Browse Tag: NAR

How To Negotiate Better Deals: Free Report From Harvard Law

[The standard disclaimer certainly applies today: Never, ever take anything you read here at The Source as legal advice!  Always, always seek the input of qualified counsel in advance of any business decisions you undertake!  -WG]

In lease negotiations, it’s the understatement of the year to say “the devil is in the details”.  Carefully combing through commercial lease terms will expose not only the devil, but also clues as to how he got there. It’s ineffective bargaining at negotiation time that can leave parties to a lease painted into a corner when important circumstances arise. Long after the negotiations are done, the skill level brought to bear on the job of bargaining looms large. As a property manager, broker, leasing agent or landlord, are your negotiation skills up to par? Or are you leaving money on the table?

As I’ve written about here before, one tremendous resource for learning about the art and science of negotiation comes from the Ivy League.

Free Report From Harvard Law Program On Negotiation

Get a fast and free self-check on your skills as a negotiator from Harvard Law School’s Program On Negotiation (PON).  PON is a consortium program of Harvard University, Massachusetts Institute of Technology and Tufts University dedicated to studying the theory and practice of negotiation and dispute resolution.  Their latest report is entitled How To Negotiate Better Business Deals, and it’s available for free from PON via download link below.

The free report covers a laundry list of techniques to improve negotiation effectiveness, including:

  • Ask for a renegotiation – Most people have an innate desire to be fair and they may be willing to reopen a discussion before the end of your contract period
  • Present a concrete case – By presenting clear evidence of a lopsided contract, you can appeal to the other side’s sense of decency and desire for a good faith negotiation
  • Make attention-getting moves – Help your counterpart situ up and take notice by refusing to meet the contested contract terms
  • Bring out the big guns – Sometimes a show of power works, so put heavy hitters in charge of negotiating contract revisions
  • And while I can’t turn back time, Business Negotiation Strategies: How to Negotiate Better Business Deals also shared some critical business negotiation strategies that can help me get the deal right in the first place:
  • Create breaks – Try experimenting with a shorter contract that allows for natural breaks for review and renegotiation
  • Prepare for disputes – Disputes are often inevitable so add a clause to your contract that requires renegotiation, mediation, or arbitration in the event of a disagreement
  • Avoid quick fixes – It’s not unusual to want to latch on to the fastest fix in a business negotiation; however, it’s best to take the time to make a careful decision.

Download the free Harvard Law PON report from this link.

Urban Land Institute: Six CRE Trends For Rest Of 2016

English: The official logo image of ULI.

The Urban Land Institute (ULI) wrote today about six ongoing trends that will continue to mark the national commercial real estate market in 2016 and maybe beyond. We know the basics and broad strokes of today’s national market already – very low inflation hand-in-hand with very low prime lending rates, improving employment numbers, and predictable demographic migrations as baby boomers and millennials find their new group positions for living and working.

Add to this a rising political uncertainty at all levels from local to national, aggravated by the heightened visibility of the genuine tax and civics postures of localities on social media. When every pothole in every community gets its own social media post, it heightens political acrimony while at the same time affects real estate investment and move-in decisions, perhaps unfairly.

ULI highlighted six enduring trends in a recent Urban Land Magazine piece by Peter Burley and David Lynn. The six of course touch on all the above and more.  The top three are:

Global economic uncertainties: “The International Monetary Fund has downgraded global growth twice since January as uncertainties blur the outlook. For U.S. markets—real estate in particular—the impact is likely to be largely positive as U.S. assets become more attractive and valuable to global investors. We can probably expect enhanced inbound foreign investment in U.S. real estate markets as the United States becomes even more of a safe haven for investors worldwide.”

Steady interest rate environment: “We still believe that the Fed is more than likely to weigh the effects of each move it makes before adding any additional friction to current (if unspectacular) economic growth trends.”

Foreign investment in the US: “And, while slowing growth in China and much of Europe may dampen currencies and incomes over there, there is still abundant non-U.S. capital looking for placement and very strong demand for U.S. assets, as 2015 proved with record inflows.”

To read the entire piece with all six factors expected to affect national CRE markets, follow the link to the ULI piece.

 

Key Notes: Reviewing The Nite Ize S-Biner Key Rack

Readers of The Source will recall my travails with keys from a couple of months ago, when I went to make some duplicate keys and found a robot doing a significantly worse job duplicating keys than human hardware store employees once did. Because there isn’t a commercial real estate broker, owner or property manager working today who doesn’t struggle with keys and locks, let’s take another look at cutting-edge key technology: the Nite Ize S-Biner Key Rack.

photo of the Nite Ize S-Biner Key Rack
Above: The Nite Ize S-Biner Key Rack

Nite Ize?  S-Biner?

