CASH ON CASH

Best Wishes For A Happy New Year

2011-12-30T13:48:00.002-05:00

I hope 2011 has been a good year for you.

Here is to a Happy and Prosperous 2012!

Lessors & Landlords To Be Excluded From FASB Revisions?

2011-11-03T06:04:00.000-04:00

There is potential good news for Lessors, Landlords and affected CRE property owners with respect to the extraordinary revisions of a joint undertaking by Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IFRS).

Specifically, there has been significant concern -- and I have covered it extensively in these pages -- that lease accounting would be updated in the name of improved transparency.

The good news is this: There has been significant public comment on the draft published in August 2010. The potential impact for CRE has been huge, for landlords and tenants, property managers and commercial brokerages. More succinctly, because real estate leases comprise a high percentate of all operating leases, that impact could be significant.

A tip of the hat to my colleague Barbi Reuter at PICOR/Cushman & Wakefield, FASB now has agreed to reconsider its proposed guidance. Lease figure accounting under the original proposal was to be moved from the operating statement to the balance sheet. Now, final guidance is coming in 2012 due to the volume of public input.

More importantly, FASB published the following on their public website: The two bodies "have tentatively decided that a lessor's lease of investment property would not be within the scope of the receivable and residual approach. Insteads, for such leases the lesor should continue to recognize the underlying asset and recognize lease income over the lease term."

The International Council of Shopping Centers (ICSC), which has been lobbying heavily on this subject, summarized it as follows: "The Boards' decision to exclude all lessors of all investment properties from the receivable and residual approach gives many real estate lessors the opportunity to continue to use operating lease accounting rules. Given their decision that lessors should apply operating lease accounting to leases of investment properties, the Boards will likely receive requests to reconsider previous decisions on lessee accounting, such as requiring a single income statement recognition model for all leases, including leases of real estate."

Stay tuned. This will continue to be hot news for CRE investors, tenants and practitioners.

Again, h/t to Barbi Reuter at PICOR in Arizona.

Not Your Average Condo

2011-11-02T12:03:00.000-04:00

Readers of CoC have long heard (read?) me rail about your domicile not being an investment.

Specifically, I subscribe to the Robert Kiyosaki philosophy -- the house in which you live is not an investment unless you are charging your children rent for their rooms. A house may be the biggest purchase you will ever make, or your largest asset, but it is NOT nor should it ever be construed as an investment.

But there is a condo complex in southwest Ohio/eastern Indiana that . . . well . . . might be viewed as an investment. I'm not sure even today. But its worth writing about mostly because I need to cover a topic that is lighter. Lots of bad economic news from around the world: The Greek people may vote on whether to accept a bailout, if not vote outright on whether to remain part of the Eurozone; Belgium's largest bank has failed -- a bank that is the primary lender to U.S. municipal governments; and a ballot issue here in Ohio is being misrepresented so badly by its opponents that if it is passed, I am convinced that a number of companies that want to move business operations here will opt to go elsewhere.

So I am writing about "The Condo At The End of The World." Intrigued???

Apparently there are a number of these condominium living spaces, originally designed to withstand a detonation. Figured it out? Yep. These are cold-war bunkers -- old missile silos -- now converted to living space. And they dot the landscape across the U.S.

The author of the piece I have linked to above also notes that there are a number of elite, weathy survival types who are betting that problems are coming to this country -- perhaps similar to the riots they have had in Greece, Italy and France -- and that they better well have a place to hole up.

Which has created a fascinating cottage industry within the real estate world -- the resale and conversion of old missile silos into useable living space.

A fascinating read. Now back to the economics of commercial/investment real estate . . . Hmmm. But its a sunny day out. Frankly, I'd rather not. Snow is coming in the next week perhaps.

For now I'll enjoy the sun . . .

In Honor Of Halloween: The Creepiest Houses For Sale In The U.S.

2011-10-31T13:12:00.000-04:00

Take a tour with me through the spookiest, creepiest old houses for sale in America.

PERFECT for a Halloween adventure!!!

If Interest Rates Go Lower

2011-10-22T14:01:00.001-04:00

Up and down. Rollercoaster or see-saw?

About every two or three weeks we see a huge stock market sell off. Then the market -- as it historically always has done -- slowly creeps back upward.

Worries over the strenth of the entire European Union. The strength and viability of hte Euro. Greece may default on its loan obligations -- on purpose -- which has Portugal and Ireland panicking Headlines on many news services late this afternoon say roughly the same thing: Investors in the stock market are dumping everything.

George Soros (not someone I put a lot of stock in -- he is not about "progress," he is about his own self interests at the expense of many American liberties, but thats a subject for another day) has said we are entering a second recession. Guess why he's saying that? Might be true, but my thinking is he wants to drive markets lower. If I had to bet, he is buying stocks right now. You know, buy low now-sell it later when it rebounds after the market realizes they are articificially depressed. His defense will be that he was asked what he thought. He can't control how people respond to his words. But I'd bet anything he's hopeful people panic based on media reports of his remarks, and he quietly buys up stronger, more valuable stocks that are being hammered irrationally by emotional sellers.

At the same time, Robert Zoellick, president of the World Bank, says the world is "in a danger zone." Mutual assured destruction of the Cold War has been replaced by economic reliance on each other. Nations needing others to succeed financially, thereby no need for war. But what happens when mounting debt creeps so high that nations decide to welch on their obligations?

Much of the sell off last week and today, IMHO, is emotional. Asia panics, Europe reacts, and like lemmings American investors follow everyone else over the cliff. Smart investors are carefully looking at buy opportunities. If they didn't get in today, depending on what happens tomorrow, Friday, there will likely be some folks getting in a rock bottom prices courtesy of those who are bailing.

With that said, Moodys Investors Service reoprted recently that U.S. commercial real estate prices advanced 5 percent, marking a third straight month in July as deals for smaller properties. The Moody's/REAL Commercial Property Price Index gres 5 percent from June. It is up 1.2 percent from a year ago, and nearly 13 percent from its post-peak low in April.

Still, realistically, this rebound may slow depending on the economy. President Obama sent mixed signals, as did Federal Reserve Chairman Ben Bernanke, when he both noted that the Fed's actions will likely further reduce interest rates. But then he said we are in a second recession, sparking the latest panic. Moody's report noted that the gain is more likely a continuation of "the bottoming process" than a harbinger of recovery. "Slow job growth will crimp expectations for the absorption of vacant space and for rent increases, which in near turn will constrain near-term price increases."

Still a buyers market for commercial/investment real estate. Depending on the property type, of course. Multifamily is still strong, but it is getting more difficult to find commercial lenders willing to back a lot of different acquisitions. Cash buyers -- whether they are private investors REITs, pensions, or insurance companies -- are quietly swooping up better quality properties of all kinds.

Now, back to whether interest rates will drop futrher. There are some things to think about; even if interest rates go lower, two thirds of the market would have to sit out any opportunity. Why? Look at it this way --

     -- the lower third couldn't qualify anyway due to credit problems, too little income, etc..
     -- the upper third don't need it; this group is paying cash for property these days (in fact sales of luxury homes $5M and higher are up 20 percent year to date over 2010)
    -- the middle third previously had to go with alternate financing, and that has pretty much dried up now.

So lower interest rates might not really do to much to stimulate real estate sales. So then who IS buying commercial/investment real estate today? Wealthier investors getting out of the stock market are converting funds to self-directed IRAs and picking up investment properties. I have two such clients I am working with now in this category, with a third who is making the move and wants to start looking for available properties within two weeks.

Today's continued stock market drop prompted the latter investor place a call a few days ago, telling me he is ready to pull the trigger. That, combined with rumors that interest rates may be lowered as a gasping means to jump start borrowing for any number of types of acquisitions. with plenty of money are being begged to use even more money. and even they are feeling the squeeze to some extent.

