Browse Month: August 2013

A Look At Construction Loans


The most common form of borrowing for commercial real estate transactions is the first-lien commercial mortgage loan.  With principal running anywhere from $300,000 to many hundreds of millions, the financing of most (but nowhere near all) industrial, office, retail and multifamily property tends toward this form of debt, which is commonly priced somewhere between 75 and 150 basis points above 10 year US Treasuries.

Naturally, it’s often a combination of debt and equity that finances a commercial property transaction.  And equity isn’t always the simple “down payment” residential brokers are familiar with.  Far from it: commercial property financing options abound to add to the first-lien loan, including mezzanine loans to bring the loan to value (LTV) up even as high as 100%.   Other strategies include A-note an B-note division of debt, or even “preferred equity” where a third party secures a loan with equity in the property that has an edge on other lenders in the competition for cash flow off the property in the event of default.

But commercial real estate is a complex beast, not limited to a market in tangibles. The role of CRE in economic development is critical, which means future propositions  – new construction – needs financing just as much if not more than ownership transactions do. What do properties that sport no cash flow (because they don’t exist yet) have to bring to the table to get the financing they need?

The most common forms of financing for these are the construction loan. Secured by properties that are under construction, with no cash flow, these loans are considered higher risk that first lien, which makes sense when you consider the construction lender’s prospects include a lien on nothing more than a hole in the ground and a pile of unassembled building elements . More often than not, the borrower(s) set up a reserve account at the origination time of the loan in order to pay the interest on the principal.  Loans tend to mature in 12 to 36 months and principal reflects the construction’s budget plus a modest contingency. The loan’s repayment is contingent on completion of construction, that magic time when the intangible becomes tangible and permanent financing can be established.  

The distinct and unique risks of construction finance also call for the provision of the principal in stages associated with construction progress.  As with so many subsections of commercial real estate, expertise is earned with focus and professional development that comes with experience.  Examining the shapes and sizes of construction finance is instructive from both the lender and borrower sides.  One of my favorite sources on the topic is the Associated General Contractors of America’s Guide To Construction Financing, a concise review of common practices across all 50 states.


Aaron Bosshardt: Turning the Tide in Florida

Aaron Bosshardt
Aaron Bosshardt

I’ve lived in Florida most of my life and I’ve done business as a Florida REALTOR® for the past 18 years.  In that time our family company has evolved from a boutique residential brokerage into a Real Estate corporation that brokers both residential and commercial real estate. We have also built a property management subsidiary that manages single family homes, multi-tenant office buildings, medical space, shopping centers, apartments, condominium and homeowner associations.

It didn’t happen overnight and it didn’t happen without education and training. In the late ‘90’s, in order to grow our residential property management division, we stepped outside the then Florida Association of REALTORS® (FAR).  Our small family owned property Management Company wasn’t making any money and it felt like REALTORS® frowned on property management. Yet, as a second generation REALTOR® in a family business, I thought I could make my mark by turning our Property Management Company into a profit center.

To be perfectly honest with you I learned everything I know about single family rentals from the National Association of Residential Property Managers (NARPM). In 2000, I was recruited to this group by a property management instructor that asserted, “…two designations in real estate that actually make you money are the CPM® (Certified Property Manager®) and the CCIM® (Certified Commercial Investment Member).” It was because of this moment I obtained my CPM® Designation through the Institute of Real Estate Management (IREM) in 2010.  This is where I learned everything there is to know about commercial property and asset management.

I have watched the Florida REALTORS®, then FAR, get more and more involved with commercial and property management through the years.  In 2007 it seemed more reactionary as REALTORS® turned to Property Management during the economic downturn to stay in business.  That’s ok, we often start great things in reaction to our environment.



In August realtor, at the Florida REALTORS® Annual Convention, I was in awe with the proactive steps committed to commercial members and property managers.  On Sunday, August 25, the Florida REALTORS® Board of Directors unanimously voted to add a seat on the executive council for each affiliate institute. This means that property managers and REALTORS® who practice commercial real estate will now be in a position to discuss and make policy for the Florida REALTORS®.  Collaboration is an often overused buzzword these days, but REALTORS® in Florida are now living it. Thanks again to the Leadership team at Florida REALTORS®. If my children one day want to be a REALTOR® and perhaps learn about Property Management, Commercial Brokerage or any real estate profession I am now confident that NAR and the Florida REALTORS® will have the answers they need.

