Browse Month: June 2012

Hanging Out The Shingle: Three Commercial Real Estate Startups

screenshot of the square foot.com
TheSquareFoot.com

Market upturns such as we’re experiencing bring a greater number of entrepreneurial projects – it’s the free enterprise system’s most reliable behavior and probably its greatest feature.  Without entrepreneurs, markets and wealth would concentrate into an ever-smaller segment and stagnation would follow, as discovery of new ways of adding value would be postponed forever.

Commercial real estate is no exception.  Practitioners, tech folks and others split off from brokerage or services firms to seek their own fortune, widening the marketplace and leveraging what and who they know — and why and when they know it.   The ways in which this takes place changes over time, even if the motivations don’t.  Let’s take a look at three such new arrivals to the commercial property marketplace.

The Square Foot: Full-Service SMB Leasing 

Retail, industrial and office space searching can be a pain for prospects and reps.  Common listings allow for search criteria that only tell part of the story and leave too much room for barking up the wrong tree.  But helping prospects to see themselves as tenants in a property at the time of search is a technical innovation at The Square Foot.  One thing that’s eye-catching and time-saving  in this application is the way it translates square footage into “room for x or more people”, and does so at search time by implementing a slider.  This allows the prospect to mouse her way toward an business expansion target expressed in headcount — something out on the horizon, yet informing the search right now.  Smart application design.

Dallas’s Ridge Pointe: Big-Firm and Fund Manager Team Up To Serve The Underserved

All the commercial real estate search innovation in the world isn’t going to add any value to a retail or office deal unless experienced pros are there to shape the deal and to read the area’s economic opportunity.  That’s the thinking behind the new Dallas brokerage Ridge Pointe Commercial Real Estate.  founded by former UCR broker David English and Jeff Grinnan of Magnim, Corp:

The company will focus on retail and office projects and clients in eastern communities, including Rockwall, Rowlett, Forney, Terrell, Mesquite, Garland, Sunnyvale, Greenville, and Royce City. “We think there is an opportunity for a full-service, community-based commercial real estate firm that focuses on areas underserved by other firms,” English said.

He and Grinnan are longtime friends who both live in the Rockwall area, which gives them “unfair advantage,” English said: “We intimately know the market and understand it because we live in it. We want to add value to the area and do things that are beneficial to the community.”

42 Floors: Meeting Startup Office Needs In Technology’s Cradle

The San Francisco / Silicon Valley commercial property market is the nation’s startup business showcase.  Venture capital firms are channeling billions into finding the next big tech hit, and the office market is always reflective of that attention.

42 Floors focuses on the needs of the Bay Area startup business, but doesn’t stop at the floor space.  Using a very contemporary and elegant site design, 42 Floors puts together map searching with the “Showroom” – the place where the startup’s need for everything from whiteboards to onsite haircuts is only a click away.  This joining of searching for both space and for stuff to put in it is similar in concept to Rofo.com, but implemented less as a social application  and more as a very intuitive walk through the possible.  This is one commercial RE app that’s ideally matched to the psychology and patterns of creating a startup.

 

United States Real Estate Market Ranked Most Transparent, Says Jones Lang LaSalle

Jones Lang LaSalle

As the global commercial property market evolves, it is marked by two kinds of growth. First, the sources of investment capital grow in number around the world. Then comes growth in the number of destinations for such capital. Buyers and investors in commercial real estate are increasingly international, so investments and returns have to make long trips to get where they’re going. When that’s true, the demand for clarity, predictability, reliable measurement and sustainability — known collectively in commercial real estate as transparency — becomes increasingly important.

The United States Provides Great Transparency In Commercial RE Deals

The 2012 Global Real Estate Transparency index released by real estate services firm Jones Lang LaSalle this week places the United States on the top of the list when it comes to transparency in real estate. The study looked at nearly 100 real estate markets worldwide and at nearly as many different factors:

Among key findings from the report:

  • The United States ranks as the world’s most transparent real estate market in 2012, followed by the United Kingdom and Australia. Also ranking as ‘Highly Transparent’ : Canada, Netherlands, New Zealand, France, Finland, Switzerland and Sweden.
  • The MIST growth markets (Mexico, Indonesia, South Korea and Turkey) are significantly improving in transparency, with Turkey leading the way.
  • Looking at regions, Latin America shows the strongest progress in transparency.
  • Environmental sustainability and energy efficiency  has emerged as an important transparency factor with the United Kingdom, Australia and France the most transparent markets in terms of real estate sustainability. The UK has a long history of building energy efficiency system and introduced the world’s first Green Building rating system.  Australia has been the test bed for new environmental laws, regulations and incentives.