But everyone else is just standing there.
Less than 1 percent of investors are in CDs. Those still in the market, which is increasingly volatile, are looking at projections that we are going to have another significant "correction." Wealthy are in a good position now to pull out and wait until it is advantageous to get back in.

Rates are going to be 4 percnet on a 30 year fixed. Financing is HALF of what it was five years ago, so now -- if you are development minded -- you can pay a lot more for a project now than you would have in 2005.

And in all this, the cap rate compression we are seeing with rates this low are unbelievable. It just defies explanation.

New chapters on all these sagas to be written in world financial and CRE markets on Monday ....

Worth Noting

2011-10-06T12:01:00.000-04:00

"Your time is limited, so don't waste it living someone else's life."

"Don't let the noise of other's opinions drown out your own inner voice. Have the courage to follow your heart and intuition."

"Sometimes life is going to hit you in the head with a brick. Don't lose faith."

-- Steve Jobs

Stocks Suck

2011-10-01T17:44:00.000-04:00

Not my words but headlines found on a handful of news sites today.

Which would be why, IMHO, we are seeing an uptick once more in investors who want to move money from the market, which just experienced a very depressing quarter, into CRE. Which creates more of the interesting dynamic of which I have written before. Only so much quality product, and more and more capital eager to purchase. In effect, private investors in some of the heaviest competition I've ever seen with public and private REITs, pension funds, insurance companies, and other institutional entities.

Markets Down Sharply, CRE Stats Up But For How Long? And Good News About Shopping Centers and Medical Tenants

2011-09-23T09:37:00.000-04:00

Markets are off sharply this morning, with more than 700 points lost on the Down Jones average in the past two days, and European and Asian markets down significantly over fears of a default by Greece, general uncertainty, actions by the Federal Reserve that will push interest rates lower, and a statement by the Fed chair two days ago that we are likely entering another recession.

I'm not sure we ever left the first one.

Some good news. Medical groups are renting retail space in strip malls. Seems to be a trend in different parts of the U.S. According to Globe Street news, in Tampa the Florida Orthopaedic Institute has leased a former Borders bookstore. It will be converted to a clinic skedded to open in January, and will feature x-ray, MRI, clinical offices and facilities for physical and occupationsl therapy.

Retailers that would have shunned medical office in their centers -- even excluded them via mandates -- are welcoming the approach because shopping plaza restaurants and other retailers benefit from the the foot traffic coming to and from healthcare providers. Its all part of a trend of vacant office and retail sites working to reposition themselves as ideal homes for medical/dental space and related businesses.

Interestingly, healthcare has been one of the steadiest of commercial real estate sectors. No matter how badly someone is getting along financially, they still get sick and need to visit their own personal physicials or , worst case, visit emergency rooms. This healthcare sector, still, has been slowed by the economy.

And what is causing the slowdown? Hospital reports are the key: elective procedures have been down during the worst times of the recession. Plus, physkicians are less confident of their long-term status considering the implementation of the controversial healthcare iniatives coming out of the White House, and some worry whether they will continue to be employed by hospitals in the next six months to one year.

Still, acquisition and disposition of medical office buildings seems to be trending back up a bit. A

How Do We Continue Stifling The Economy? Let Me Count The Ways .....

2011-09-19T13:03:00.005-04:00

Elizabeth Barrett Browning wrote of love beautifully in the 1800s when she penned Sonnet 43. The first two lines are very well known: "How do I love thee? Let me count the ways."

Let me count the ways . . . those words resonate with me these days as I view what is happening to the U.S. and world economies, what is happening with lending, and its impact -- consequences you might say -- on commercial/investment real estate.

The Associated Press is reporting that President Barack Obama this week will announce $1.5 trillion in new taxes on an already beleagured American economy. The core of the president's plan totals just more than $2 trillion in deficit reduction over 10 years. It combines the new taxes with $580 billion in cuts to mandatory benefit programs, including $248 billion from Medicare. Hmmm..... THAT will be mighty popular. My guess is there will be so much pushback from the public about cuts to Medicare that that option will be dropped. But the tax increases will stay in place.

I play chess, too. That's how these things usually work.

Congress, historically, has had a way of fixing serious problems by instituting financial regulations that often make no sense. But the Members of Congress mean well, just ask them! Now the White House, while the printing presses continue to hum 24 hours a day cranking out American greenbacks and flooding the world with a plethora of inflation-raising paper (yes there is inflation; been to the grocery lately?), is poised to further stifle hiring by heaving far higher taxes onto the very people and organizations most sorely needing relief so that they can create sorely needed jobs.

Why the tax spike? All in the name of balancing the budget and reducing the national debt. Both of these issues are important. But so very often, the "solutions" coming out of Washington cause far more harm. Unintended consequences, as I have written about previously.

It is no wonder no one is hiring. Regulations of all kind are a moving target. No one can put together anything as simple as a two-year plan because the rules for doing business may change next month, or next year. Or not. No one knows.

Case in point. My partner and I have a transaction we are trying to close. Every lender we have talked to agrees -- this is a hell of a deal. A transaction that makes sense. Strong buyer. Great property. Nationally known tenant. Willing seller. And immediately afterward, each lender says the following, "this deal makes sense." they promptly hem and haw as to why they can't do the deal.

Banks and mortgage companies are incredibly risk averse these days. If there is any finger-pointing to be done, it would lead in a straight line to Washington DC. The administration, despite its recent clamor urging the public to push Congress to "pass this jobs bill," has more or less declared war on job creators via rhetoric, plans for additional taxes, and an orgy of crushing, oppressive, ponderous regulations designed to punish industry rather than protect consumers. From new financial regs that irrationally directly impact CRE practitioners' ability to advise certain clients, to contradictory labor relations board missives prohibiting companies from expanding. The list is long. The media doesn't help, chiming in without asking any hard questions of those who propose additional onerous regs. Trust me, I know. I am a former working journalist and the dearth of questions from the Fourth Estate of this administration is odd, if not troubling.

A lender's job is not to lend money, it is to make money. As is any other public or privately held business. a CEO is held responsible for such. If the company is publicly held, like most big banks, the CEO is beholden to shareholders, which by the way are comprised of moms and dads' mutual funds, pension funds owned by unions (among other organizations), teachers retirement funds, and so on. These days to lend very much without knowing what regs are going be is a huge risk. In some cases, risks not worth taking unless the lender charges unrealistic interest rates. Which stifles CRE transactions.

When you think about it, risk and reward used to go hand in hand. But with this administration, risk takes on a far more draconian meaning.

Is CRE moving now? Yep, in starts and stops, with many projects being funded by pensions and REITs, and the balance being funded by traditional lenders dealing with buyers with whom they already have a relationship. A contact of mine at a one such huge traditional bank said recently, and this was widely suspected but he confirmed it, that having accounts there, or transferring funds there, only gets you a look by them. No guarantee they will have any interest at all in your project.

Back to the deal. Smaller transactions are requiring buyer and seller to get VERY creative, utilizing seller financing, lease to own, combination transactions, indentured/collateralized notes held to maturity, and more.

In the larger scheme of things, several CEOs have flat out told Washington the way to grow the economy, and jobs, is for lawmakers and the White House to get out of the way. Proposing trillions of dollars in new taxes at a time when the economy is at a dead stop isn't just getting in the way. It is is all about people who don't understand Economics 101 putting up roadblocks (with a smile and a speech), roadblocks that are candy-coated populist "solutions" being described as needed for growth. Right.

Ever hear of perfuming the pig?

How is the economy stifled? . . . let me count the ways. Did you know the federal government borrows money from banks? Its a guaranteed 3 percent or so return, which is safer than lending to industry that is is sputtering because of regs imposed by that same federal government. No wonder traditional lenders are hesitant to take risk.

