 11-year, Grandbridge Real Estate Capital 13 more than $4 million lease Century 21 Signature Merlin Information Services.......21 Prudential Commercial of a 91,939-sf flex property Realty in Saginaw, Mich. “I Real Estate ...............................5 in Omaha from South 72nd Re/Max International ......... cover 4 use the Pictometry imagery, satellite maps, STDBonline ....................... cover 3 Street Associates LLC, repre- sented by David H. Maenner, and reports to assemble brochures for every Walmart Realty .......................... 17 www.ciremagazine.com ..............2 CCIM, of CB Richard Ellis/ property I work on.” Kujawa recently lev- Looking for more information on MEGA in Omaha. Neary and eraged this member benefit to market a a product or service? Visit our Zabrowski also represented advertiser Web links on CIRE Goodwill Industries in the 24,000-sf industrial property in Zilwaukee, magazine’s Web site at www. ciremagazine.com/advertisers.htm. $2.5 million sale of a 60,064- Mich., which sold for more than $1 million For advertising information contact sf warehouse in Omaha to Kathleen Thomas at (202) 721- to an undisclosed buyer. 1497 or kthomas@ccim.com. Douglas County, Neb. ciremagazine.com May | June | 2010 
  • CCIM CONNECTIONS Whether they call it STDBonline, STDB, or Site to Do Business, CCIMs use this powerful site analysis and demographic data tool on a daily basis. It’s one of the many member benefits that boost CCIMs ahead of the competition. Ã Fast Data In the time it took to discuss a client’s new- STDBonline’s Pictometry imagery location concerns on the phone, we put together a full STDB package including A New Angle demographics, aerial map showing compe- Using the STDB Pictometry tition and services in the area, and traffic oblique tool, I was able to pro- counts. It was e-mailed to him and received duce a customized aerial dis- before the call was completed. He could not New Tools play of a former corporate HQ building with believe the data we sent over so quickly! He Te new map annotation and aerial photos a unique large acreage campus — even as was sold on the location and we are final- are great. I also use the business list quite a a rank amateur on a PC. Zoom-out shots izing the lease now. bit to prospect and do mailings. highlight key location advantages, the — Soozi Jones-Walker, CCIM — Craig Johnson, CCIM, RECS neighbors, and the nearby interstate exit. — Sydney Machat, CCIM STDBonline Webinars keep my knowledge base up-to-the- minute with the latest advances from this invaluable platform. — Garry Cuff, CCIM Money-saving Research Deal Closer STDB has saved us millions of dollars over the years with its research poten- I recently closed a $5.6 million retail transac- tial. When presented with a buy opportunity, STDB is the first place we go to tion where I was able to successfully utilize learn the market. By looking at maps, demographic reports, and businesses in STDB’s mapping system to help my client the area, we are able to quickly eliminate properties without having to waste obtain the absolute highest value for their thousands of dollars through travel. property, which will accommodate a 103,000- — Beau Beery, CCIM, MSRE square-foot build-to-suit grocery store. Getting the Business — Andy Fishler, CCIM In today’s down market, owners want to know exactly how you are going to solve their vacancy issue. I’ve used STDB to do just that — walk the prospective listing client through my process to show them exactly who I will target and even provide them with a sample list of who those targets are. Owners love this sort of thing and it can really set you apart. — Jeremy Woods, CCIM Lender Info We utilized STDB to produce a lender report to show a site’s potential as a restaurant. Tis Next How do you use your local CCIM chapter resources? Send your responses to sdrummond@ccim.com. To read what other deal ultimately won the Beaumont Board of Realtors’ 2009 Commercial Transaction Issue CCIMs say about STDBonline and other member benefits, go to “CCIM Connections Continued” at www.ciremagazine.com. of the Year. — Lee Y. Wheeler III, CCIM  May | June | 2010 Commercial Investment Real Estate
  • What You Need. To Succeed. Supported by one of the biggest names in real estate, RE/MAX Commercial® offers you the ⇑exibility, networking and earning potential for success in today’s market. When you join RE/MAX Commercial you immediately bene⇒t from: • More Money in Your Pocket – The RE/MAX Maximum Commission program ensures you keep more of what you earn. • Unparalleled Brand Awareness – Customers know and trust RE/MAX, which directly transfers to your RE/MAX commercial business. • Flexibility – You are free to use the technologies, strategies and tools that work for you, while still being supported by one of the biggest names in commercial real estate. • Direct Agent-to-Agent Referrals – RE/MAX Commercial agents work directly with more than 90,000 agents in 70 countries, without any third-party referral fees. • Signi⇒cant Web Presence – Commercial listings on remax.com® average 3 million page views each year. And RE/MAX is the highest-ranked real estate sales organization on Google searches for “Commercial Real Estate.” • Successful Agents – RE/MAX Commercial agents boast more than $60 billion in total volume since 2003. Join RE/MAX Commercial, and position yourself for success in today’s market. RE/MAX. Outstanding Agents. Outstanding Results.® RE/MAX Commercial 303.770.5531 remaxcommercial.com An equal opportunity employer. ©2010 RE/MAX International, Inc. All rights reserved. Each RE/MAX® of⇒ce is independently owned and operated. 100062