Tag: Boston MA Commercial Real Estate Brokers

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Which Sales Approach Gets You the Highest Value - Pricing Low or High?

Could every landlord and seller have it wrong when it comes to making people buy at the highest possible price?  In my experience, commercial real estate investors believe that starting with a high asking price is the best way to achieve maximum value.  It makes sense and here's why.

• It's expected that people make you offers for less than you're asking because it's the American Way.
• When the initial price is set high, potential buyers are likely to think it's worth more.
• You hope that someone will pay you more than you're willing to accept because you asked.

Here's where common sense and science disagree. Science has proven that lower asking prices can lead to a higher final sale price. Gillian Ku, a behavior scientist, and her colleagues studied this question (Read More in "Yes!" by Cialdini, Goldstein, and Martin) and concluded that there are 3 reasons why the lower asking price results in a higher final sale price than the other way around.

1. Higher asking prices act as a barrier to entry. It's true that the larger your buyer pool, the more likely you'll receive the final sale price you desire.  Lower prices encourage participation by as many people as possible.
2. The increase in buyer activity afforded by the lower asking price buyers acts as social proof to other prospective buyers that the opportunity is valuable. Remember, everyone wants what everyone wants.
3. Buyers who spent time with an opportunity early on are likely spend more time and effort trying to buy. They're playing not to lose.  If they've  spent time and energy investigating the opportunity, they're more likely to stay with it and pay more.

There is one caveat, however.  Gillian Ku and her colleagues found that buyers must know that other buyers are interested, otherwise you constrain your traffic and your lower asking price is less effective.  For example, if your retail opportunity is listed under office buildings for sale, you have a problem. Here's how you apply this scientifically proven method to commercial real estate.

• Start with a lower asking price.  Yes, it may feel awkward, but it works.
• Don't participate in a "no asking price" offering. You'll alienate buyers who need guidance in the opportunity and don't have transparency into how much demand exists for the property. Plus, it will upset them and they'll refuse to compete for the opportunity, perceiving it to be a waste of time.
• Make sure your commercial real estate broker provides your buyers and tenants with social proof for the opportunity by sharing metrics about lead flow, tours, proposals, etc.  Again, everyone wants what everyone wants.
• Never limit your offering to a narrow pool of buyers.  Ask your broker if your opportunity is being offer to his "list of buyers" or the entire market.  Many buyers and brokers like the limited pool of buyer approach because the broker doubles his commission and does less work.  The buyers have less competition among each other. Ultimately, you pay more.  Insist that your opportunity be made available to the entire market immediately to generate the highest interest level possible.

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Commercial Real Estate Investing Tip for Working with Brokers

Honestly, I confess that if you've used this expression "I'm just looking for a deal that makes sense," to share what you're looking for, it's not your fault. It's ours--the commercial real estate broker community. Here's a real estate investing tip. In the real estate investing advisory business, we believe that there are no bad prospects, only bad salespeople.  This means that if you've been frustrated with the lack of performance and results you've achieved from your conversations with commercial real estate brokers, then it's our fault for not asking you to be more specific about what you're looking for. Unfortunately, commercial real estate brokers accept that statement because it's easy. They'll add you to their database, possibly send you a list of properties from one of the commercial real estate listing services such as CoStar or Loopnet, and then leave you to fend for yourself.  After a few weeks, you haven't heard anything , so you repeat your investment property search--frustrating. Next time you call our office, we pledge to ask you to be more specific.  If we can help you locate what you're looking for, we will.  If not, we'll tell you and refer you to someone who may be able to satsify your requirement. And the next time you call on a commercial real estate broker, try this experiment.  Don't use the words deal, sense, cash flow, creative, good, add value, or upside.  Instead, describe the property type, location, type of owner, yield requirement and price range you're looking for and see what happens. Your specificity will produce more commercial real estate investing opportunities for you to consider and your commercial real estate investment broker will have a clearer picture of what you're hunting for and who to call first when they see it.