Profligate, isn't it?

Until Washington gets out of the way and quits trying to fix things (this White House and its associates in Congress desperately want to be seen as "doing something") that clearly and historically have the ability to heal themselves, we will continue to be plagued with untold and exponentially harmful unintended consequences.

The Standard of Living You Enjoy . . .

2011-09-16T14:48:00.002-04:00

. . . Depends on which side of the check you sign.

Owning commercial/investment property is a personal choice. One that frequently has investors weighing personal needs against pure, cold business analysis and decision making.

But what it really comes down to is this: The standard of living you enjoy depends on which side of the check you sign!

Signing the front of all your checks? You likely work for someone else and pay your bills and taxes like a lot of Americans. Signing the back of lots checks on a monthly basis? Then you are llikely invested in income-producing real estate and enjoying all the benefits associated with homes, an apartment building, a commercial building, a warehouse or two, perhaps even a ground lease or a Triple-Net single tenant structure.

Further, if you leveraged the property at closing you know all too well that the lender was sitting at far greater risk than you on Day 1. Every buyer does it their own way, but there are distinct advantages to borrowing to make a purchase rather than paying cash. Especially since investment real estate is one of the few opportunities in which lenders will loan money for speculative ventures. Think about it -- Lenders will not loan money on stock purchases. They won't loan you money to buy gold. So if lenders are willing to lend, why wouldn't you borrow?

Simply put, use real estate to leverage your money.

Here's another one. Who received at closing -- and continues to receive -- all the tax benefits? That would be you, the investor. Not the bank, which took the majority of the risk. Pretty cool, huh?

In several years, whether you own a small commercial building, that 55-unit apartment complex, or the NNN leased property belonging to a successful national restaurant, when equity increases, you can refinance your property in order to give yourself "a raise" by way of reducing your monthly mortgage payments. Or, you can use your growing equity to acquire more real estate to build your portfolio, and ultimately, your wealth.

So there you have it. Friday's lesson. The standard of living you enjoy depends on which side of the check you sign......

Enjoy your weekend!

On A Personal Note . . .

2011-09-15T18:01:00.001-04:00

No matter whose name is on the deed . . .

Some More 'Interesting" Properties For Sale

2011-09-13T17:47:00.001-04:00

In this business you come across more interesting properties being offered than that which the general public is largely aware. Some you marvel at. Others are just cool. And the rest, well . . . .

All either work for development, or just living in fascinating environs. My druthers, of course, lean toward properties that have some return on investment down the road -- true commercial/investment properties.

Your mileage may vary depending on your interests. Nevertheless, some of these are just plain fun. Take for example:

-- In my "backyard," a 40-acre parcel that includes centuries old caverns, used by Native Americans long ago, and for decades a tourist attraction. But the larger land area, known as Olentangy Indian Caverns, is ripe for development. I am working on putting buyer and seller together on this one.

-- "The Mushroom House," a 4,100-square-foot-plus home in in New York. It is designed to resemble a stem of the Queen Anne's Lace plant.

-- Over in neighboring Pennsylvania, you've got an old, very traditional church converted into posh condominiums, complete with stained glass.

-- The "Schnabel House" in Los Angeles is described as a $13 million "village of sculptural forms."

-- "Dome Homes" are the latest rage in New Mexico. Energy efficient, "cozy," and constructed with a mixture of steel-reinforced concrete and polyurethane foam, these solar-powered structures appeal to those wanting minimalist living combined with an urge for the back to nature life.

-- And finally, if you long for the days of the Cold War, when you knew who the enemy was, go to http://www.missilebases.com/. There you will find all kinds of abandoned, de-commissioned missile bases in the U.S. ready for conversion to homes, businesses -- you name it.

On a related note, I once visited a business that had made its new home in Columbus at Rickenbacker Airport -- the former Lockbourne Air Force Base, site of a Strategic Air Command base during the Cold War of the 1950s to 1970s. There, a business has made its headquarters in the old ready-room area and former officers quarters at the base. One of the access points to their offices is down a ramp, that in the 1960s, pilots of fighter jets and support aircraft would be running up and out of onto the tarmac if on alert status during national defense emergency.

Me? I'm fixated on the Olentangy Indian Caverns property right now and figuring a way to use the flat areas in a highest and best use fashion, while somehow helping those who wish to preserve the open space and natural features that comprise the caverns.

Something for everyone, right?

Day Of Remembrance

2011-09-11T09:12:00.001-04:00

On this Day of Remembrance, I had a late morning appointment. I drove by a suburban high school on my way. There I saw kids practicing rugby. I saw two soccer teams, decked out in their school colors, getting ready for a game. A few miles down the road, at a newer art gallery, there was a brass band warming up on the lawn. Getting ready for an outdoor concert.

Ten years ago, everything changed. And yet, in a sense, nothing has changed.

.... That is the enduring strength of America, and its citizens.

9/11 . . . Never Forget

2011-09-10T12:14:00.016-04:00

Yesterday, I took part (toward the end: I was tied up on the telephone for some time) in a Twitter discussion that takes place pretty much every week, called CREchat. A collection of commercial real estate agents and brokers from numerous companies exchanging best practice ideas. The topic was how brokerage, leasing, construction, etc. has changed since the United States was attacked 10 years ago.

A final question was posed: Where were you that day and what were you doing when you heard the news?

Today, as 9/11 Remembrance Ceremonies are kicking off around the United States right now, images of 10 years ago flash through my mind -- like they were yesterday:

- Sitting at my home office, hearing first on the radio that an aircraft of some sort had hit one of the World Trade Center towers.

- Stepping around the corner to turn on a television after the radio broke in for the third time with an update, only to see almost immediately --live -- the second passenger aircraft hit the second tower. My first instinct, being a former working journalist many years ago, was amazement that NBC had obtained such incredible footage from the incident I had first heard about. Only when Matt Lauer suddenly exclaimed that a second jet had missiled into the second tower did I realize....

- Watching smoke pouring, billowing, into the atmosphere like a volcanic eruption. Only this was no natural event. When I learned that peoples were jumping out of buildings, I turned it off. Then back on later, but turned away if that tape was shown. I didn't need to witness someone's agony, their no-win decision when faced with heat and inability to breathe vs. a 100-story freefall to the pavement below. I rationalized, saying it was decent to give them one last bit of privacy in their final moments. But to be frank, it was to protect me.

- Watching transfixed, saddened, empty, as I watched first one, then another tower, collapse. Knowing that perhaps tens of thousands of people had died in that instant.

9/11 As Seen From Space

- Calling school to check on the status of classes.

- Calling clients and telling them to postpone all projects, that nothing was going to be the same after this. That news cycles and editorial focus had been extraordinarily altered for weeks, if not months, to come.

- Racing to Wal-Mart to buy a five-gallon gas can, thinking it would not be a bad idea to have some extra fuel on hand. Called two friends advising them to do same. Knowing gas prices could spike, or we might face shortages, um ..... I filled seven cans, and drove home with 35 gallons of gasoline. The crazy stuff that goes through your mind in times of great distress.

- Calling friends and loved ones to see if they had heard the news.

- Watching the sky in the days following and marveling at how I could not remember a time when there wasn't a passenger aircraft, or helicopter, or general aviation airplane in the sky at least once a day. A sky utterly empty. Surreal. But no more surreal than turning on the television and seeing live pictures of a still smoking pile of debris, two 100+ story towers reduced to a dangerous pile of rubble a few stories high.

- Heading out of Columbus a few days later to a state park campground, just to get out of the city, and away from the news. Seeing more American flags posted in one small area than I had probably seen in my lifetime. But a normally bubbly, ebulient, sometimes loud park setting utterly quiet for three days. People respectful, somber, thoughtful, pondering....