The leadership teams at NAR and the Florida REALTORS® have shown amazing vision making sure that REALTORS® become The Voice of All Real Estate.

I left Orlando prouder to be a REALTOR® than ever before.

Aaron Bosshardt currently serves as the Chairperson of the Children’s Home Society of Mid Florida and the President of the Institute of Real Estate Management (IREM) Chapter 60. You can read the most recent coverage about him in the Gainesville Sun by clicking

Commercial Connections Podcast: How To Grow Your Web Presence

creGROW's Dave Lewand
creGROW’s Dave Lewand

Quick note: In the latest NAR Commercial Connections Podcast, host Alex Ruggieri brings on Dave Lewand founder of creGROW. Dave is a designer and builder of websites focused on commercial real estate. With creGROW, brokerages, property managers, developers, landlord and tenant reps alike facing the twin challenges of achieving quality and profitable web presence now have a set of tools for site building that are just for them.

Listen to the latest Commercial Connections Podcast with Dave Lewand here.

Top takeaways:

  • Future-proofing your company’s website with WordPress and creGROW. Get off the web technology treadmill without getting off the web.
  • Examining the online and general marketing practices of residential real estate for cues and clues to improving commercial practice.
  • What’s responsive web design, anyway?

Commercial Connections Podcast engages top real estate professionals, economists, and instructors to give you the tools needed to get ahead in today’s competitive commercial real estate industry. The podcast will be published twice a month.

Steady, Moderate Growth In Commercial Markets: NAR’s Yun

Dr. Lawrence Yun, PHD

Declining national vacancy rates dominate the latest commercial real estate market forecast  by NAR’s Chief Economist Lawrence Yun, who sees a range of positive indicators in all the latest data that nonetheless can’t quite reach pre-crisis optimism.

“Office vacancies haven’t declined much because total jobs today are still below that of the pre-recession level in 2007, but rising international trade is boosting demand for warehouse space,” said Yun.  “Consumer spending has been favorable for the retail market, and rising construction is keeping apartment availability fairly even, though at low vacancy levels.  That, in turn, is pushing apartment rents to rise twice as fast as broad consumer prices and average wage growth.”

Reading that bit about apartment rents reminds me that a national trend in raised apartment rents might well be the missing piece in the mystery surrounding private equity giant Blackrock’s recent massive purchase of apartment complexes across the south.  Yun goes on:

Industrial: vacancy down, rents up
Yun expects industrial vacancy rates to fall from 9.3 percent in the third quarter of this year to 8.7 percent in the third quarter of 2014.

The country’s lowest industrial vacancy rates today?   Orange County, CA  (3.8%) ; Los Angeles, (4.0%); Miami, (5.9%); and Seattle (6.4%).

Annual industrial rents are expected to rise 2.4 percent this year and 2.6 percent in 2014.  Net absorption of industrial space nationally is anticipated at 102.0 million square feet in 2013 and 105.8 million next year.

Office Markets: vacancies and rents projected flatter but better

Vacancy rates in the office sector are expected to decline from a projected 15.7 percent in 3Q to 15.5 percent in the third quarter of 2014.

The markets with the lowest office vacancy rates presently (in the third quarter) are Washington, D.C., with a vacancy rate of 9.7 percent; New York City, at 9.8 percent; Little Rock, Ark., 12.1 percent; and Birmingham, Ala., 12.4 percent.

Office rents should increase 2.5 percent this year and 2.8 percent in 2014.  Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 30.1 million square feet this year and 41.6 million in 2014.
Retail: national absorption looking healthy 
Retail vacancy rates are forecast to decline from 10.6 percent in the third quarter of this year to 10.0 percent in the third quarter of 2014.

Presently, markets with the lowest retail vacancy rates include San Francisco, 3.9 percent; Fairfield County, Conn., at 4.1 percent; Long Island, N.Y., 5.0 percent; and Orange County, Calif., at 5.5 percent.

Average retail rents should increase 1.5 percent in 2013 and 2.3 percent next year.  Net absorption of retail space is projected at 11.8 million square feet in 2013 and 18.2 million next year.

