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Resi-Mercial

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Roger Frost's Resi-merical class is the one day bridge program to take a residential agent and give them an overview of transitioning to commercial.

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Resi-Mercial

  1. 1. Residential/Commercial Transition From the Frying Pan into the Fire Presenter – Roger Frost
  2. 2. How will the day progress! <ul><li>Breaks – lunch, potty etc </li></ul><ul><li>Methodology </li></ul><ul><li>Getting to know each other </li></ul>
  3. 3. Who are we all <ul><li>Name </li></ul><ul><li>Company </li></ul><ul><li>Why are you here? i.e. what do you want to get out of the session . </li></ul>
  4. 4. Roger Frost <ul><li>President of Crown Realty LLC </li></ul><ul><li>Ditto Crown Capital </li></ul><ul><li>Ex Academic </li></ul><ul><li>Ex Corporate Executive </li></ul><ul><li>One-time sailor </li></ul>
  5. 5. GOALS <ul><li>To obtain a clearer understanding of what commercial real estate is about so you can better serve your clients </li></ul><ul><li>To begin to develop a network of like minded folks so as to better serve your clients. </li></ul>
  6. 6. It’s not about you! <ul><li>IT’S ABOUT YOUR CLIENTS ! </li></ul>
  7. 7. What is Commercial Real Estate? <ul><li>Anything you can’t (legally) live in. </li></ul><ul><li>Technically any residential property over four units. </li></ul><ul><li>NOTE: a portfolio of SFH used as rentals is NOT considered commercial RE by HUD and thus Lenders. </li></ul>
  8. 8. Types of Commercial RE <ul><li>Multi-family </li></ul><ul><li>Fairly stable </li></ul><ul><li>Many “tenants” – spreads risk </li></ul><ul><li>Highly regulated </li></ul><ul><li>Financable – if pencils </li></ul><ul><li>Possibly Condominiumizationable </li></ul><ul><li>Various sizes </li></ul>
  9. 9. Types Continued: <ul><li>Office </li></ul><ul><li>Fairly stable </li></ul><ul><li>Single user to many tenants </li></ul><ul><li>Good financing </li></ul><ul><li>Condominiumizationable </li></ul>
  10. 10. Types continued: …… <ul><li>Hotels </li></ul><ul><li>Flagged – unflagged </li></ul><ul><li>Location – very important </li></ul><ul><li>Investment grade – sometimes. ( How do hotel chains hold real estate? Answer – many don’t) </li></ul><ul><li>Financing OKish </li></ul><ul><li>Various formats – condo hotels etc </li></ul>
  11. 11. Types Continued: <ul><li>Industrial </li></ul><ul><li>Special Purpose – often very. </li></ul><ul><li>Small market </li></ul><ul><li>Convert to ?????? </li></ul>
  12. 12. Types Continued : <ul><li>Health Care </li></ul><ul><li>SNFs </li></ul><ul><li>ALFs </li></ul><ul><li>Hospitals </li></ul><ul><li>Hospices </li></ul><ul><li>Drug Rehabs </li></ul>
  13. 13. Types Continued: OTHERS <ul><li>C-Stores: Environmental issues especially with gas stations attchd </li></ul><ul><li>Churches: and other Religious property </li></ul><ul><li>Agricultural: Farms, forests, woodland etc </li></ul><ul><li>Other Land: Development etc </li></ul><ul><li>Marinas: </li></ul><ul><li>Other: ???? </li></ul>
  14. 14. Types by Another Cut <ul><li>LOCAL: - SMALL STUFF FOR LOCAL FOLKS </li></ul><ul><li>REGIONAL: I.E. LIKE State Wide </li></ul><ul><li>NATIONAL: FOR THE BIG BOYS </li></ul>
  15. 15. Why is Geography Important?? <ul><li>Because ……..? </li></ul><ul><li>……… . Licensing becomes an issue. </li></ul><ul><li>……… . Marketing becomes an issue. </li></ul>
  16. 16. YET ANOTHER CUT … <ul><li>Owner / User </li></ul><ul><li>Multi-tenant </li></ul><ul><li>Investment </li></ul><ul><ul><li>Triple net leases: WALGREENS EXAMPLE </li></ul></ul><ul><ul><li>TICs ??????? </li></ul></ul><ul><ul><li>Tenants in Common – similar to fractional ownership of residential property. </li></ul></ul><ul><ul><li>( ISSUE – who sells – real estate brokers or investment advisers?) </li></ul></ul>
  17. 17. Aside Stage Left for a moment … <ul><li>General Growth Properties – todays Washington Post </li></ul><ul><li>Circuit City </li></ul>
  18. 18. NOT ONLY BUT ALSO Special Purpose VS General <ul><li>Special purpose appeals to narrow market, specialized use like assisted living facilities, factories etc </li></ul><ul><li>General commercial real estate appeals to wide market – like apartments or offices. </li></ul>
  19. 19. Issues for all commercial real estate! <ul><li>Value – both for listing and purchase </li></ul><ul><li>Third party reports </li></ul><ul><li>Financing </li></ul><ul><li>Listing </li></ul><ul><li>Contracts </li></ul><ul><li>Marketing </li></ul><ul><li>This is what we’ll be covering today! </li></ul>