- Watching what was one of the best speeches I have ever heard given by President George W. Bush to a joint session of Congress, and in the audience, then British PM Tony Blair, lending the collective support not just of Great Britain, but of the world.

- Knowing that our national pain was felt worldwide. Knowing that our known enemies around the globe had surely been warned not to trifle with us that week.

- My first flight approximately three weeks later. Passengers eyeing each other while waiting. Far different than pre-9/11. Odd seeing armed National Guard soldiers in various airports. Though I did notice, also, that while long guns appeared ready to go, sidearms were missing magazines. Curious.

- In later years, three nephews serving in the U.S. Army. All of them serving time in "the sandbox," playing active roles in the war against terrorists.

- Fast forward 9/11 plus seven years. Trips to Washington DC. To Arlington National Cemetery both times, the latter trip to bury a good friend and colleague. Both trips including somber, reflective visits to the Pentagon Memorial.

- Being startled at how low passenger jets come into the DC area, particularly on The National Mall, as they approach Reagan National Airport. It took a while to get used to.

- A return trip to Columbus from DC including a stopover at Shenksville, Penn., the crash site where passengers on Flight 93, informed of their likely fate by loved ones on the in-flight phone, fought back, pushed their way into the cockpit and attempted to regain control of the aircraft. They didn't do it to save themselves. They had an idea what their fate would be, but regaining control could save lives on the ground, perhaps in Washington, or New York. The terrorists' ultimate destination, we believe, was unknown to the passengers, though conventional wisdom says either the U.S. Capitol or White House was the intended target. They crashed at 500+ miles per hour into a farm field southeast of Pittsburgh. Charred evergreens are visible in the distance, as jet fuel exploded and the plane's aluminum skin was vaporized or turned into shrapnel.

- Talking to a first responder at Shanksville, who no longer goes on EMT runs, but will take calls to fires. A sharp, quiet-spoken man, he opened up about that day, and how he saw things no person ever wants to see. Littering the ground, hanging from trees, and so on. The smell of av-gas so prevalent that he occasionally wakes up at night, sweating from nightmares, convinced he smells aviation fuel. Telling of a rustic cabin well into the woods, beyond the tree line that was covered with pieces of razor sharp bits of aluminum from the aircraft skin, violently thrown into the woods by the force of the explosion.

- Fast forward to the past week, watching and reading news coverage regarding the past 10 years.

- New Jersey Gov. Chris Christie beginning his remarks now honoring residents of that state who perished on that day. As he notes, this day is not about any of us. It is about those whom we lost on September 11, their families, and those since whom we have lost in the fight for freedom.

- Watching Sarah McLachlan singing "I Will Remember You" at the Shanksville dedication a few moments ago.

- More events at in New York City at Ground Zero today and tomorrow....

The Family Fountain at 9/11 Memorial In New York City
I had thought about a trip to Shanksville this weekend to witness the dedication of the Flight 93 National Memorial. But I will make it another time. I have intentionally refrained from looking online to learn about the memorial design, or look at artists' sketches, or at work completed to date. When I go, I want to see it for the first time with no preconceived notions.

And clearly, a trip to New York City needs to be scheduled, as well. I know little about that design, nor its meaning, either. I have not been to the Big Apple in more than 15 years. A long time since I walked through the financial district and spent time at Battery Park. I remember those towering buildings, and how they reached to the sky. When I go I will honor those who died, trapped, and those 343 firefighters, and countless police officers who died while attempting to rescue office workers. In all, nearly 3,000 dead that day. In New York City. At the Pentagon in Washington DC. And outside a sleepy town called Shanksville, 40 remarkable people, passengers and crew, on United Flight 93, whose final resting place is an open field. Forty people who, in less than 30 minutes, learned their likely fate, voted on what do do, and did it. The Heroes of Flight 93.

Ironically, on this day in 1813, nine small ships defeated a British squadron of six vessels in the Battle of Lake Erie. A rag tag bunch of American seamen defeated the most powerful navy in the world. Not unlike what these brave souls did. They stood up in the face of terror, knowing before pretty much all other Americans, what was happening to their nation. A perspective that none of us had. And successfully defended this nation against one last attack, making the ultimate sacrifice with their actions.

In all, as has been previously reported .... September 11, 2011 marked the most people killed on American soil on a single day since the Battle of Antietam more than 100 years previously.

Tomorrow is a day, like the attacks on Pearl Harbor in 1941, that needs to live on. And not just in our collective memories. We will age, we will die. But the stories need to be preserved and passed on. The internet is a great tool for doing just that. So that our children, and our children's children understand what happened on that day. The incident and the aftermath needs to be handed down in words and story and music.

There have been more terror attempts, some known, others we will never know about. Those who don't like individual freedom continue to wish the worst against the United States.

The events of Sept. 11 changed our lives, but in ways that were impersonal. Yes, how we travel, how we react when planes fly low overhead, and how we look at our kids.

But also . . . also in ways that force us to imagine the lonliness of a complete stranger who has lost their child. Or parent. Or lost their life's best friend ....

Never, never forget.

Notable

2011-09-08T15:06:00.000-04:00

"No Future But That Which We Make For Ourselves . . . "

-- Unknown

An Ignominious End For One Of The Supremes' Worst Eminent Domain Decisions -- Kelo

2011-09-06T01:31:00.006-04:00

How many of you, whether commercial/investment real estate practioner, or investor, are aware of the Kelo decision of many years ago?

By some accounts, the most notorious (yes, I used the N word) decision made by the U.S. Supreme Court, outside of the horrid Dred Scott decision of the 1800s.

First off, lets review what eminent domain typically has meant -- until Kelo vs. City of New London (Connecticut). Eminent domain is the power of government to seize real property, if it cannot be purchased, usually to benefit something loosely defined as "the public good." The landowner is compensated at an appraised fair market value. The public good, historically, was for construction of a freeway, a highway off ramp -- typically something that had to do with public utility infrastructure.

Until Kelo.

Susette Kelo

Let me digress a moment. Notable emiment domain cases -- The very first emiment domain "taking" in the U.S. was the land that ultimately became Arlington National Cemetery. It was an estate during the Civil War owned by the Custis family, and overseen by Robert E. Lee, who married into that august line. Lee, who had chosen to lead the troops of the Confederate States of America, which had seceded from the U.S., was -- technically -- the enemy. Its property taxes, which Mrs. Lee dutifully went to pay, were not accepted (on purpose). Because the taxes were -- technically -- overdue, the estate was seized. And Federal bureaucrats, wanting to make a point, started burying Union dead on the property.

A "near" eminent domain situation occurred in Shanksville, Pa., in recent years. All property owners but one had sold or donated their land to the U.S. government for purposes of erecting a permanent memorial to honor the passengers on Flight 93 -- the flight where passengers, knowing the plane was likely headed to Washington DC or New York City and certain death -- fought the hijackers. Tragically, the plane crashed in a farm field, killing all aboard. But their bravery saved perhaps thousands who might have perished had the United Airlines aircraft been successfully used as a gas-filled missile against a government building. That memorial will be dedicated this coming Sunday, September 11, on the 10th anniversary of the 9-11 attacks upon the United States.

Anyway, the lone holdout at Shanksville was asking a king's ransom of the U.S Parks Service. He relented when informed that he had two choices. Since he wouldn't donate the land, he could accept the government's generous offer (it was), or the land would be taken and he would be paid market value. He relented and accepted the government's offer. And he was being chastised by pretty much every one of his fellow townpeople for utter greed in the face of a national tragedy, not that he necessarily cared.