Multifamily: Flat vacancies, solid bump in rents
The apartment rental market – multifamily housing – is likely to see vacancy rates edge up only 0.1 percentage point from 3.9 percent in the third quarter to 4.0 percent in the third quarter of 2014, with construction rising to meet increased demand.  Generally, vacancy rates below 5 percent are considered a landlord’s market where demand justifies higher rent.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 1.9 percent; Syracuse, N.Y., 2.0 percent; New York City and San Diego, at 2.1 percent each; and Minneapolis, 2.2 percent.
Average apartment rents are forecast to rise 4.0 percent this year and another 4.0 percent in 2014.  Multifamily net absorption is projected to total 266,700 units in 2013 and 259,800 next year.

(Photo credit: TBoard)

Dolly Parton, Developer: Working Considerably Longer Than 9 To 5


Dolly Parton 2006

Music icon, philanthropist, actress  and author Dolly Parton’s business acumen is legendary. Co-owner of Dollywood, the eastern Tennessee theme park that sees nearly three million visitors each season and keeps 3,000 people on the largest payroll in the county, Dolly’s long been known as an economic powerhouse with vision and drive.

Her 2012 announcement that she would be in partnership with Gaylord Entertainment to build a water park next to a Gaylord hotel property in Nashville seemed like more canny business sense. It would have been Dolly’s second such park, the first having opened in 2001 near her childhood home of Sieverville.  But not all was smooth sailing for the announced project.

In September of last year, Parton announced she would be pulling out of the water park project. The reason: her business partner had decided to get out of the hotel management business, selling those assets to Marriott,  and get into pure real estate holding.

Dolly Parton said Friday afternoon that her Dollywood company will not take part in the development of a planned water/snow park near the Gaylord Opryland Resort & Convention Center.

Citing Gaylord Entertainment’s upcoming departure from the hotel management business and conversion to a real estate investment trust, Parton said she had appreciated the cooperation of local and state government officials on the planned $50 million project but added that she needed to move on.

“Gaylord makes decisions that they feel are good for their company and their stockholders and I have to make decisions based on what is best for me and the Dollywood Company,” she said. “I think everyone knows I love Nashville and I hope the work we’ve already done will spark more family entertainment in Nashville.”

The demise of the water/snow park had seemed in the offing six weeks ago, when Parton said plans were in a holding pattern because of Gaylord’s agreement to sell its hotels brand and management to Marriott International for $210 million. Gaylord officials quickly countered to say they were still on board, but have since pulled the plug on from-the-ground-up development projects in Arizona and Colorado, saying their new REIT will focus on buying completed properties.

Months after breaking up with Gaylord and the Nashville project with its central Tenessee location, Dolly once again took it back home to her childhood haunt of Pigeon Forge, TN in the eastern side of The Volunteer State.  In this case, “it” is  a 100-acre, 300 room resort called DreamMore – named after her 2012 book of the same name.

Located just a stone’s throw from Dollywood, the 300-room Dollywood’s DreamMore Resort will sit on 100 acres and offer views of the Smoky Mountains. Centered on the rich traditions of storytelling, family and togetherness, the resort will feature many special touches including family sanctuaries like fire pits, swings, and hammocks plus story spots scattered throughout the grounds.

Showcasing design features and décor elements that celebrate the area’s natural beauty, DreamMore will offer an indoor and outdoor resort pool complex, a spa, and a full-service farmhouse-style restaurant. With an emphasis on encouraging family bonding time, the resort also features a family activities center where guests can secure reservations for a variety of adventures centered around wholesome fun, including hikes in neighboring Great Smoky Mountains National Park.

Dollywood’s DreamMore Resort is the second capital investment in a 10-year plan that includes more $300 million in future developments for Parton’s Dollywood properties. DreamMore Resort joins Dollywood Cabins as the company’s second venture in the lodging industry. Launched in 2010, Dollywood Cabins offers cabins two miles from Dollywood and Dollywood’s Splash Country.

There she comes again.

(Photo credit: Alejo Castillo)



Crowdfunding And The SEC: Deregulation Continues

It’s not especially well known that the retail / e-commerce juggernaut Groupon started life not as a provider of retail savings to consumers but as a nonprofit crowdfunding platform for communities called The Point.  Groupon founder and former CEO Andrew Mason’s original software project let communities pool their money online to, for example, get a park built in their neighborhood or to solve some other community problem together.  It was only later, after a nudge and a million-dollar check from a venture capital latecomer that Mason applied the same crowdfunding idea and software to coupons. The rest, as they say, is retail history.