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10 Lessons from a Distressed CMBS Portfolio Assignment

Here are 10 insights I can offer you after completing a consulting assignment on an 850,000 SF portion of a $1B distressed CMBS portfolio sale. 1. The news on the street is not necessarily what's happening with the borrower and his property. 2.  To fill vacant space, discount your rents significantly.  Be the best place for the best price. 3.  Plan to renew at lower rates. Once your in-place tenants see what you've done with rents to fill the building, they'll likely want the same deal. 4.  When the borrowers stop paying, it's because they realize they're chasing losses. Paying to keep the property is worth less than letting their equity go. 5.  Property values are less than the debt owed. Find motivated lenders willing to cut a deal. 6.  Some properties are worth more as land sites than empty buildings. 7. Do your due diligence.  Lenders don't like to foreclose on Phase II and Phase III assets.  Make sure you're not buying a liability. 8.  Plan to carry an asset for 1-2 years to reach stability. 9.  Once stabilized, it may be 36-48 months before you recover your investment. 10.  Don't bet the farm on your exit cap rate.  Cash flow will likely still be paramount when you dispose.

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Your Commercial Mortgage ... a Time Bomb?

If you still own your commercial real estate and you have tenants with net operating income to pay your debt service, congratulations. You've made it half-way through the downturn. The second half may be uglier. While it may look like you're successfully wading through the weeds, when was the last time you checked the terms of your mortgage agreement? Some owners who think they're in good shape today, may technically be in default or facing a maturity default. Your debt service coverage ratio may be out of alignment with your mortgage agreement. You may have depleted your reserve accounts below the required amount. Or your property's value may have declined up to 40% since you originated your debt 3-4 years ago. More on this topic here. If you haven't done so yet, read your commercial mortgage agreement. You may find that you are in default, or worse yet, headed toward a deadline that may require you to invest more equity into your building that you don't have. Values have declined. Your loan to value ratio may need to be reset when your loan matures. If you don't have the net operating income to support a higher valuation than today's market will support, or the willingness to buy down your loan, you may run the risk of a maturity default. Owners are losing their buildings to maturity defaults today. Look at your mortgage and make preparations to protect your building for when your loan comes due. Get free weekly email updates of this blog. About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

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MANSARD and Property Politics Team Up To Train New England CCIMs

Jeremy Cyrier, CCIM, principal of MANSARD Commercial Properties and Wayne D'Amico, CCIM, principal of Connecticut based Property Politics teamed up to train CCIM's from across New England on the CCIM Institute's Site To Do Business in Boston this week.  The class was held at 60 State Street Boston at the offices of Wilmer & Hale in cooperation with the Greater Boston Board of Realtors and was attended by commercial real estate brokers, data from across New England. The all day event featured a full tour and use of the CCIM Insitute's Site To Do Business, which is a GIS platform used to perform market analysis and to identify demand and opportunities in the commercial real estate markets across the United States. Chris Norwood of NAI Norwood Group said,

"great job on the class....Leaving the class I feel much more comfortable with the site and enjoy working with it much more than I had in the past...I am liking this site more and more, with your help."

H. Sandy Brown, President of the New England CCIM Chapter said,

"On behalf of all the attendees of your session, I would like to thank you both for a very informative and entertaining program, last week.  Your insights and practical applications of the usage of the STDB were fantastic.  I know we all left the program with a very practical knowledge of the site, and many ways that we can use it to help us better support our clients.  That, in itself, will make us stand our amongst other practitioners in our markets.  This is the true meaning of what it is to be a CCIM!!!

Again thank you for doing such a great job!!"