What Is Transparency?

Transparency in commercial real estate is a complex set of public and private factors that interrelate to produce a positive environment for investment and economic growth.  One defining aspect of transparency is the publishing of data — by government, by lenders, by practitioners, by owners — so that key performance indicators are easily available in order to allow comparisons and benchmarking.  Transparency is both a count of the number of these indicators as well as their reliability.   Law and regulation in the US tends to produce more real estate market transparency in the net.

How Does Sustainability Relate To Transparency?

One example of a private indicator that adds to transparency is the set of various metrics illuminating the performance of a commercial property, right down to its energy efficiency.  How much energy per square foot a property uses in a month can make or break a decision to invest in that property today; energy markets are volatile and capital is making a very long trip these days.  Today, the energy profile of a property is no less important than its debt load, permitting/zoning, improvements history or other obviously critical indicators when evaluating potential investment.
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NAR Commercial’s Bill Armstrong And Bob Goldberg On The New NAR Commercial Member Benefits

 

NAR VP of Marketing Bob Goldberg

Today’s NAR Commercial podcast by NAR Treasurer Bill Armstrong is loaded with new developments and member benefits for NAR Commercial REALTORS®.  Bill sat down with NAR Commercial Senior Vice President of Marketing Bob Goldberg to run down the recent and exciting changes in the marketplace for commercial property listings, research, solutions and more.

Watch the entire video cast here.

Podcast highlights include:

  • Discussion of the competitive landscape shifts and recent commercial property information marketplace mergers, a background against which these new developments are taking place
  • Announcement of CommercialSearch.com, a major new public search benefit under development
  • The role of new NAR Commercial benefits partner Xceligent in providing better, faster and less expensive research and information solutions for commercial practitioners
  • The role of competition in delivering the highest quality, lowest-priced solutions and products for NAR Commercial members
  • The future of ePropertyData and CommercialSource.com along with NAR Commercial’s new offerings
If there’s one thing we can count on in commercial property, it’s change. Stay tuned right here at The Source blog and our Twitter account for the latest developments in this ever-evolving market.

Three Long-Term Looks At Commercial Real Estate

There’s no doubt we see many signs of recovery in the national commercial real estate market.  But as with any gigantic, inter-related collection of localities, sectors and instruments, it’s tough to know with any certainty what to expect long-term.  As always, there’s plenty of room for disagreement about what lies beyond the horizon. Here are three conflicting looks at the CRE market long-term:

The Good: At this month’s NREI’s Strategic Real Estate Investment Conference in New York, panelist Arthur Mirante, principal and tri-state president of Avison Young painted a sunny picture of commercial investment, noting its steady attractiveness when compared to stocks.  While he points out that knowing the market means mastering complexities, he believes that long-term, commercial real estate is the better value.

You can watch the full video interview with Mirante at NREI’s page.

The Bad: When a big bank issues a new CMBS — that is to say, when a bank gets into the selling of the mortgage debt of commercial properties, the length of term of these bonds helps to tell us how much risk the bond issuer thinks is present with the underlying commercial mortgages.  Shorter terms means a perception of higher risk.  And JP Morgan Chase’s latest CMBS issue includes fewer 10-year notes and more 7-year notes, meaning they are “bowing to duration risk”, or, finding less happiness in the long-term CRE picture than you or I might.

The Not-So-Ugly: Then again, if giant banks were any good at evaluating mortgage risks, high or low, the country wouldn’t be in the hole economically now, would it? Moving along from our pinstriped friends to more, well, expert persons on the subject, we find an interesting long-term view from Jeffrey I. Friedman, CEO of Associated Estates, a multifamily REIT with much midwestern apartment property in its portfolio.  Friedman’s long-term take “sees a lot of runway left” for apartments with a mixed forecast.  Most interestingly, he thinks it’s a misconception to see job growth as the driver for apartment demand.  Instead, he says, it’s family formation. Check out the whole interview with Friedman here.