My pal Safety Jim, a born commercial property manager if ever there was one, told me about this nifty piece of gear right around the time we discovered the key-making robot I posted about back in June. Jim handles lots and lots different sets of keys every day, but I noticed that he doesn’t wrestle with steel rings keeping keys together. Instead, he rapidly attaches and disconnects keys from an odd bit of gear called a S-Biner Key Rack. It’s made by a company called Nite Ize, (pronounced “night eyes”). Based in Boulder, CO, Nite Ize products include flashlights, which explains the company name. The product name is a takeoff on the caribiner, an essential bit of mountain climbing gear that balances safety, speed and strength by controlling rope lines that are run through it.

The S-Biner treats keys and key rings like a carabiner treats rope: a innovative spring-loaded “S” shape allows super-quick attachment and removal of keys or key rings while providing pretty much stable locking of keys in place on the S-Biner.  The time and hassle this saves compared to mating keys using steel rings is significant.  It’s an absolute game-changer for property managers on the go; it even weighs less than the average master key ring, so it’s the kind of product that improves in ways you didn’t expect.

One Tradeoff

There is one area where the S-Biner pictured above can’t deliver the same thing that steel key rings can: absolute attachment security. A key can’t fall off a steel ring, but it is (very slightly) possible that a S-Biner attachment can disengage in an unwanted way, for example, when jostled inside a crowded pocket.  After two months of testing this hasn’t happened, but because I see that it could, it’s worth mentioning. It’s also worth mentioning that Nite Ize makes a wide range of variations on the S-Biner design that address and “harden” against this small possibility by using a slightly more complicated locking design.

At well under ten bucks (under five for the S-Biner) these products are worth a look, if you ask me. (Or Safety Jim.)

2016 Q2 CRE Market Survey: The Trends Are Your Friends

National Association of Realtors, Washington, ...

Who says you can’t look back? National Association of REALTORS® has released its second quarter 2016 Commercial Real Estate Market Survey, and the takeaways appear pretty good for the national commercial real estate market picture for 2Q.

In June 2016, a random sampling of over 62,000 NAR members with an interest in commercial real estate was asked for their input.  Nearly 1,000 responded with completed surveys, for a response rate of 1.6%.  A quick look at the resulting numbers:

  • Percentage of members completing a commercial lease transaction: 59%
  • Average transaction value: $1.4 million
  • Percentage of sales volume rise from one year ago: 8.4%
  • Percentage of REALTORS who closed a commercial sale 2Q16: 66%
  • Average cap rate nationally: 7.0%
  • Percentage of sales price increase year-over-year: 5.3%
  • Bump in leasing volume over previous quarter: 8.7% 

Number One Concern: Inventory

When asked for their number one concern,  responding NAR members answered that inventory trumped other concerns including bid/ask pricing gaps, financing availability, local and national economic conditions. Pricing and deal value averages are therefore expected to rise nationally as growing demand meets less-rapidly-growing supply.

NAR Members may download the entire report here (login required):

(Photo credit: Wikipedia)

Video: Model The Internal Rate Of Return (IRR)

In the commercial real estate investment world, one of the most important values to compare potential investment properties is the internal rate of return, or IRR.  One way to think of this value is a display of the growth rate the project is expected to generate. It’s a number that, roughly speaking, describes profit after cost of capital is paid for.  Real estate investment firms put so much stock into IRR that they commonly use it as a major deciding factor to greenlight a project or not. If a project’s IRR doesn’t meet or exceed the firm’s minimum acceptable return, or required rate of return (RRR), chances are that project is a no-go for the firm.

There is no single best method or toolset to calculate CRE finance variables, and what follows here is merely an illustration of the concept using Excel. Last month, Spencer Burton, a Milwaukee-based associate with Northwestern Mutual Real Estate Investments put together a very nice bit of screencast video showing veryc clearly how he assembles a IRR model in Excel, including hold times, cash flows, NOI and other elements that go into the model.

(Remember: nothing you read here at The Source constitutes legal or financial advice!)

 

 

Fed Survey: Banks Tightened CRE Loan Standards Over Past Twelve Months

If, during the past twelve months, you’ve gone to the capital markets and suspected that banks aren’t playing ball quite as much as before, a key survey of loan officers says you’d be right.

This week, the Federal Reserve Bank released its Senior Loan Officer Opinion Survey. The project looks at changes to the terms of commercial loans, including loans for commercial real estate. 71 domestic banks and 23 branches of foreign banks were heard from in this year’s survey.

CRE loan classes in the survey included construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties.

