Tag: Cash Flow Investment Real Estate

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Capitulation in Boston Commercial Real Estate?

"You've finally capitulated, haven't you?" joked my business partner. He and I laugh at the fact that he's a bear and I'm a bull. It works for us. And when either of us become too negative or positive on the market, we weigh the pros and cons. "Yep." I said. "Despite the fact that you know that I'm a bull and that I've been writing and advising of this correction for some time now, I really feel that I've experienced the shift today. There's no going back now."A lot of equity's going to be lost. I had been on the phone earlier that day with a broker that exclusively represents Bank of America. Many considered BOA to be one of the most desirable and credit worthy tenants. He and I were chatting about the market and how we were seeing retailers looking for rent concessions up to 20% from landlords. He told me, "We're closing several locations where owners aren't working with us and we're also liquidating 173 units this year." I had heard and seen of many retailers renegotiating deals, but not Bank of America. Imagine the impact. No one is safe from the loss of equity we're going to experience. It's going to be expensive. Next up will be the office market. It took the retailers about 18 months to get here. Watch for office tenants to begin similar talks from October, 2009 to December, 2010. About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.

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Why Being Pound Wise and Not Penny Foolish May Pay Off

Property owners, here's your good news, the stalemate is ending.  You have just summitted a mountain of transactions and have been sliding down the other side,  as represented in CoStar's chart showing national sales volumes for office properties. You're wondering, what's selling? And for how much?

The appraisers are wondering, too. "There just aren't any comps out there," as stated by 3 appraisers that have called our office in the past 3 weeks.  "We're calling around trying to value a subject property and are having a tough time finding lease and sale comparables to determine market value." Typically, the national office market measures approximately $2 to $3 billion in sales, which from 2004-2007 looked like an aberration when it reached a high totaling $18 billion. And in less than 2 quarters, we've quickly ridden down the other side and are looking for the bottom.  No wonder there aren't any comps. To those looking for comparables, the comparables are coming.  The market will be repriced and you'll have transactions to study.  The next question will be: what will those deals be worth? Our crystal ball says: watch for the second two quarters of 2009 to show more market activity than the previous two.   Speculators exit the market and investors reactivate.  Sellers, Buyers, and their Lenders battle over what market values really are, and by the end of the year, expect to see that chart beginning to point toward the mean. During the second half of the year, buyers creep into the market, testing the bottom to see which sellers are the first to accept that the game has changed. These sellers are labeled "distressed."    Some are.  Many aren't.  These pound wise sellers see that their properties are worth more now, leaving the impending battle over new values for the penny foolish sellers who enter the market needing to sell in 2010 (see more on this topic here), when we have more auctions, actual distressed sellers, and more supply that's competing for the same buyers. 2011 looks cloudy right now. There's talk of some employment growth, which helps to absorb excess space created by this year's job losses, but we believe this "return to the mean" may take some time to process.  If you're holding property  with an anticipated exit in the next 24-36 months, you may be pound wise to enter the market today instead of holding out for penny foolishness tomorrow. About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.

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Why Green's the Best Possible Investment in Commercial Real Estate Today

Green, Green, Green. It seemed to be all the rage last year as oil prices spiked to $140/barrel and people were trading in their SUV's for economy class hybrids.  Something else happened.  Fortune 500 companies and the U.S. Government felt the effect and instituted policies that they, too, should be green, work to stem global warming, and make changes to their business practices that were environmentally sound. These decisions rippled into 2009 and have shown up in the commercial real estate market.  According to CoStar researchers, the best possible investment you can make in your commercial real estate is to either go LEED or get the Energy Star label. 5 years of national office leasing data suggest that Energy Star Certified properties are leasing for significantly higher rents.  In 2004, national  office rates for non-Energy Star properties was $24/SF.  Energy Star Certified Properties were leasing for $2/SF more than their peers.  On a 100,000 SF building, that differential on a 8.5 CAP rate equates to roughly $2.3M in equity. 2009 data are even more compelling.  That same Energy Star Certified 100,000 SF building is leasing for $4.75/SF more than its peer today.  That differential on a 8.5 CAP rate equates to roughly $5.9M. Here's the good news: a preliminary Energy Star study costs about $3,000. So long as demand for these properties outstrips supply, these trends should continue. They won't, however, last forever as more investors catch on to this new information. About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.

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Hey Retail Investors....Did You Get Your Letter Yet?

You walk to the mailbox. Inside is a letter from one of your tenants.  Expecting a check?  You tear it open, skim it, get that sinking feeling, and then re-read it line by line to see if what it says is really true... Saturday night, I bumped into a well recognized entrepreneur (let's call him John) who's achieved tremendous success in the retail industry.  I'd seen him on television, been to his stores, furnished my office and home with his products and admired his marketing and advertising acumen as well as the experience his company created for its customers.  He's been successful in competing in price, service, and providing an experience that brings people back again and again.  In fact, my partner told me that his wife walks the stores with her friends just for fun. John and I wound up striking up a conversation.  He asked me about the commercial real estate market, what was going on, and how anything is really being priced these days.  He added that he had just put in a bid on a $10M building that he believed he could now buy for 30 cents on the dollar. "Crazy." He said. John asked, "Why the gap in pricing and what's going on out there?" There's a lot to it." I said and went on to explain.  We discussed the market conditions, John's competitors, and how to value assets in such an uncertain economic environment. Then the letter conversation began. I told him that a client had recently called us asking for advice.  Subway had sent him a letter.  It said they're either going to close the location or pay 25% less rent.    Then there was a fellow CCIM who recently sent a broadcast email to our CCIM network looking for help with her client who owned a free-standing Starbucks location in Texas who had received a letter from Starbucks stating that he had 2 options.  Agree to lower the rent by 25% or they would close the location. John topped it off by adding that one of his largest competitors in the area, Sleepy's, was up to something similar.  He heard that they sent a letter to 600 property owners telling them they were going to start paying 25% less across the board on their leases.  Imagine the results.... See more on this topic here. What a shame. What about you? Have you received any letters? If so, from whom? And if you were facing either vacancy or receiving 25% less rent, what would you do? About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.

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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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Why You Must Buy for Cash Flow--It's Today's Solution to Tomorow's Wealth