What’s your long-term view on commercial property markets?

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Stay On Top Of Important Local And National Commercial Real Estate Legislation With Scout

One of the greatest things about our system of government is the amount of lawmaking done in public.  The texts of bills, and speeches on bills of all kinds is public information. When proposed laws come up, we have a chance to see what they are, where they came from, who they will benefit, who they will impact and why, and when the votes are coming.

But because of all the work involved, it’s still a only a slim chance.  Being allowed access to this information is merely the first step. For example, NAR Commercial’s efforts on Capitol Hill include this exhaustive work of staying on top of the congressional record, watching carefully for issues that relate to commercial real estate when they arise, tracking their progress through the chambers and replicating all of this for all 50 states in addition to DC.

Before action comes alert, filtering, progress monitoring.  So when a free software tool comes along to allow individuals to help out with the legwork needed before action, you bet we’re going to talk about it.

The Sunlight Foundation is a non-partisan, non-profit based in DC dedicated to making government transparent and accountable.  They’ve rolled out Scout, which is an awesome new tool that alerts you when Congress or your state house proposes legislation that affects you or your commercial real estate clients.  You set up keywords such as “retail” or “commercial real estate” or “property tax” and the site will alert you when these terms appear in pending legislation — including in your state house!

Scout’s uses for commercial real estate pros are many.  All real estate is local, and so is all state legislation. Since Scout works with state houses and not just DC, there are numerous opportunities to use it to directly add value to your relationships.  Early warning about legislation coming down the pike in the state house about road construction in a given area can be a great subject of discussion between you and your retail clientele.  Bills proposing anything touching financial issues probably matter to your clients – Scout lets you be the one to bring them up.

Similarly, when Congress in DC kicks around changes in REIT accounting, it can help those of you in the investment side know what’s coming tax-wise and adjust accordingly.

Check out Scout. Watch the short tutorial video below and share with us what you find.  Help us keep government working for you.

 

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Five Great Tips For Doing More Commercial Business From Bret Hunsaker

English: building in , .

Bret Hunsaker lives for new business.  A 25-year commercial real estate pro active in the Atlanta Commercial Board of REALTORS®, Bret was named by the 3,000-member group 2010 REALTOR® of the year.  What got him there was his talent and skill in acquiring new business, in national marketing and relationship building. The NAR Commercial Intelligence Briefing podcast sat down with Bret and got him to share some of his wisdom on how to do more commercial business.

  • Master, but don’t overemphasize social media: While it is “hotter than battery acid” and Bret says it’s something you have to know and understand, it belongs as part of your overall strategy — not as a replacement.  “It’s only a part,” says Bret. The traditional networking methods are in no way obsolete. “You still have to get out there, cold call, canvas, direct mail.”
  • Go back to existing clients in tough markets:  The thing to remember is that rough times are felt by all.  When you stay in touch with your existing clients even if the deals aren’t flowing, when the gloom lifts, those same people will be calling you. “During the trying times, the best people to go back to are your existing clients. Go back to them. If you step up to clients who know you, and do the right things, you’re going to see the calls coming into your office when the upturn happens.”
  • Always listen. With prospective clients, Bret counsels listening very closely in an initial meeting.  “The number one thing in any new prospect meeting is to listen.  Because in 15-20 minutes,  you’ll know the most important thing to them — and it may not be their business.  Whatever it is,  you should follow up on it.  It could be their family.  It could be a trip they’re taking.  It could be a soccer tournament — whatever it is, build a relationship by listening to what is important to them and following up on what you hear.”
  • Look closely at the trade organizations your clients are members of.  Hunsaker, like all REALTORS, knows the value of a strong trade association.  It brings professionals together to promote ethical opportunities.  The thing for commercial real estate pros to remember is while they may not be eligible to join a client’s trade association, they can still be a source for commercial real estate knowledge.  “I make sure clients tell me what organizations they’re members of.  You can be a speaker, contribute to their websites, be a source for them on CRE.  if you cant join as a member, you can be a guest.  Put yourself in a position to be of value with your expertise.”
  • Hit Your FDO Goals.  What Bret calls FDOs are the Food and Drink Opportunities – those chances to sit down face to face for coffee, lunch, golf — you name it. Counsels Bret: “If you’re in sales and you’re not having personal interaction, you’re probably not doing it right. I count up a maximum of 780 FDOs in a year.  If youre doing under 200 of those in a year, you’re probably not a salesperson.  If you’re doing over 600, you might have to check into the Betty Ford Clinic!”  Bret says to aim for somewhere in that range.   “I plan it out two weeks in advance to make sure the scheduled is filled.  You have to plan, be thoughtful and put yourself out in front of other people.”
You can listen to the entire cast and pick up all of Bret’s great ideas at the NAR Commercial Intelligence Briefing Podcast
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Recovery Not Limited To Biggest Commercial Markets, Says CCRSI

