Browse Tag: Tenant Representation

LIBOR: How You Probably Got Burned

Interest Rates
Interest Rates (Photo credit: 401(K) 2012)

So did any of the commercial property deals you touched in the past five years or longer use financing?  Let me guess: the answer is yes, of course.  Developers acquiring or improving commercial assets such as land or buildings tend not to self-finance. They often turn instead to our pinstriped friends at the banks for adjustable-rate loans – adjustable, more or less because long-term fixed-rate commercial loans are offered less and less by banks.

Enjoy Your Uncertainty

Why is fixed-rate financing out of favor?  “Too much risk,” mumble our pinstriped friends. That they complain about risk while having recently presided over a disaster of sub-prime, liars loans and the like, well, never mind.

What do the loan terms do to the performance of commercial property? Quite a bit.

Service to these floating-rate loans to a great degree constrains what a commercial space broker can do in terms of flexibility on a lease.  The way a landlord financed an improvement speaks volumes to what a broker or rep can expect to see out of the property even when perfectly matched with ideal tenants.

To put it another way: we on the leasing side of the proposition could do our jobs perfectly, but if the loans up the line are riding an adjustable interest rate — and these days, most are — the perfect tenant and the perfect space far too often have to miss each other because cash flow and debt service raise their heads to address the uncertainty. Uncertainty we didn’t always have to deal with before, but do now.

That’s the role of the banks: to provide capital at interest rates that reflect the market for capital. But as with so many things our pinstriped friends are supposed to be doing, the reality turns out to be very different.

Gosh, This Thing We Sold You Looks Risky: Good Thing We Sell Protection From It, Too

Most variable-rate loans get the varying rate from one of the numbers published daily as LIBOR – the London Interbank Offered Rate. The problem with variable-rate loans, of course, is that they tend to make it impossible to know the total borrowing cost. Which is why our pinstriped friends offer the chance to exchange, at some point down the road, the variable-rate with a fixed-rate that’s higher.  This is called the swap.  It, too, is keyed off of LIBOR.

So the banks, rather than accept the uncertainty of a fixed-rate long term loan, pass along to our industry the uncertainty of floating interest rates, then sell us the protection against floating interest rates.

That’s a lot of dependence on LIBOR.

Wouldn’t it be incredible if it turned out that the constantly-adjusting interest rates our pinstriped friends used to sell us the capital we need, then sell us the protection against the uncertainty of constantly-adjusting rates…were fixed?

By “fixed” I don’t mean “not floating”.  In this case, I mean “fixed” as in a “fixed fight” — a corruption, a cheat, a scam. Rigged. A fraud.

That’s exactly what it looks like today, as the lawsuits and criminal investigations pile up:

More at The Real News

It appears as if the LIBOR interest rate that governed your commercial property’s financing’s variable interest rate as well as the swap used to get a handle on borrowing costs was cooked for years to make member banks winners in their own derivatives trades.

To a broker or developer, this means you got left holding the bag and paid too much for capital.  To a tenant rep, this means you had to settle for less than the best match for space.  To a leasing agent or tenant, it means part of your rent calculations went not to either party but to cover our pinstriped friends.  And the list goes on and on.  It looks like the entirety of our industry — and every other that borrows, which is more of less all of them — has been once again punked by an out-of-control culture in banking.

Because keeping our pinstriped friends in pinstripes is apparently our responsibility, not theirs.


Tenant Representation: Getting Educated By the Pros!

Last week, we were on-site at the Keller Williams Family Reunion (#KWFR for those of you on Twitter that want to see more conversation).   Aside from a tremendous crowd – there was plenty of commercial real estate learning going on.   Becky Leebens, CCIM, Managing is Director of KW Commercial Midwest in Eagan, Minnesota – was gracious to provide us with recap of the session  from a panel of tenant representation experts.  Thanks Becky!

Rarely are we able to hear the personal business strategies of successful real estate professionals like those offered at KW Family Reunion (KWFR).   Last week in Orlando, Florida over 9,000 residential  and commercial real estate agents gathered in one spot, the largest real estate gathering in the country.  In a down market, when commissions are scarce, why do agents spend thousands to attend this event?  To network, collaborate, and more importantly, to find out how the industry pros drive their business to the top!

I have been part of the commercial real estate community for over 15 years, but never have I had the opportunity to meet with hundreds of successful commercial real estate brokers in one place to find out where and how they do their business like I have at KWFR.  There were 8-10 breakouts over the 4 day period for commercial  brokers including investment sales, utilizing technology and social media, converting tenants to buyers using SBA 504 just to name a few.  But this event goes beyond that. This is an event where brokers not only share their insights, but they actually reveal the secrets to their success and will even invite you to be part of their team!

As an illustration of this experience, let me give you a peek in to the Tenant Representation breakout session.   This session was presented by Michelle Rich Goode.  Michelle has over 26 years in commercial real estate and was one of the first in her area to create a tenant representation firm in Raleigh, North Carolina.  The panelists included Powell McGill, from Manassas Va, who, early in his career, worked directly with Julien J. Studley, the pioneer of tenant representation; Bill Langley, a Commercial Director with over 20 years of experience out of Atlanta, Georgia;  and myself.  This experienced and diverse panel shared their expertise ranging from how to handle client objections to the details of a lease transaction.   For example, clients often think they don’t need a tenant rep broker because they either have a good relationship with their current landlord or because they think they can’t afford one.  The panel countered these objections by stating they are exclusive tenant rep’s (do not represent Landlord’s at all), offered market knowledge, and by thoroughly explaining how their fee is typically paid by Landlord.  They walked through a 25,000 sf tenant rep case study explaining each step, highlighting key points and discussing the various strategies they take with their client through the process.    The highpoints of the presentation included:  winning the assignment, the process timeline,  space planning, construction costs, lease checklist and analyzing the deal. The room was filled with commercial brokers who were given direct access to experts who gave them a variety of knowledge and tools, which they could now incorporate into their own business models.  The breakout ended with a question and answer session, and an invitation to be part of the International Tenant Representation Practice Group these professionals have created within KW Commercial.   This was not only an hour jam packed with information, but it also included an invitation to be in business with this A-Team!  Wow.

Needless to say, it’s very difficult to briefly describe in words all of the benefits of this high energy, five day experience called the KW Family Reunion.  In short, I’m honored to be in business with these high level professionals and look forward to seeing them again in Dallas next year.

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