In the late 1960s, there was a plan to build a new state highway north of Columbus. It would have plowed through my boyhood home (I was a boy then). A compromise was reached that had the freeway following alonside a river, then turning and following alongside a railroad bed. The compromise took very few homes and helped decrease the cost of the project. But the rear few acres of an enormous cemetery would need to be purchased for all legs of the freeway to be connected. The cemetery refused to sell. State law had to be changed to allow for the property to be condemned for use as a highway. You see, at that time there was no provision in the law, on the books since the 1800s, to be used for a public roadway. But if the city had wanted to put a dump on the cemetery property, it would have had no trouble. The cemetery was compensated and the the expressway was constructed. Today it is one of the most heavily traveled north-south roads in Central Ohio.

So, eminent domain. The term is taken from the legal treatise, De Jure Belli et Pacis, written by the Dutch jurist Hugo Grotius in 1625, who used the term dominium eminens (Latin for supreme lordship) and described the power as follows:

"... The property of subjects is under the eminent domain of the state, so that the state or he who acts for it may use and even alienate and destroy such property, not only in the case of extreme necessity, in which even private persons have a right over the property of others, but for ends of public utility, to which ends those who founded civil society must be supposed to have intended that private ends should give way. But it is to be added that when this is done the state is bound to make good the loss to those who lose their property."

Some U.S. states, including New York and Louisiana, use the term appropriation as a synonym for the exercising of eminent domain powers. The term "condemnation" is used to describe the formal act of the exercise of the power of eminent domain to transfer title to the property from its private owner to the government. This use of the word should not be confused with its sense of a declaration that property is uninhabitable due to defects. Condemnation via eminent domain indicates the government is taking ownership of the property or some lesser interest in it, such as an easement. After the condemnation action is filed the amount of just compensation is determined. However, in some cases, the property owner challenges the action because the proposed taking is not for "public use," or the condemnor is not authorized to take the subject property, or has not followed the proper substantive or procedural steps as required by law.

In Kelo, the argument was, indeed, that the proposed taking was not for public use. And that was the crux of the debate. Specifically, the subdivision being condemned was not to be used for a hospital, or a freeway, or a utility right of way. In fact, the subdivision was to be turned over to a private developer to be turned into a high profile development. The "public benefit" to the community was to be the far higher tax revenue that would come to city coffers. It was to be used as part of a comprehensive redevelopment plan that promised 3,169 new jobs and $1.2 million a year in tax revenues to New London.

After the city voted to take the property, a lawsuit was filed in 2000. To sum up, after several failed court appeals, the issue made its way to the United States Supreme Court, which in 2005 voted to affirm the lower court decisions, thereby okaying the taking of private property that could be turned over to private developers for economically beneficial purposes.

The Court held in a 5–4 decision that the general benefits a community enjoyed from economic growth qualified such redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment. The City of New London eventually agreed to move Susette Kelo's (the case was named for her) little pink house to a new location and to pay substantial additional compensation to other homeowners.

A hue and cry rose up around the U.S., and a number of cities and states passed ordinances and laws to outright ban or sharply restrict government confiscation of real property for third party economic development. At issue was the argument of private property rights. That taking land for purposes other than that freeway or off ramp or what have you, for purposes of turning it over to private development, was nothing more than theft by legislative fiat. Much of the public viewed the outcome as a gross violation of property rights and as a misinterpretation of the Fifth Amendment, the consequence of which would be to benefit large corporations at the expense of individual homeowners and local communities

The Site Today

So why the history lesson? Why my passion on this subject? First off, there is without question a place for eminent domain. There is no doubt in my mind that it is necessary and is often used very effectively for the public good. Now, with that said, my developer friends may disagree with me on this, but IMHO "taking" land through condemnation in order to give it to private developers is morally wrong. Most Americans agree.

If you were aware of Kelo, did you hear the latest from that huge proposed development? First, this much has been well known -- Pfizer, the giant company that was to benefit from the court decision, pulled up stakes and left town in 2009 citing financial difficulties. Specifically, their tax credits were about to expire. The houses, of course, had been razed long before that.

With no developer willing to step in and work the project that the city had pushed for years, gaining it scorn from Americans from coast to coast, the land was left an empty lot. The Fort Trumbull project, as it was known, was a dismal failure. After spending close to $80 million in taxpayer money, there was been no new construction whatsoever and the neighborhood became a barren field. The entire lot area was eventually turned into a dump by the city.

What has changed in just the past few weeks adds insult to injury, for many. Following Hurricane Irene, which hit the east coast and New England just eight days ago, the City of New London designated the site as a place to dump storm debris, and citizens can be seen doing just that in this video on the local paper’s website.

An ignominious end to a judicial travesty. Familes moved, and for what? In a very perverse sense, the property now is truly being used for the public good. For the city has a place to dump its storm debris . . . . That is public good.

The things that make you go Hmmm.

Happy Labor Day Weekend

2011-09-04T19:08:00.000-04:00

To all, I hope you enjoy your Labor Day weekend!

Here in Central Ohio, we saw high 90s temps and humidity yesterday, then thunderstorms and a deluge of rain today. Tomorrow? We are supposed to have a high temperature of 66!! But it will be clear.

If you have had your picnic, or if it is still yet to take place, ENJOY!

Open Minds Necessary In Climate Where Jobs Reports, Retraction In Product Availability, Pent-Up Demand Create Mixed Scenarios

2011-09-02T16:59:00.000-04:00

Recently, I wrote of the perfect storm that is emerging in CRE as we combine pent-up demand, low inventory of quality Class A and institutional properties, and the movement of institutional buyers toward secondary (and occasionally even tertiary) markets.

I have noticed in just the past seven days or so that a number of commercial listings are disappearing from online sites like LoopNet, and Exceligent, which we use locally, but those same properties don't seem to be changing hands. Speculation among myself and many peers on this phenomenon the past week is focused mostly on the likelihood that Sellers feel they can't move the product, so take it off market and try again next spring.

It may not get any better. Today's jobs report is making a gloomy forecast -- for many -- even gloomier. No net increase in jobs since 1945 is a stat that made my jaw drop. Job lines in many markets, combined with companies looking at, perhaps, further retrenching will surely put some more pressure on commercial/investment real estate. And I'm sorry, but I'll say it -- as if problems weren't bad enough we have a White House that seems hell bent on attacking employers through rhetoric and regulation. Which is especially problematic at a time when we need markets that encourage employers to hire and expand.

There are a few bright spots, of course. Multifamily still remains hot and bidding wars for quality properties are not unheard of. I have a single-tenant retail site in contract. An offer written and presented the same day the listing was published. A competing offer came in the same day from a REIT, likely doing the same thing we were -- scouring markets for new product multiple times a day.

Further, investor groups are taking advantage of lender difficulties and snapping up homes large and small. I know of an initiative from one group to acquire luxury homes at a discount, adding them to portfolios of rental estates in different parts of the nation.

So we may be in for more than just a few months of rough sledding, as I often say.

I remain optimistic. There are opportunities for investors, whether they are acquiring or disposing of inventory. Its about being creative, thinking outside the box. As we say in an exchangor organization to which I belong, "what is the seller willing to do to help the buyer take the property?" Its not always about price reduction, if that is necessary.

Sometimes it means an acknowledgment from the seller that the market dictates price, not what one "hopes." Sometimes the answer is owner financing, in full or in part. Some sellers are receiving full price for their property, but taking a collateralized indentured note that matures a few years down the road. You would be amazed what you can do with a holster full of creative tools. I counsel with my clients, whether they are buying and selling. There are pros and cons to any scenario you can envision. It comes down to what is in the best interest of the buyer, or seller, at any given moment in time, both in the short term, and when addressing their longer term wants and needs.

Success for the next 12 months will mean brokers and agents thinking outside the box, and buyers and sellers being open-minded about every possibility imagineable for them to achieve their financial goals.

More plainly stated: The party that digs in their heels and refuses open, frank discussions will likely end up very disappointed.

