Tag: Forecast

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What Happens to Market Demand When Life Catches Up?

Jack liked to smoke.  Often.  He'd hang out smoking just at the entrance to the office and would greet me with a casual smile and the seasoned look of a battle hardened real estate broker.  On normal days, I'd stop, stay hello and then go to my desk.

After the World Trade Center attack in 2001, the world seemed to come to a stop.  Everyone stopped and waited to see what was going to happen to the market and overall economy, and seemed equally unwilling to take any risks and get back making money work.  People were just proving that the market responds worse to uncertainty that it does bad news. On a fall day in October, 2001, I pulled into the parking lot and saw Jack smoking on his stoop.  I said hello, stopped, and asked what he thought of everything going on and whether the market would pick back up.  He paused, smirked, and exhaled answering, "Of course.  That's what I love about real estate.  Someone's always getting married, divorced, having a baby, getting hired, laid off, or just ready to retire." Basically, the world may stop, but time and life don't.  Eventually they catch up and give people a  kick in the butt to keep moving. In the  Greater Boston and New England market, the first 6 months felt a lot like the month or two after 9/11.  We're now beginning to see the early stages of activity, which feel a lot like pent up demand to us.  Tenant requirements have been flooding in with immediate occupancy requirements; investors coming back to the market looking to generate higher returns than their ING accounts will pay; and sellers going out of business needing to sell fast and hoping to walk with some cash. What are you seeing?  Anything shaking loose? 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.

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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.

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How to Think Like Smart Money

We live in a time of turbulence.  We hold on as old systems are tested and pushed to the hilt.  Look at how government spending supports and maintains these systems for as long as possible before allowing them to break -- case in point, GM’s bankruptcy. But what happens when these systems shatter?  We pick up the pieces and rearrange them to create new modes of operating amidst a new landscape.  We develop a new equilibrium, don’t we?

Here are a few applications I’ve seen recently:

• Combine a demolition crew with a functionally obsolete 
 warehouse building to bulldoze portions of the building to create 2 -3 functional industrial properties.

• Make tenants your lenders.  Ask them to finance your 
 development and also be the anchor.

• Unpack the words “Toxic” and “Asset”.  They’re really just liabilities.  Turn 
 trash into cash by repackaging, repricing, uncovering underlying value, and 
generating return on investment by aligning the new asset with market 
demand.

Ask yourself, if it’s true that, according to he philosopher Heraclitus, “A wonderful harmony is created when we join together the seemingly unconnected,” then what pieces could you assemble to create new opportunities that will make you money and provide value to your community? 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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Office Vacancy in 128 North to Increase

Vacancy rates for office space in 128 north are increasing.  According to CoStar research, vacancy rates dipped in 2006-2007 into the 13% range.  They're now forecasting vacancy rates up to 16% as more space comes on the market with pending job layoffs.  The vacancy rate has not increased more drastically because tenants have not started giving up space to their landlords as they hold out to see when the recession will end and to see whether they'll need space to rehire staff. Watch for office lease rates to decline as we approach the second half of this year and enter 2010.  We anticipate lease rates to decline as vacancy rates increase as the market searches for equilibrium amidst a new landscape of supply and demand. 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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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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Boston Commercial Real Estate Gains from 2005-2007 Wiped Clear in 2009?

Portfolio Research has published some mean numbers that indicate that we're going to be in for a wild ride over the next couple of years in the Boston area commercial real estate market.  As much as what I hear around town is a false sense of hope and security that this will blow over soon and we'll get back to prosperous times again, it looks like the coming storm is going to get nasty.  Here's what Loopnet quoted:

PPR expects property values across all sectors to continue falling through at least 2010. Multifamily will lead the decline, registering a 32 percent drop between 2007 and 2010. Office will fall 31 percent during the period, retail 29 percent and industrial 21 percent. Click Here.

The early stages of this correction began in early 2007 as speculative investment continued while the tenant market began to show early signs of softening.  One fundamental was at work in our market area and among our clients: landlords cutting deals with tenants that were 20% below actual values.  These deals were under the radar but represented a monumental shift in values, or phase 1 of the downturn. Imagine a landlord with a 20,000 SF building who was charging $10/SF NNN for his space.  He was generating $200,000 in net operating income. On a 7 CAP he's worth $2,500,000.  He then signs a new deal at $8/SF NNN, or 80% of his previous rent.  His building, priced on the 7 CAP, is now generating a $160,000 net operating income and is worth $2,285,000, or 9% less than before. Phase 2 kicks in. CAP rates go up.  Investors now say they'll pay a 9 CAP for that deal.  Now his building is worth $1,777,000 or 29% less than before.  Voila. That's what PPR has projected. Phase 3 is yet to come. When that investor's debt matures at the 5 year mark, he needs to go back to the bank and refinance his loan. Guess what, now he's worth 29% less than before and the bank wants him to contribute more equity to decrease his loan to value ratio.  If he doesn't have the cash, partner(s), or credit, his building's up for sale or goes back to the bank.  That's where the last hit in values will come from.  And who really knows how big that's going to be when it happens. Get Your FREE 2009 Commercial Real Estate Market Outlook for the Boston Area. [download id="4"] Your Free Copy 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.