Tag: Commercial Real Estate MA
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Should There be a Letter -W- in Boston Commercial Real Estate?
Last week, I had breakfast with a gentleman with over 40 years of development and commercial real estate investment experience while attending the CCIM Annual Conference and Success Series in Honolulu, Hawaii. (Hats off to my fiance for making the introduction. She sat next to this gentleman on her flight to Honolulu.) Our conversation centered around his background as a hospitality operator and developer, his experience in non-profit financing resources, and his involvement in a global medical services and advisory firm. Read more0
Why We Invest in Commercial Real Estate When Times Are Tough
I have to confess that maybe I’ve been a bit negative in recent entries. Maybe it’s because of all of the news out there that times are terrible and that it’s not going to get any better. My business former business partner and I tended to joke about it. He’s a bear and I’m a bull. Deep down, I’m an optimist and believe that we’re entering a window of opportunity over the next 24 months that are going to be a tremendous time for acquiring assets. I also believe that we live in a dynamic, creative, and innovative country whose people have the ability to face down challenges and grow through them. So, sure. Times are tough. But money’s still being made. And the world still goes around. So maybe I haven’t been too negative, just realistic. The way I see it is that you ought to hear it for how it is. If this information helps you make, or even save, money, then kudos. You’re making it work. It’s not all bad, though. There is money being made out there and it’s going to continue being made. In fact the ones who are doing it, seem to be living by a credo that I once heard. “Buy when times are tough or when it’s just hard for you to buy. Sell when it’s easy.” Do you think you are a seller today? If so, email me at Jeremy@Mansardcre.com with the words “Sell my building in today’s market” in the subject line. Include your name, when you would like to be called, and the best number to reach you. I will contact you to schedule a time for you to invite me to your building for a free consultation. If there’s a fit, you may retain us to sell your property. If there isn’t a fit, we’ll tell you we cannot help and will refer you to another firm that may be a better match. 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.0
How to Know When to Change Your Approach to Investing
In my prior life as a history student, my doctoral advisor explained his perspective of human behavior and how historians better understand why people do the things they do. He believed that as people encountered adversity, and as the outcomes of their efforts didn’t equate to their intentions, they would intensify their efforts in the hopes of overcoming undesirable results in return for what they actually wanted to happen. It wasn’t until their intensity of effort was no longer sustainable that they would throw their hands in the air, quit, overthrow their leaders, question their assumptions, kill their idols, die, innovate, change, etc. Epictetus, the stoic Greek philosopher said it in other words, “What concerns me is not the way things are, but rather the way people think they are.” With the increasing intensity of what’s been coming out of New York and Washington DC, and how we believe we understand what’s “really” happening with our economy, are we really solving any problems? Or are we just turning up the volume to see if something changes because of the way we see it? We’re living through an extraordinary time--a paradigm shift in our economy and country’s position in the world. It’s also a period when generational wealth will be made and lost. And I believe great fortune will favor those who move sideways, do the unexpected, and are first to innovate to solve the problems we face in new and alternative fashions. Get free weekly email updates of this blog. 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.0
What Does Pele Know About Commercial Real Estate?
Fans used to ask Pele, the great Brazilian soccer player, how he achieved such mastery of soccer. He used to answer,"Everything is practice." Pele understood that the path to greatness wasn’t spending hours perfecting the most complicated plays of the game, rather endlessly trying to master the fundamentals. Mastery of the fundamentals, his most difficult endeavor, catapulted him to soccer stardom. Pele teaches us that when we’re looking for increasingly complex solutions in a market of disarray, through mastery of investment analysis fundamentals, we gain the ability to see through the chaos to what really matters: understanding risk, return, and making well-informed, profitable investment decisions. Learn about applying the discount cash flow model to price commercial real estate investments, which allows us to value deals with multiple variables in a clear, coherent, and informed manner. Once you master its application, you’ll find yourself taking stock of tenant risk, interruptions in cash flows through these uncertain times, pinpointing exit assumptions, and making adjustments today to create investments that meet your acquisition criteria. I learned my basics through the CCIM Institute. If you're interested in taking a CCIM course, email me Jeremy@Mansardcre.com and tell me your name, the course you'd like to take, when, and list the questions you have about what to expect. I'll respond to your email within 24 hours of reading it with insights into the CCIM designation and what to expect when you enroll in your next session. 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 .0
The battlefield is quiet. Buyers have retreated and sellers have dug in. There's chatter in the trenches. "They'll come to us when they're ready," the sellers banter. "They can't hold out forever. Eventually they'll need a property and will come knocking on our doors for what we've got." They feel proud of what they own, but inside they're nervous because they know they can't hold on forever. The supplies are bound to run out.
"Those sellers are crazy," the buyers ramble. "We get better returns buying their debt than paying what they're asking. With loan to own, there's no operating headaches, risk of depreciation, and maintenance to worry about. Until they're ready to concede, we'll stay right where we are."