To invite Jeremy to train you or your employees on the Site To Do Business, email him at Jeremy@Mansardcre.com with the words "Site To Do Business Training" in the subject line.  Include your name, when you would like to be called, and the best number to reach you. Jeremy will then contact you to discuss scheduling a Site to do Business training session for you and your employees. Get free weekly email updates of this blog. About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

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How to Get Tenants to Your Building

Landlords are landing tenants.   What's their secret? They know how to stimulate demand. Landlords landing tenants understand this secret and know that most brokers and landlords are spending time on the "symptom" and not the "problem".   The "symptom" is easy to treat: do more. The "problem" is much more difficult: change your approach. Read more

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Selling Your Commercial Real Estate in a Down Market

When do you know that selling commercial real estate in a down market is the right decision? Ask Sam Zell.  He says, "Everyday you're not selling, you're buying."  If he's right, then how do you make a decision about the right time to sell commercial real estate in a down market? Read more

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MANSARD Welcomes John Hughes and Paul Lam

The more often we do something the same way, the more often it becomes more difficult to think about doing it any other way.  Have you ever heard the expression, “When the only tool you have is a hammer, everything else looks like a nail”?  Sometimes it takes that hammer to the head (or a market correction) to get us thinking differently and 
welcome to change. Swahili speakers in East Africa have a proverb that reminds us that change is a good thing and that we should embrace it; Kipya Kinyeni is what they say. In the spirit of the Swahili, we’re happy to announce that we recently added 2 new brokers to our team.  John Hughes, who brings with him his prior experience with New Dover Associates, is an expert in  the valuation, leasing and selling of office, industrial and retail properties throughout Eastern and Central Massachusetts. Paul Lam joins us as a new leasing and commercial real estate sales associate.  Prior to joining MANSARD, Paul founded and built a digital technology company and worked as an investment banker in the Mergers & Acquisitions Group at S.G. Warburg & Company.  Paul holds a Bachelor of Science in Economics from the Wharton School at the University of Pennsylvania with a double major in Corporate Finance and Strategic Management. Please join us in welcoming these two fine young men to MANSARD Commercial Properties.  We’re lucky to have them. Get free weekly email updates of this blog.

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What Do Market Corrections and Marathons Have in Common?

Two weeks ago I finished my first marathon and learned that a combination of two strategies works best for surviving long runs and market corrections--you must first save by creating efficiency of movement and conserving energy.  Next you must grow through the pain and lead your way to success in preparation for future recovery and expansion. Read more

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Get up to 90% financing with an SBA 504 loan

Not long ago, if a borrower was simply able to complete the application for a 100% loan, and they would be approved.

Talk to those who have tried the same in recent months, and you’ll hear a different story – one in which lending institutions have limited borrowing to the point of virtually freezing the real estate market. Buyers are quick to become discouraged when loans are no longer readily available without putting 30% or more down. However, tough market conditions have increased the use of specialized programs to fill the gap.

The SBA 504 program is a popular option for owner-occupied properties in need of fast cash. Offered by the New England Certified Development Corporation, the product is designated for projects ranging in size from $500,000 and up, and can be used to purchase land or buildings, new construction or expansion, renovation, leasehold improvements, or equipment.

With an SBA 504 loan, a borrower obtains a first mortgage loan for usually 50% of the project from a bank. There is no maximum dollar amount. New England Certified then provides a secondary loan (called a debenture) for the next 40%. Certain manufacturing entities are eligible for up to a $4 million debenture. All other industries are capped at $2 million. Up to 90% financing means the borrower typically provides only 10% equity for the project. Loan terms may extend as long as 20 years, and low fixed interest rates (fixed for 20 years for real estate; 10 years for equipment) are available on up to 40% of the project.

Borrowers must:

· Be located in New England.

· Operate for profit.

· Owner must occupy part of the property.

· Have a tangible net worth of $8.5 million or less.

· Have an average net profit of less than $3 million over the last two fiscal years.

Existing buildings must be at least 51% occupied, or 60% for new construction.

Just because it’s more challenging to obtain a 90% loan these days does not mean it’s impossible!

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