The crowdfunding mechanism that Mason conceived and built took off in many different directions – his design has been copied by endless Groupon clones, and by enormously successful arts and cultural funding platforms such as Kickstarter. Crowdfunding in retail and the arts are fine, but the commercial property industry has to wonder: what about using crowdsourcing to raise private equity for, say, a commercial real estate investment?

As I’ve written in this blog before, the barrier to using online crowds to raise investment capital has traditionally been SEC regulation.  There is a long-standing regulatory concept that protects investors from handing over money under terms they can’t be expected to understand fully, which has meant that the kind of generalized advertising of certain investment offerings that any crowdfunding site must traffic in are not allowed.

Or, were not allowed.  Was a long-standing regulatory concept. Used to protect unsophisticated investors.

Continuing a long string of deregulation to rule 506 under SEC Reg D, on July 10, 2013, the SEC ended the prohibition of General Solicitation and General Advertising in certain offerings. 

Rule 506

The final rule approved today makes changes to Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities provided that:

  • The issuer takes reasonable steps to verify that the investors are accredited investors.
  • All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.

To my non-attorney* eye, this seems to clear the major barrier to crowdfunding of real estate investment.  What was once a hard requirement to limit solicitation to  investors meeting certain criteria of “sophistication” and “wealth” and “accreditation” has now been replaced with a far less rigorous standard: issuers of securities now must only take “reasonable steps” to verify that investors aren’t completely misunderstanding the terms of the investment…or aren’t precocious twelve year olds playing with the family Visa card online.

“Big Government”: Hardly Getting Bigger

People who make hay with constant rhetorical complaining about government getting in the way of business get awfully quiet when deregulation like this comes along: by consigning to the scrap heap the heart of the SEC Reg D rules that once absolutely required potential investors in certain issues to have “sophistication” and thereby have eyes wide open in the deal, the connection of crowd-funded capital with commercial real estate portfolios is very likely to charge forward on crowdfunding investment sites such as EarlyShares or Realty Mogul and others.  Was the investor protection unnecessary?  Time will tell.

We’ll be watching the results with hope that the commercial property industry does great things with its new, government-approved crowdfunded capital source.

It’s up to issuers now.

* NEVER EVER take anything you read here at The Source as legal or fiduciary advice.  Always retain qualified counsel.

(Photo credit: Anirudh Koul)

The Hidden Oil Wells Of Los Angeles

During a recent trip to LA, while driving I spotted something I don’t usually see: a building in an urban setting that I absolutely couldn’t identify.  It was slender, tall, tapered and seemed to be covered in what amounted to a gigantic tea cozy.  It looked like this:

Set in a fully urbanized area – abutting Beverly Hills High School, in and among a mixed residential and office-use area in West LA, this odd structure had me wondering what it could possibly be.  It was too narrow for occupancy, and too distant from industry to be functional.  It was too…festive-looking to be a smokestack – and even it if was, what could be the source of the fumes?  The chemistry class bunsen burners of Beverly Hills High?

Later, this midwestern born-and-bred blogger came to find out the amazing truth.  What I had seen was a Los Angeles oil well. An active, productive, yet entirely urban oil well, one of hundreds across the city remarkably well-integrated into the bustling landscape.  These structures are actively drilling into the ground beneath LA, extracting black gold quietly, with no apparent neighbor impact, and one presumes, profitably.

I left town thinking I had seen something rare, but the fact is, LA is a very active oil producer and these wells and production facilities are just another type of commercial property.  Why no noise?  Why no smell?  How are the spills and hazards normally associated with oil drilling handled?  How do NIMBYs cope?  As it turns out, Los Angeles has California’s legendary regulatory tendency to thank for the apparent harmony.  Which is not to say there aren’t concerns about the tight integration of industrial production and residential areas, it’s just that if there’s any state with a long track record of balancing these conflicts, it’s California.

An incredible video by VBS TV was produced that takes a look at this most unusual commercial real estate phenomenon.  We see oil wells in the back of shopping malls, oil wells situated inside five-story faux-office buildings, oil drilling technology allowing horizontal drilling, and a discussion, of course, of the mineral rights attached to real property in California (and just about all 49 of the other states.)  Fascinating stuff!