Perfect Storm: Less Glitzy Properties Will Likely Determine The Certainty Of The Recovery

2011-08-31T16:58:00.001-04:00

An article that popped up today at National Real Estate Investor news service was headed by the above statement. And it is incredibly true.

We are seeing a number of institutional investors, REITs, hedge funds and so on moving into secondary markets like Central Ohio looking for good buys. Not just sniffing around for a bargain, but desperately seeking product they normally would pick up in larger U.S. markets.

But pent-up demand to buy, combined with large cash reserves, combined with a larger number than usual of well-heeled buyers seeking institutional grade properties, all have collided into a perfect storm of sorts in places like Columbus, Orlando, Indianapolis, Albuquerque, and the Carolinas to name just a few. A veritable perfect storm, if you will, of demand, cash and too few quality properties.
As NREI Contributing Editor W. Joseph Caton put it this way in a story published today,

"...While the media reports sensational stories about institutional players fighting over stakes in assets such as the GM Building, 666 Fifth Avenue, the John Hancock Tower and the Peter Cooper Village/Stuyvesant Town project, Class-B properties and secondary markets are capturing the hearts and minds of another breed of investors."

In fact, most analysts are saying that transactions in Class-B and secondary markets appear to be on the rise as "the" investment assets of choice.

The bottom line? Less glitzy properties will likely determine the certainty of the recovery.

Worth reading, then pass it on.

On A Personal Note . . .

2011-08-30T19:24:00.009-04:00

Some call them weeds, others call them wildflowers. Regardless of your perspective, they add a brilliant color and variety to the landscape when exploring for a final time some 350 rugged acres of family history . . .

. . . and give fire to the imagination.

A journey that has you imagining you might .... just might .... discover along some remote, forgotten creekside the long-lost footprints of your father as a young boy, and his father, and his father's father, and so on ....

Prudential Affiliates Form Ohio Partnership

2011-08-29T12:33:00.005-04:00

The Prudential real estate company with which I am affiliated, Blue Rock Midwest, is already the largest Prudential affiliate in Ohio.

We just grew larger....

Joining Prudential Commercial Real Estate, and Prudential One, REALTORS (our sister residential company), is Prudential Select Properties, headquartered in Cleveland. This highly respected residential real estate brokerage already holds a significant market share in northeast Ohio.

Now, this statewide company includes Commercial-only real estate brokerage offices in Columbus and Cincinnati, and Residential offices in the Cincinnati area, Dayton area, Lima area, and now, six counties in northeast Ohio. With this acquisition, look for us to quickly expand our commercial/investment brokerage presence along Ohio's "North Coast." In all, Blue Rock Midwest now has 15 offices and hundreds of highly experienced agents offering local, regional, and international services, in southwest, central, northwest, and northeast Ohio.

Congrats to managing partner and broker, and my friend, David Mussari, on his continued success in building a first-rate, statewide team. A statewide organization that offers seasoned counsel, bleeding edge technology and service exceeding industry standards to investors, institutional organizations and corporations, as well as home buyers and sellers! I am proud to be a part of this dynamic group and play a leadership role in the Columbus Commercial office.

Networking With Economic Development Offices Pays Dividends -- For EVERYONE

2011-08-28T14:24:00.005-04:00

We all have projects of every imaginable size going. For me, current assignments include a net lease buyer looking for properties over $3 million, an investment group aggressively acquiring luxury homes over $1 million, recreational property/timberland that just went into contract, and so on. All of us in this business usually have a widely varied and eclectic group of buyers and sellers with whom we work.

Some are savvy. Others are not. And most commercial/investment real estate practioners know what assistance they want, vs. what kind of research the investor or institutional organization is willing to do on his or her, or its own. While practioners clearly know to coordinate with local economic development offices, do potential buyers or tenants always realize the same opportunity is available to them?

True, institutional buyers, utilities and other large employers will often start with county or municipal economic development officials to determine the quality of life, economic health, etc. of an area, and secondarily to determine what areas might be ripe for acquisition or development.

But individual investors have the same access as a multinational corporation. Now, first off if an investor is working with a seasoned commercial/investment real estate agent, the agent is going to know where to look. But often individuals or small companies going the solo route will just drive major thoroughfares to see what is out there, scan the newspapers, or if they have some initiative access some of the online commercial real estate tools that go beyond Realtor.com.

This is the story of one of those instances. Another property I have is a family trust that owns Class C retail strips. I handle leasing leasing for the second generation of the family. I started work for their dad many years ago. In the beginning, it was just helping him dispose of assets as he grew older and experienced some ill health. The relationship grew. When he passed, I worked for his widow. When she passed, the adult children stepped up and I continue to handle real estate duties of all kinds for them.

It was on this family's behalf yesterday when I met two people who, among their first steps, was to contact their county economic development office to get ideas on commercial space, what tax abatements might be available, and to see if the staffers knew what properties might be for sale. Something I thought was quite out of the ordinary. Specifically, I received an email last week from just such an official with whom I had made contact several weeks ago about a building I have for sale in a bedroom community west of Columbus. Just a small commercial building, owned by one of my largest clients. He is re-deploying equity to newer assets closer to the family trust's home base, which is Columbus, and disposing of two assets -- one out of county, another out of state.

(Plus, the drive out of the city gave me an opportunity to spend some time in a community where an elderly uncle, my mom's "little brother," resides. His health is not the best and any chance to visit is a gift.)

I met the potential buyers yesterday and we had a great conversation. They have indicated they will be making a follow up appointment in order to bring in a contractor to review the building's needs for their specific purpose. They are serious and there may be an offer shortly thereafter.

There's also something else I haven't revealed yet. I only listed the property a couple weeks ago. There weren't even any signs up yet in a tight-knit community, the county seat, where signage is everything. My point is this: There are many places for investors to seek property. Often going online to search, while convenient, isn't the most enlightening solution. True, had the buyers gone online, they would have found my listing. But by going to the local chamber of commerce, they learned not only what was available but quite a bit more information I had shared with the economic development officers. Information that, while public and something I am glad to share, was not reflected in the offering listing details.

In my experience, it is rare for a local investor who isn't using an agent to go this route. Kudos to these potential buyers for thinking outside the box!

I have ALWAYS coordinated with county economic development poo-bahs. And that's no matter whether I am representing buyers or sellers. It only makes sense that individuals do the same thing -- if they think about it.

On A Personal Note . . .

2011-08-25T20:40:00.001-04:00

A ride across family history spanning three centuries.....

Intense Pressure Pushes Controversial (And Questionable) Accounting Rule Changes Back To 2012

2011-08-18T19:59:00.003-04:00

After intense lobbying and pressure from accounting groups and other interested parties, including the commercial/investment real estate industry, a proposed accounting rule change that would have needless and profoundly negative effects on the corporate balance sheets is being pushed back to 2012.

"Inundated with comments and complaints, international accounting rule makers have decided to resubmit proposed changes on how companies account for real estate and capital equipment leases for public comment, a move that will probably delay issuance of a new lease accounting standard until well into next year.

"The International Accounting Standards Board (IASB) and the U.S.-based Financial Accounting Standards Board (FASB) have made extensive changes to the exposure draft, released in August 2010 with the stated goal of improving the financial reporting of lease contracts. The boards said the changes would result in a more consistent approach to lease accounting and would improve the quality of financial information available to investors.

"However, a four-month public review period brought nearly 800 comments from dozens of organizations representing real estate, equipment leasing, and other business and financial interests in December. Many respondents complained that the rules as proposed would make the standard more complex and inconsistent, with commercial property groups criticizing the changes as a potential threat to the market recovery itself."