The truth is, neither side can hold out forever. Some commercial real estate transactions have occurred in Massachusetts this year with more to come as we enter the second half of the year, when businesses have a better sense of how to adjust for risk, homeowners sense a bottom to the housing market and start spending again, sellers begin to run out of cash and get tired of dealing with tenants re-trading their deals with no new tenants looking at their buildings. Buyer will see pricing soften and will begin to move forward, accepting that they can't have it all their way, and that in the end, commercial real estate is still a pretty good deal. You get leverage, tax advantages, and cash flow. It's good stuff, right?
So what will this new battlefield look like? Yesterday, a MAI appraiser called to ask about how our buyers are pricing investment acquisitions in this market environment. He'd spoken with other investment sales brokers and was trying to value a retail center with 60% vacancy that an investor had decided to buy. (By the way, this purchase is great timing. If you can afford to carry for the next 20 months, you'll do well in retail investing over the next 5-8 years).
After our discussion, here's what we agreed on:
The exit CAP rate would have to be no less than 8.5%. A recent CoStar study shows that the mean CAP rate for the past 20 years in commercial real estate properties has been about 8.5%. During the correction in the early 1990's the CAP rate surpassed 8.5% and reached as high as 10-11% and then settled back down to about 8.5%. It wasn't until the early 2000's with the tidal wave of credit and money flowing into commercial real estate, that CAP rates compressed as low as 5%. Now they're going up.
Plan on a vacancy carry of at least 20 months. If you're going to buy a commercial real estate asset today with significant vacancy, plan on carrying it for the next 20 months, at a minimum. You should also price rent reductions of 20-30% into your cash flow analysis to allow for the re-pricing that's taking effect today.
Your discount rate should align with market expectations. Sophisticated commercial real estate buyers are chasing paper where they're earning 12-13% returns. In order for buyers to be attracted to the risks with owning and operating commercial real estate, the returns must be higher, which means you should plan on at least a 15% discount rate for the term of your investment. Discount your projected sales price and periodic cash flows at 15+% to today's present value. There's your number.
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.
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The 'Must Know Method' For Valuing Commercial Real Estate Today
The battlefield is quiet. Buyers have retreated and sellers have dug in. There's chatter in the trenches. "They'll come to us when they're ready," the sellers banter. "They can't hold out forever. Eventually they'll need a property and will come knocking on our doors for what we've got." They feel proud of what they own, but inside they're nervous because they know they can't hold on forever. The supplies are bound to run out.
"Those sellers are crazy," the buyers ramble. "We get better returns buying their debt than paying what they're asking. With loan to own, there's no operating headaches, risk of depreciation, and maintenance to worry about. Until they're ready to concede, we'll stay right where we are."
The truth is, neither side can hold out forever. Some commercial real estate transactions have occurred in Massachusetts this year with more to come as we enter the second half of the year, when businesses have a better sense of how to adjust for risk, homeowners sense a bottom to the housing market and start spending again, sellers begin to run out of cash and get tired of dealing with tenants re-trading their deals with no new tenants looking at their buildings. Buyer will see pricing soften and will begin to move forward, accepting that they can't have it all their way, and that in the end, commercial real estate is still a pretty good deal. You get leverage, tax advantages, and cash flow. It's good stuff, right?
So what will this new battlefield look like? Yesterday, a MAI appraiser called to ask about how our buyers are pricing investment acquisitions in this market environment. He'd spoken with other investment sales brokers and was trying to value a retail center with 60% vacancy that an investor had decided to buy. (By the way, this purchase is great timing. If you can afford to carry for the next 20 months, you'll do well in retail investing over the next 5-8 years).
After our discussion, here's what we agreed on:
The exit CAP rate would have to be no less than 8.5%. A recent CoStar study shows that the mean CAP rate for the past 20 years in commercial real estate properties has been about 8.5%. During the correction in the early 1990's the CAP rate surpassed 8.5% and reached as high as 10-11% and then settled back down to about 8.5%. It wasn't until the early 2000's with the tidal wave of credit and money flowing into commercial real estate, that CAP rates compressed as low as 5%. Now they're going up.
Plan on a vacancy carry of at least 20 months. If you're going to buy a commercial real estate asset today with significant vacancy, plan on carrying it for the next 20 months, at a minimum. You should also price rent reductions of 20-30% into your cash flow analysis to allow for the re-pricing that's taking effect today.
Your discount rate should align with market expectations. Sophisticated commercial real estate buyers are chasing paper where they're earning 12-13% returns. In order for buyers to be attracted to the risks with owning and operating commercial real estate, the returns must be higher, which means you should plan on at least a 15% discount rate for the term of your investment. Discount your projected sales price and periodic cash flows at 15+% to today's present value. There's your number.
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. 