Picture of a small town mall

The June 2012 CoStar Commercial Repeat Sale Indices are a look at a limited number of repeat commercial repeat sales.  The numbers look at a set of repeat sales in April 2012 in two main ways: value-weighted, meaning relevant to premium properties and markets in order to see broader trends in capital flow in commercial markets, and equal-weighted, which focuses on more average-priced commercial properties.

It’s the equal-weighting that suggests that the broader economic recovery is lifting prospects for not just the big city office towers, but now also for the smaller malls and office complexes making up the secondary and tertiary markets.  Having lagged behind the recovery in primary markets, the suggestion is that smaller communities are feeling some long-delayed relief in their commercial property markets.

APRIL PRICES MIXED: The two broadest measures of aggregate pricing for commercial properties within the CCRSI–the equal-weighted U.S. Composite Index and the value-weighted U.S. Composite Index–posted a 1% gain and a 2.2% retreat, respectively, in April, although both advanced over year-ago levels. The equal-weighted index weighs each repeat-sale equally and is therefore heavily influenced by the more numerous smaller transactions, and the value-weighted index weighs each repeat-sale by transaction size or value and is therefore heavily influenced by larger transactions.

Other items in the CCRSI:

Value-weighted gains slightly down: Indicators for the primary market fell somewhat, suggesting a bit of  a leveling off of prices  in the primary commercial real estate markets.

Distress levels on the decline: Only 24.3% of observed property trades in the study were distressed, which is down over 12% from the peak level of March 2011.

European Investors On The Rise: The study found the share of US commercial property purchases by European investors has more than tripled from 2011 levels.

Check out a summary of the CCRSI here.

Photo credit

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NAR Signs Letter Supporting US REIT Act: What’s In The Bill?

English: Capitol Hill

Some commercial real estate advocacy news from the Hill: Hon. Patrick J. Tiberi (R-OH) and Hon. Richard E. Neal (D-MA), both co-sponsors of H.R. 5746, also known as the Update And Streamline REIT Act (U.S. REIT ACT)  received a letter from NAR and major trade associations in support of the Congressmen’s bill.

Letter text:

June 11, 2012

The Honorable Patrick J. Tiberi The Honorable Richard E. Neal

United States House of Representatives United States House of Representatives

106 Cannon House Office Building 2208 Rayburn House Office Building

Washington, D.C. 20515 Washington, D.C. 20515

Dear Representatives Tiberi and Neal:

On behalf of the commercial real estate industry, we are writing to express our support for H.R. 5746, the Update and Streamline REIT Act (U.S. REIT Act), and to thank you for your leadership in co-sponsoring this non-controversial, bipartisan legislation.

In 1960, Congress enacted the original tax provisions that created the opportunity for individual investors to obtain the benefits of large scale, income-producing real estate while diversifying their investment portfolio. Today, REITs are widely held entities that own about $900 billion of commercial real estate properties, amounting to approximately 20% of investment grade commercial real estate in this country. At little or no revenue cost, the U.S. REIT Act would make a number of narrowly targeted, but important, changes to the tax rules applicable to REITs to enable them to operate effectively, keep up with market changes, and remain consistent with the Congressional goal of more than five decades ago of making professionally managed, income producing real estate available to investors from all walks of life.

Commercial real estate is an important contributor to the U.S. economy and impacts the way in which Americans live, work, shop, and carry on business. REITs are a small but significant part of the larger real estate community. We applaud your efforts to keep the rules governing REITs up to date to make it easier for investors to diversify their retirement and savings portfolios, and we fully support H.R. 5746.