The verdict: there’s been a change, and it goes against the CRE borrower. Even though demand for CRE borrowing has strengthened, commercial real estate lending standards are tighter than those reported in the July 2015 survey.  The tightening has been for all of the four quarters that ended in June of this year.

From the report:

Regarding loans to businesses, the July survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the second quarter of 2016.3  The survey results indicated that demand for C&I loans was little changed, while demand for CRE loans had strengthened during the second quarter on net.

[…]

Responses to a set of special annual questions on the approximate levels of lending standards suggested that banks’ lending standards for all categories of C&I loans are currently easier than the midpoints of the ranges that have prevailed since 2005 (explained more fully below), except for syndicated loans to below-investment-grade firms. However, banks also generally indicated that standards on all types of CRE loans are currently tighter than the midpoints of their respective ranges.  Compared with the July 2015 [survey], fewer banks reported easier levels of standards and more banks reported tighter levels of standards for all business loan types.

Download the entire Federal Reserve survey PDF after the link.

 

Introducing the Waffle House Index

A Waffle House located in Hagerstown, Maryland.

Commercial real estate is everywhere. Sometimes, that means that it can serve a purpose we didn’t expect.

The Federal Emergency Management Agency (FEMA) is the federal agency charged with responding to a disaster on American soil. FEMA’s responsibilities include accurately assessing the damage left by tornado, flood, hurricane or other disaster, so that good decisions can be made in its wake — how much water or food or shelter to bring, and to exactly where, for example.

It turns out that Waffle House, the classic American roadside restaurant chain known for staying open 24 hours, looms large in FEMA’s mission, and not just as a place to get hash browns scattered, smothered and covered.

As part of its assessment of how hard-hit an area is by disaster, FEMA measures in part by using an informal scale called the Waffle House Index.  The thinking goes like this: as disaster impacts the local Waffle House restaurants, the impact upon waffle and coffee availability reflects accurately the severity upon the surrounding areas.

The chain, sporting more than 2,100 locations in 25 states, is well-known for staying open during extreme weather and reopening quickly after disasters.  It’s that tenacity that helps FEMA gauge how serious an impact a disaster has left behind:

The term was coined by FEMA Administrator Craig Fugate in May 2011, following the 2011 Joplin tornado; the two Waffle House restaurants in Joplin remained open after the EF5 multiple-vortex tornado struck the city on May 22.According to Fugate, “If you get there and the Waffle House is closed? That’s really bad. That’s where you go to work.”

The Index has three levels, based on the extent of operations and service at the restaurant following a storm:

  • Green: the restaurant is serving a full menu, indicating the restaurant has power and damage is limited.
  • Yellow: the restaurant is serving a limited menu, indicating there may be no power or only power from a generator or food supplies may be low.
  • Red: the restaurant is closed, indicating severe damage.

So hats off to the owners, operators and employees of the venerable house that waffles built. We knew they were there for us at four in the morning with eggs over easy, but who knew they were also on the front lines of disaster recovery?

2016 NAR Commercial Member Profile

Browsing through all 100+ pages of the 2016 NAR Commercial Member Profile released yesterday, I was struck by two things: a pipeline and a piano. (Correction for clarity: I wasn’t actually struck by anything, thankfully nothing as sizable as a piano. But I did notice two things right away.)

Pipeline 

NAR-Commercial-2016
Chart from NAR Commercial 2016 Member Profile

The data on transactions among Members arranged by years in the industry point to an enduring rule in the commercial real estate business about the transaction pipeline for new professionals.  We can boil down the rule this way:  the data says it’s going to take new folks about two years to hit their stride in terms of transactions, as it takes those two years for their deal pipeline to move to a “new normal” where transaction volume begins to resemble performance of more veteran careers. In other words, hang in there, new people. Keep adding value and being there for clients and the rewards will come.

Piano

The report comes this year accompanied by a nice video clip hitting the report highlights. It’s a solid bit of infographic work, but what caught my ear was the inspirational piano music.

The music was at once familiar and new. I couldn’t place it, so I pulled out my smart phone and used the music-identifying app Shazam  to try and discover the title.

That’s when Shazam did something I’ve never seen it do before: it became very confused. At first it identified the track as “Señor Blues”, a classic jazz recording from the late 1950s by the Horace Silver Quintet. Right away I knew it couldn’t be that — for one thing, the recording is too digitally pristine to be from the 50s.

So I tried again. This time, Shazam placed it as Beethoven’s Romance No.2 in F Major. Get a grip, Shazam. Not even close.

Tried once more, and one more Shazam busted: it said we were listening to 19th-century Czech composer Bedrich Smatana’s “The Little Onion”.  Incorrect, even if the title did pick up on the fact that I was hungry.