Read the entire piece outlinding the timetable pushback. The changes have been pushed back to 2012 at the earllier. One of the biggest issues facing owners of investment real estate -- and institutional tenants, alike -- is that "options" to renew corporate leases must be stated on the balance sheet as liabilities. If the firm is publicly held, this can have a significant impact on the balance sheet, which impacts share value and confidence of investors. If you are an office or retail or landowner, the likely impact will be companies will start leasing space only for five or 10 years at a time, and never mention options to renew. Which could increase the cost of lease space as owners are less likely to be as flexible on price if they have no assurance that the corporate tenant wants to say.

The unintended consequences of good intentions.

h/t to Coy Davidson at The Tenant Advisor

The Real State Of Commercial Real Estate

2011-08-17T20:57:00.001-04:00

I sat today for a video interview with Duke Long, owner/broker of the Duke Long Agency in Indianpolis. Utilizing Google Plus, we had a fantastic 15 minute conversation on CRE trends in Central Ohio, the Midwest and across the United States.

Google+ is an interesting new social media tool that a number of we more "techie" practioners are experimenting with to share best practices, CRE news and promote commercial/investment real estate opportunities.

One thing I can't figure out -- I'm still unable to see other parties on video when we set up a "hangout." Everyone else having no problem based on my limited follow on conversations. With the interview today, Duke could see me, but I couldn't see him. Same issue when I was on a group call a week ago with four other CRE peers from different parts of the U.S.

True, Google+ is still in beta, and I'm one of the early adopters of this still evolving tech. But with the video issue I'm thinking its operator error (yes, on my part). Like I said, I'm early in the experimentation period.

As for today's interview, I can't wait to see the finished product. Duke, thanks again for the invite!

Wild Economy Births New Entrepreneurs, CRE Investors

2011-08-15T12:46:00.001-04:00

With the market up 600 points one day, down a similar figure the next, in a single week -- and a myriad of uncertainty about world markets -- entrepreneurs are being born with great gusto.

How? We are again starting to receive a number of calls from individuals who have been laid off, or worry for their jobs, but have a substantial nest-egg and want to invest in (buy) a business. Essentially, they want to buy a job. Perhaps the last job they'll ever have. Similarly, we are hearing from more and more individuals who are cashing out of the stock market entirely (I am working with one such couple) and re-deploying their retirement investment dollars toward commercial/investment real estate. The eventual goal being the opportunity to exponentially grow their investment portfolio, retire from their "9-to-5" and work full time managing and adding to said CRE/investment portfolio.

A tough nut to crack? Not as tough as you might think. Motivations are many:
1) While there are some dogs, there ARE a myriad of distressed/competitively priced/under-utilized commercial/investment opportunities out there right now;
2) The movement of REITs, pension funds and other investment groups into secondary markets is raising eyebrows among individual investors who are thinking anew about the value of properties they weren't so sure about previously;
3) The U.S. stock market isn't just volatile but has been wholly unpredictable; Ditto markets in other parts of the world that are experiencing wild swings and sell-offs based not on fundamentals, or even irrational fears;
4) World events and an increasing belief that the White House and the Federal Reserve have no plan, and continue to telegraph this weakness to the world; has individual investors rethinking their long-term strategies.

I could go on.

Ditto the individuals who want to buy a job. We have been working with a number of people with sizeable net worths, but shaky employment prospects, who are "buying" their next jobs. A guy who has run a chain of restaurants across the eastern U.S. tied to truckstops is purchasing a group of pizza shops and plans to license the name and recipes, rather than franchise. Another individual who is selling several family farms, a couple at a little less than market rate so he can move them, to purchase multifamily properties and set up his own management company. Yet another investor, a chef, who is parlaying a significant retirement nest-egg into commercial buildings. And a long-time investor, selling off a number of shopping centers he has turned around to take advantage of the plethora of retail centers that are languishing at firesale prices. Turning his investment "sideline" into a full-time job.

Whether or not little kids dream of becoming a CEO one day, the present-day economy is giving many people a chance to do just that.

The end game: Call themselves the CEO (if they want), create their own private pension funds via their commercial/investment equity, and more importantly, exert some control over their destiny.

Worth Noting

2011-08-15T11:08:00.002-04:00

"Real estate is at the core of almost every business, and it’s certainly at the core of most people’s wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.”

-- Donald Trump

Land: They Aren't Making Any More Of It

2011-08-09T20:22:00.002-04:00

Those iconic words come from the 20th century humorist Will Rogers, who opined on many subjects but hit a grand slam home run with that one, when it comes to discussing real estate.

Land. It is fast "disappearing," and despite the wild economy we are living through, is (depending on "what" and "where" it is located) skyrocketing in value in many parts of the United States. Of particular interest is farmland in America's heartland. Commodity prices are high, as corn futures hit new levels every week due to worldwide demand for it as both a food and fuel source. In many parts of the U.S., hay prices have gone up because farmers are taking pasture land out of grass/hay production and planting corn fencerow-to-fencerow in an attempt to cash in on record corn prices.

Even land with a bit more "rise and fall" to it is in demand. I just put acreage that has been in my family since the 1800s into contract with a buyer. Located in the foothills of the Appalachians, its value is in hay, use for cattle production, recreational/hunting ground, and development into weekend getaway cabins/cottages. Further, it has been used for timber production and continues to be valued for its significant maple and oak stands.

Many stories in recent months have examined the emergence of farmland as perhaps the nation's most valuable investments (though with the past two weeks' stock market rollercoaster, a lot of folks are looking to skyrocketing gold prices as an alternative for their investment dollar). There was even a cover story in one of the nation's weekly news magazines, Time, touting farmland as the place to put your money.

CCIM Institute's Commercial Investment Real Estate (CIRE) magazine has as its cover story this month a piece on how "opportunistic investors" are placing their bets on land. Whether its farmland, or fallow development ground, money is moving into those areas. Rich farmland has been trading at a premium for more than a year. Development land is trading at bargain-basement prices, and has been slower to trade, due mostly to lack of capital by developers, lenders unwillingness to risk capital when development is nil, and far fewer developers even in the game these days.

The farmland play is fascinating. The highest priced land is in the heartland region of the U.S., as I noted earlier, with demand no one has seen in decades and unheard of prices being bid.

There may not be much call for tracts on which to build commercial real estate in 2011, but agricultural land is a different story. From real estate investment trusts to alternative energy providers, buyers are acquiring expansive land parcels that can generate revenue from crops or solar power.

“Wall Street is investing heavily in agricultural land, and there are a multitude of reasons why,” says William Hugron, CCIM, senior vice president of Newport Beach, Calif.-based Ashwill Associates.

In the Midwest, REITs, pension funds, and other institutional investors are buying farmland as a diversification play and an alternative to more volatile property types. Once acquired, these commercial real estate entities bring in professional farm management companies to operate the holdings.

Even timberland is enjoying increasing demand, Hugron says. Indeed, the NCREIF Timberland Index showed total annualized returns for the property type averaged 0.75 percent in the first quarter of 2011, significantly higher than the average return from the same period a year ago, and ending several years of declining returns.

As with farms, the trend in timber is toward professional management companies that can maximize productivity and enjoy economies of scale.

Development land, on the other hand, is a "throw the dice" investment. Housing starts are pretty much non-existent. Apartments are being developed, but not much else. Lenders are taking back development land at levels far exceeding their comfort zone. In fact, I've received calls from two different lenders in the past two weeks asking whether I would consider listing land they have in their inventory from developers that went bust.

Even at bargain-basement prices, most land investments today are a gamble. A land buyer is placing a bet that demand for commercial real estate projects will return before property taxes and other holding costs eat up the potential return to be made from the site’s eventual sale or development. And since the onset of the recession, few investors have been willing to take that risk.

“The land market is dead,” says Dan Fasulo, managing director of Real Capital Analytics. “That said, activity is perking up in a few select markets around the country.” The New York-based research company tracks commercial real estate transactions, but with few land sales occurring, it hasn’t published a land investment report for years.