Sincerely,

American Hotel & Lodging Association

American Land Title Association

American Resort Development Association

American Seniors Housing Association

Building Owners and Managers Association (BOMA) International

CCIM Institute

CRE Finance Council

Institute of Real Estate Management

International Council of Shopping Centers

Investment Program Association

Manufactured Housing Institute

NAIOP, Commercial Real Estate Development Association

National Apartment Association

National Association of Real Estate Investment Trusts

National Association of Realtors

National Multi Housing Council

Realtors Land Institute

Society of Industrial and Office Realtors

The Real Estate Roundtable

So What’s In The Bill?

The U.S. REIT act (full text of the bill here) (detailed summary from REIT.com here) proposes changes in the law governing the sale of REIT assets, the distribution of dividends and other aspects.  A quick summary follows:

Dealer Sales Safe Harbor Provisions

Under some conditions, REITs can earn a stiff penalty of 100% taxability on the sale of certain assets.  In “prohibited transactions” or “dealer sales” as currently defined, an rental or timber asset meets certain thresholds of capital improvements made to a rental property or a REIT has performed greater than seven sales during that year.  The bill proposes the liberalization of these requirements, making it easier to operate effectively and with the liquidity they need.

The Preferential Dividend

Tthe current rules on distribution of dividends among a REIT’s investors are under proposed change.  The change is proposed in the wake of the Regulated Investment Company Modernization Act, signed into law in 2010.  In that law, mutual fund preferential dividend distribution rules were liberalized; the U.S. REIT act seeks similar loosening and related changes.

More: Income and Asset Tests, Duplicative Taxation

Also up for change is the formula allowing what ratios of asset classes REITs may hold, as well as a change in accounting rule that seeks to avoid the current potential for double taxation.

Check out the entire summary from REIT.com here.

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A Tale Of Shale: Is Ohio’s Commercial Property Market Improvement A Pilot For Neighboring States?

Chart of Utica Shale drilling permits by month June 2012

A recent Bloomberg article trumpets a turnaround in Ohio’s commercial property market. Driving this is the land value represented by Ohio’s portion of the energy-rich Utica Shale, a giant deposit of oil and natural gas about 8,000 feet below the eastern Ohio landscape.

A study by researchers at Cleveland State University, Ohio State and Marietta College says energy production in Ohio may add nearly $5 billion to the state’s economy in 2014. The buried riches are spurring economic activity of all kinds, from generating billions in land leases to converting rural properties into industrial parks to meet the soaring demand for space by energy service companies.

The clamor of bulldozers on a patch of former farmland in rural Carroll County, Ohio makes Glenn Enslen, the county’s economic development director, feel “like an eight-year-old kid on Christmas morning,” he said.

The 330-acre tract of Appalachian property is being transformed into an industrial park. The first tenant will be MRC Global Inc. (MRC), a Houston-based pipe and valve supplier that will serve Ohio’s emerging oil and natural-gas industry.

Traditional measures of commercial property market health including delinquency rates are looking bright in the Buckeye State:

Bloomberg notes that Ohio, which had the seventh-highest commercial property delinquency rate in the country in December, according to Moody’s Investors Service, is showing signs of marked improvement.

“The delinquency rate on commercial mortgages packaged and sold as bonds in Ohio dropped to 8.74 percent in June from 11.28 percent a year earlier, according to data compiled by Bloomberg,” the story finds. Meanwhile, late payments for commercial loans in Youngstown, in the heart of fracking activity in the state, declined to 5.69% in June from 7.75% a year earlier.

As a result, Bloomberg notes, Youngstown “is starting to change.” For instance, hotel revenue rose 24% and occupancy gained 19.6% in the Youngstown area in April compared with a year earlier, according to data from Smith Travel Research Inc.

“The shale is just part of the puzzle,” said Michael Moliterno, general manager of the Holiday Inn in Boardman, about five miles from Youngstown. “Overall we’re doing well.”

Only One Of Eight States Atop Utica Shale

The Utica Shale is a massive geological formation that sprawls across many states and into Canada. It lies under most of Ohio, New York, Pennsylvania, and West Virginia and touches adjacent parts of Kentucky, Virgina, Maryland and Tennessee. The entire formation is estimated to contain as much as 5.5 billion barrels of oil and 15.7 trillion cubic feet of natural gas.