Watch the VBS Clip “Uneven Terrain” at LA.Curbed.Com

(Photo Credit:

Valuing Southern Multifamily: GE Capital Sells, Blackstone Buys Big

English: The Blackstone Group L.P. Logo

The recent $2.7 billion purchase of approximately 30,000 apartments across the Dallas, Atlanta and other southern markets by private equity giant Blackstone has some multifamily sector observers scratching their heads.

At first glance the sell side makes the most sense: GE Capital appears to have corporate cultural issues with real estate.  But more interestingly,  while multifamily dwelling demand remains solid nationally, the idea that apartments in many metro areas are underperforming or offer a ton of upside in other ways just does not appear to be  the most popular view at the moment.  Owing perhaps to a national follow-on effect of the housing crisis, multifamily nationally has a lot of boom in its recent history and perhaps not as much in its future. The debt that has converted single-family homeowners into renters may have done most of its work already, says the conventional wisdom.  Apartment construction is up and declining vacancies have stalled out to post-crisis lows.

The great Llenrock blog had an interesting take on Blackstone’s head-scratching strategy.  With a shrug, Eric Hawthorne suggests stability or general energy-boom chasing as possible aims of the deal, noticing that Blacktone’s recent history in single-family might make their play more about market and less about asset class:

After years of high demand and value creation, the multifamily sector appears to have reached something of a plateau, which will no doubt continue as more and more apartment buildings open and fill. Multifamily development has outpaced the rest of the CRE world since the recession, and the market will soon have to catch up with all the new inventory.

It could be this deal is simply a bid for stability. Whether they gain value or not, no one can deny multifamily communities offer their landlords stability. More likely, I think, Blackstone’s sudden shift from single-family to multifamily is less about the asset class than the market. According to RTTNews, the 30,000 apartments (give or take) Blackstone acquired are in Atlanta, Dallas, and other parts of the Southeast and Texas. Dallas, of course, enjoys a great deal of activity from the energy sector and is a major growth market. Atlanta, on the other hand, has lagged behind many other cities in the economic recovery, so its values are yet to reach the levels of other comparable markets. All of this is to say that multifamily may indeed have some value-add opportunities left–in certain cities, anyway.

Further suggesting Blackstone’s idea is about future rent raises in a rising market is Marcus & Millichap’s recent report on the Dallas /  Fort Worth Metroplex, celebrating the new inventory pipeline and low vacancies with unrestrained enthusiasm.

Time will tell, but it looks to me like Blackstone’s DFW bet is on the location more than anything else.

Refi Roundup: A National Look At The Summer’s Refinancing Deals

Percent Symbols - Best Percentage Growth or In...

In commercial property, the only constant is change.  Notes come due, loan interest rates float, property financial performance is uncertain, spreads narrow and widen, baseline assumptions go by the wayside.  Sometimes, it’s just time to go get some new capital and refinance.

Let’s take a look around the national refinancing market for some recent commercial loans:


(Photo credit: SalFalko)


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A Pair Of Commercial Podcasts: Bob Knakal and Bill Armstrong


Bob Knakal of  New York’s MasseyKnakal

Alex Ruggieri’s latest Commercial Connections podcast is here. Today’s guest is Bob Knakal, President of New York real estate sales firm Massey Knakal.  Bob is a REALTOR® and has a career sales volume of 1,300 buildings at $8 billion in value.

After starting as a student at Coldwell Banker (great story about how in the podcast), Bob left CBRE in 1988 to build his own business.  Check out Alex Ruggieri’s interview about:

  • How Bob built his business
  • How he runs the brokerage firm in NYC
  • What traits Bob feels brings success
  • Thoughts on specialization and passion
  • And more!

Listen To The Commercial Connections Podcast Here!

Also ready for listening: The Commercial Podcast with NAR Treasurer Bill Armstrong:

SentriLock Lockbox

Bill Armstrong’s Commercial Podcast: SentriLock and New Bank Capital Rules

NAR Treasurer Bill Armstrong’s latest podcast (15 mins) shares some exciting news about:

  • NAR’s exciting investment in the site locking technology maker SentriLock along with details of REALTOR® discounts and association support from the hardware maker
  • News on Basel III banking regulations and capital standards and the final rules from the Fed.

Listen To Bill Armstrong’s Commercial Podcast Here!





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