I guess even Shazam needs a couple of days off. Have a good weekend, everybody.

Source: 2016 Commercial Member Profile | realtor.org

 

CBRE Report: Pokémon Go and Commercial Real Estate

The latest digital craze sweeping the globe happens to have significant commercial real estate implications.

Pokémon Go is a game that creates location value out of thin air. The game leads its players to roam the landscape in pursuit of digital characters, using smart phones and a technology technique called augmented reality (AR). Think of AR as digital hallucinations a game maker creates. The hallucinations aren’t real, but they nonetheless have physical positions in the real world – on a street corner, at a retail store, in a city park, etc. The people follow the characters and extra foot traffic results.

Location Value

If you’re wondering what I mean by “location value”, refer to the classic “three rules of real estate” for the answer: location, location location. The value and performance of a commercial property is almost always deeply related to the desire of people to go to that property. AR, along with the software games or promotions it enables, is a completely new and very successful way to influence and build that desire. Because location value is core to commercial real estate, the economic implications of the game for the CRE industry could be staggering.

CBRE Market Flash is a Must-Read

The game works by luring players into locations they will not otherwise go. That’s both good news (for retailers especially) and bad news (for property managers responsible for common areas and security). CBRE’s most recent report on the phenomenon as it applies to commercial real estate is quite an eye-opener and a must-read to get a handle on the potential economic impacts behind all the fuss. From the market flash:

  1. Consumers of commercial and residential property will soon benefit from emerging capabilities to visualize real estate virtually via mixed-reality offerings in tandem with parallel advances in personal media devices and underlying graphics technology.
  2. The industrial market will have access to technology that will impact multiple elements of the supply chain.  DHL and Ricoh recently carried out a successful augmented-reality pilot in a warehouse in the Netherlands that proved successful in enhancing time efficiency and error reduction.
  3. The retail sector, already seeing an increase in foot traffic around Poké “stops” and “gyms,” is on the cutting edge of using augmented reality to engage its customer base, both online and in-store, so that customers are more informed about the products they buy.
  4. Data centers, already a booming asset class, will benefit from the need for additional infrastructure, connectivity and storage capacity demanded by this evolution.

You can read the entire CBRE Market Flash “Pokemon. So?  How will augmented technology impact commercial real estate?” at this link.

Remember: in this industry, it’s not about the Pokemon.

It’s all about the go.

Motor City Starts Up Again: Detroit Industrial Vacancy Falls To 6%

Detroit’s industrial real estate past is a story of too many eggs in one economic basket.  When the over-concentration of auto industry capital fled Detroit, the communities that capital once sustained vanished, and the rest is rust belt history.

But the fact is the auto industry didn’t vanish entirely. Today, strong demand in auto sales pushes Detroit and its suburbs toward an industrial output that represents a giant step toward long-missing sustainability.  Robert Carr’s piece in NREI:

“You can’t find a lower vacancy rate in Detroit in the past 20 years,” [notes John DeGroot, research manager at real estate services firm NGKF]. “A big part of it is auto sales. The average yearly sales mark for the Big Three was around 16 million since 2002. During the recession we saw it dip to 10 million, but now we’re hitting 17.5 million per year.” Auto experts predict that figure will continue in 2016.

Typically, the suburbs around Detroit have fared better with industrial leasing and construction, with I-75/Auburn Hills, Macomb county and Western/Southern Wayne county being the preferred locations for new, modern facilities. However, though Detroit proper has many obsolete or dilapidated industrial buildings, the city is now a major draw for new construction as well, DeGroot says. Since 2015, the city has seen more than 765,000 sq. ft. of new construction completed, according to a second quarter NGKF report.

More from NGKF on the specific projects and locations in Detroit’s long path to industrial recovery:

Increased industrial demand in the city of Detroit continues to drive new construction of modern [facilities]. Much of the city’s existing inventory suffers from a form of functional obsolescence and/or physical deterioration and difficult to find users to absorb. Since 2015, the city has seen over 765,000 square feet of new construction completed. Auto supplier Flex-N-Gate is the latest company to make a significant investment in the city. The company recently announced plans to build a 500,000-square-foot production and sequencing facility on a 30-acre site in the industrial park located near Interstate 75 and I-94. Meanwhile, Lear Corporation is in the planning stages of building a new manufacturing plant in the I-94 Industrial Park. These planned upcoming developments follow the 904,000 square feet that is currently under construction, which include: Crown Enterprises’ 500,000-square-foot distribution facility for its Universal Truckload Services; YFS Automotive Systems Inc.’s 150,000-square-foot manufacturing facility; and Sakthi Automotive’s 540,000-square-foot expansion on Fort Street.