With numbers and size like this, can similar development — and possibly similar economic benefit —  be expected in other states?  Ohio is currently the leading explorer and developer of the Utica Shale, but a map of drilling permits shows activity centered along both sides of the Pennsylvania border. It would not be surprising to see this pattern extend across the entire Shale — and into all the states that share it.

On Shaky Ground?

The Utica Shale differs from more familiar oil deposits in an important way: drilling is horizontal, not vertical, and extracting the gas or oil involves a relatively new technique of injecting treated water at high pressure into the formation.  As with all new technologies, the benefits come with problems, and all the problems don’t surface right away.  Some are linking the practice, called phracking, to a recent string of earthquakes near Youngstown.  Others claim no such linkage, but the jury’s still out.

Is Ohio’s shale-aided commercial real estate recovery standing on solid ground?  Time will tell.

Federal Reserve Updates On Commercial Real Estate: Two Stories At Once?

English: A map of the 12 districts of the Unit...
A map of the 12 districts of the United States Federal Reserve system. (Photo credit: Wikipedia)

The Federal Reserve has issued some changes concerning commercial real estate. One is a clear positive in its new Beige Book, or collection of economic conditions across the country, and another change is more ambiguous — a proposed update in the Fed’s capital requirements made of banks.

First, the good news:

The Beige Book: Demand Is Up For Commercial Property Loans

A piece in Credit Union Times tells the tale of the Fed’s new Beige Book, that report of nationwide economic conditions.  The new Beige Book contains reports from several districts across the Federal Reserve System that delinquencies on commercial loans are down, and that has fueled demand for more commercial property loans.

According to the Fed, the Atlanta district led the way with the greatest increase in demand for commercial loans:

A number of districts, including Cleveland, Atlanta, Chicago, Dallas, and San Francisco, said loan pricing remained quite competitive. Several districts noted increased demand for capital spending loans.

The Fed said lending standards were relatively unchanged to slightly easier across districts and loan types. Most district banks said loan delinquencies continued to decline as credit quality remained solid and loan quality improved.

 “Given the woes from the past couple of years, whether intellectually or emotionally perceived, the reports should be seen as good news for the industry,” according to Brian Turner, director and chief strategist at Catalyst Strategic Solutions, a subsidiary of Catalyst Corporate Federal Credit Union in Plano, Texas, in his latest analysis.

Second quarter data from the NCUA shows loan growth at an annualized pace of 0.4% so far this year as a 3.1% increase in vehicle loans and a 1.5% increase in real estate loans were offset by a 13.5% decline in unsecured credit cards, Turner said.

Still, weak consumer spending induced by job insecurity, falling values and volatile stock market performance have all contributed to modest loan growth, Turner noted, adding nationally, this has sent consumer spending growth down to 1.4%.

Prepared at the Federal Reserve Bank of Dallas and based on information collected on or before May 25, the Beige Book contains current economic conditions by district through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources, according to the Fed.

On The Other Hand: Upped Capital Requirements for CRE Lenders Proposed

An interesting contrast to the Beige Book update as it affects commercial property is the nearly concurrent proposed  change made in the Fed’s capital requirement formulations for banks lending to/getting exposure from commercial real estate.  In short, banks are being told to increase their perception of risk when lending in support of commercial real estate:

The Federal Reserve on Thursday released a proposal that would implement a global agreement known as Basel III capital rules for banks, including a measure that would assign a higher risk weight to commercial real estate loans that are included in a calculation for how much capital an institution needs to hold as a buffer. The Fed assigns a higher 150% risk weight to exposures to commercial real estate loans, up from a current 100% risk weight. The Fed said these loans presented elevated risk over “several recent economic cycles.” Based on the proposal, which implements the international accord, banks will be required to hold the strictest form of common-equity capital of 7% of their risk-based assets, phased in between January 2013 and 2019.

While our pinstriped friends will no doubt point to this — or any intervention on the part of their regulators — as the convenient excuse for their current miserly credit posture to secondary-market-and-below commercial property deals, the fact is not much else can or should be expected in the wake of a financial crisis brought on in the first place by monumentally bad risk management on the part of banks.  The question is how many of us will end up dragged into the woodshed with them?

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