  20. 20. WHAT IS “VALUE” ? <ul><li>Some form of measurement of worth </li></ul><ul><li>NO SUCH THING AS “INTRINSIC VALUE”!!!! </li></ul><ul><li>Value is purely in the eye of the beholder </li></ul><ul><li>Today’s problem is no-one knows how to value things – houses, commercial real estate, toxic assets etc. </li></ul>
  21. 21. Exercise – Valuing a Golf Course!
  22. 23. Value Contd. - Commercial Appraisals <ul><li>What is an MAI appraisal? </li></ul><ul><li>Review examples </li></ul><ul><li>Assumptions </li></ul><ul><li>Exposure time </li></ul><ul><li>Different value parameters </li></ul><ul><ul><ul><li>Income capitalization approach </li></ul></ul></ul><ul><ul><ul><li>Sales comparison approach </li></ul></ul></ul><ul><ul><ul><li>Cost approach </li></ul></ul></ul>
  23. 24. Components of Commercial Value <ul><li>Real Property </li></ul><ul><li>FF&E </li></ul><ul><li>Business Value </li></ul><ul><li>= </li></ul><ul><li>TOTAL MARKET VALUE </li></ul><ul><li>(As Is) </li></ul><ul><li>QUESTION: What does a Lender lend on???? </li></ul>
  24. 26. Other Third Party Reports <ul><li>Phase 1 Environmental: See Example </li></ul><ul><li>Who is calling the shots – State and Banks </li></ul><ul><li>- USTs </li></ul>
  25. 27. Other Third Party Reports <ul><li>Phase 1 Environmental: See Example </li></ul><ul><li>Property Condition Assessment: Example </li></ul>
  26. 28. And now for something completely different!!! <ul><li>FINANCING COMMERCIAL REAL ESTATE </li></ul>
  27. 29. Issue # one --- <ul><li>Does it Pencil? </li></ul><ul><li>OR </li></ul><ul><li>How much debt can it support? </li></ul><ul><li>What’s it’s Debt Capacity? </li></ul>
  28. 30. Debt Capacity Calcs! <ul><li>Some terminology:- </li></ul><ul><li>- EBITDA – Absolutely NOT profit </li></ul><ul><li>E arnings B efore I nterest, T axes, D epreciation, A mortization. </li></ul><ul><li>It represents the amount of cash available, or the businesses Cash Flow </li></ul>
  29. 31. Debt Capacity Calcs! <ul><li>Some terminology:- </li></ul><ul><li>- EBITDA – Absolutely NOT profit </li></ul><ul><li>- DSCR - </li></ul>
  30. 32. Debt Capacity Calcs! <ul><li>Some terminology:- </li></ul><ul><li>- EBITDA – Absolutely NOT profit </li></ul><ul><li>- DSCR - Debt Service Coverage Ratio </li></ul>
  31. 33. Debt Capacity Calcs! <ul><li>Some terminology:- </li></ul><ul><li>- EBITDA – Absolutely NOT profit </li></ul><ul><li>- DSCR - Debt Service Coverage Ratio </li></ul><ul><li>This represents the amount of cash available for RE Debt Service. </li></ul><ul><li>Who determines the DSCR? </li></ul><ul><li>Lenders! </li></ul>
  32. 34. Debt Capacity Calcs! <ul><li>Some terminology:- </li></ul><ul><li>- EBITDA – Absolutely NOT profit </li></ul><ul><li>- DSCR - Debt Service Coverage Ratio </li></ul><ul><li>- Rate – Interest Rate. </li></ul>
  33. 35. Debt Capacity Calcs! <ul><li>Some terminology:- </li></ul><ul><li>- EBITDA – Absolutely NOT profit </li></ul><ul><li>- DSCR - Debt Service Coverage Ratio </li></ul><ul><li>- Rate – Interest Rate. </li></ul><ul><li>- Term – When does it balloon </li></ul><ul><li>- Amortization period – if fully amortized. </li></ul>
  34. 36. Calculating Debt Capacity <ul><li>Going through the numbers </li></ul><ul><li>Key Formula for Debt Capacity:- </li></ul><ul><li>Available cash (per mnth) divided by monthly payment on $100,000 loan times 100,000 </li></ul>
  35. 37. Listings! <ul><li>Nothing particularly different! </li></ul><ul><li>Special Contract for land </li></ul><ul><li>All disclosures etc needed </li></ul>
  36. 38. Listings! Nothing particularly different! But Wait ‘till be go to the next page!!!!!
  37. 39. MAKING AN OFFER! <ul><li>LOIs </li></ul><ul><li>Letter of Interest </li></ul><ul><li>OR </li></ul><ul><li>Letter of Intent. </li></ul><ul><li>See Example </li></ul>
  38. 40. Contract to Purchase. <ul><li>State ones non-existent or useless </li></ul><ul><li>Get Your lawyer to do one for you. </li></ul>
  39. 41. Marketing your Commercial Listing! <ul><li>MLS Pretty Useless – blasphemy!!! </li></ul><ul><li>For sale offering – Riverdale example </li></ul><ul><li>E-Mail Flyers – getting your e-mail addresses. </li></ul><ul><li>Internet – Loopnet, Netlist etc. </li></ul><ul><li>Signs – very important especially for local deals. </li></ul>
  40. 42. ANY QUESTIONS? I’ll Try to Answer them
  41. 43. That’s all Folks! I hope: You enjoyed the session Learned something And can now better serve your clients

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