Though the market for commercial land is weak, U.S. transaction volume in the sector topped $1 billion in both the fourth quarter of 2010 and the first quarter this year, RCA found. That’s up from roughly $500,000 per quarter throughout 2009. During the peak year of 2007, quarterly volume averaged $8.6 billion.

In Manhattan and a few other markets, well-heeled investors are buying and holding land until the demand for new construction returns. And they may not have long to wait. Construction nearly ground to a halt after the collapse of Lehman Bros. in 2008, Fasulo notes, and vacancy rates across commercial property types are declining despite slow economic growth. He predicts that development will come roaring back in primary markets this year as investors and developers race to deliver the first new projects.

Here in Central Ohio, the only development taking place -- for the most part -- is multifamily. The demand for apartments in many markets across the U.S. is strong, and as a stable, secondary market, the Columbus area has room for more inventory. But within a couple of years as new units come online we will again become saturated and new building will slow down. Nationally, demand for land for MUH has again picked up, and the CCIM article concurs with my assessment:

REITs — especially apartment REITs — will begin a flurry of site acquisitions this year in a race to be the first developers to introduce new projects in primary markets, Fasulo predicts. Other investor types will follow that lead in the ensuing years and in other property types as demand recovers.

The CCIM article looks at demand and trends in general, and examines, in particular, the Florida and Texas markets, as well as problem markets that were hardest hit by the housing "bubble," and then where CRE properties were mostly likely to get into trouble.

Worth the read, then pass it on.

The Case For The United States

2011-08-08T16:59:00.000-04:00

Kenny McDonald, one of the key people at Columbus 2020/The Columbus Region -- the economic development organization charged with advocating on behalf of Central Ohio business business opportunities -- has penned a brilliant essay regarding the financial health of the United States.

It comes on the heels of the news that Standard & Poors has downgraded the prized credit status of the United States. While there are many problems facing the American economy, and this author believes that spending cuts have GOT to occur before a discussion of tax increases even gets underway, we are not in as near a dire situation as that facing many nations. Greece, Italy, Ireland and Portugal are not just in trouble -- they are teetering on the brink.

Anyway, Kenny has written a dynamite piece that should serve as a reminder that all is not dismal.

Participated In a Google + 'CRE Hangout' Video Meeting Today

2011-08-05T18:07:00.000-04:00

Duke Long, a CRE broker over in Indianapolis, orchestrated a video meeting of commercial real estate agents and brokers today via Google Plus.

A few sound problems, and at one point I was unable to see video of my fellow attendees. But overall a cool way to share ideas, exchange best practice methodology, and talk futures. On hand was someone from Google (I think) to clean up the chat and filter out some of the annoying feedback. But again, as a tool, Google Plus has incredible possibilities. I am not a Facebook user, but heavily use LinkedIn, Twitter, Skype, and of course, this blog, to communicate with clients, prospects, suspects, and readers interested in learning about commercial/investment real estate.

Thanks for putting today's CRE Hangoug together Duke. I look forward to the next session!

Today's Stock Market Plunge

2011-08-04T19:19:00.000-04:00

I have clients who are actively shopping for quality commercial/investment real estate after having exited the stock market about six months ago. They are redirecting millions of dollars toward real property and away from the market tsunami many of us saw coming. We have not spoken yet, but I am confident they are breathing a sigh of relief that they got out long ago.

I have another client who wants to purchase investment real estate -- up to $1M -- in an all cash transaction. He was going to pull money out of the market. We have not spoken yet, but his plans may have changed after today's 500 point market plunge, and day after day of market drops as a jittery Street wonders what the hell the White House is thinking when it comes to a bent toward confiscatory tax policy and an empty rhetoric on jobs creation, and an over-reliance on blaming the previous admnistration for its own problems.

What will Friday bring?

Repurposing, Upsides, Etc.

2011-07-29T21:46:00.000-04:00

In an earlier "vlog" post I talked about repurposing properties. You know, the former melting pot/cheese fondue restaurant converted to a bank branch; and the proposal to convert a former Wonder Bread factory into shared artists' performance space.

Of course, recently that latter project fell apart and the owners are looking for a new buyer/new use.

The moxt bizarre, at least to my twisted sense of humor, was the former Kentucky Fried Chicken store that was converted to the headquarters of the Ohio Cremation and Memorial Society. Somehow my brain keeps flipping back and forth between images of pieces of bird deep frying in the Colonel's seven herbs and spices mix, and someone's auntie heading into the fire. Like I said, I have a twisted sense of humor.

The reality is that markets keep changing. Fads come and go. Wants and needs keep fluctuating. Creative financial engineering is the watchword. The savvy owner, and forward thinking investor, will understand re-purposing a property, which makes a lot of sense during times when it is tougher to get tenants into a space, or if the previous or current use is not necessarily the highest and best use.

Truly, we're not even talking highest and best. If you can't convince investors to buy an investment property or piece of ground, perhaps another use will be more attractive to the buyer pool.

So you ask yourself, what else can the property be used for? Here are a few examples:

-- The recreational property (there are a TON on the market right now) converted to golf course.
-- The apartment building converted to timeshare units, or condominiums.
-- Did you know that an apartment complex converted to residential units for the mentally disabled have other fringe benefits? In the State of Ohio, the state pays owners several thousands of dollars per month per unit if that space is designated for the mentally handicapped.
-- Here's another. Take a farm, sell it by the acre. And you have "no money down" house lots.
-- What if you have a corner lot? If you purchase the lots next to that corner lot, now you have a far larger footprint of land for commercial development.
-- Say you have a small commercial building next to a vacant piece of ground owned by second party. Have your real estate investment specialist work with you and the neighboring owner to to create an assemblage of the two parcels. Market them together. The larger footprint might attract a fast food outlet, or some other higher profile user.
-- Closed automobile dealerships are being converted to doctor's offices. Today's modern medical practice is all about volume, volume, volume. And with volume, what do you need most? Parking. Nothing better than a former car lot to provide adequate space for a physician's practice in the day and age of increasing government oversight and need to speed far more patients through the process.
-- Last but not least, the former restaurant converted to veterinary practice.

The main point, I hope, is obvious. Out-of-the-box thinking is what moves properties. And increases revenue opportunities for owners and investors, alike.

The Property Fits The Criteria? Snap It Up!

2011-07-27T11:39:00.001-04:00

As we enter the second half of 2011, it is obvious to me that economically we are treading through tougher waters again.

The optimism building as we moved through the first half has ebbed somewhat among many. Sixty to 90 days ago there were some very good properties coming to market, as owners felt better about those in the investor pool and their ability to perform. While that ability still exists among buyers, there is suddenly a dearth in higher quality properties coming to market.

An issue I have been counseling my buyers on recently, and I shared this at a PCRE staff meeting this morning, is one of "waiting for something better to come along." There is an old Seinfeld joke that I thing applies. In his standup routine Jerry Seinfeld talks about why men want to control the TV remote, and are constantly changing channels. He says, "Men don't want to know whats on TV, they want to know what ELSE is on TV."

In talking to peers in the industry across the nation, and through my own experience, we are seeing some buyers find a property that fits 90 percent of what they are looking for. But they are unwilling to write an offer because they think something a little better will pop up next week, or next month. What ends up happening is another buyer swoops in, gets the deal in contract and closes. The initial prospective buyer then has "shoulda coulda woulda" complex, and compares every future opportunity to the one they let get away.

And trust me, I know about something valuable you want inadvertently getting away. It eats at you. Consumes.

For you buyers, or agents, please heed the following. If it make sense, do everything you can to get that lease or purchase offer written. There are other buyers, in particular REITs, that are snapping up everything in sight. They look at the long-term hold and are buying for future value. And they have deep pockets. There are many properties out there right now, some good, some with a lot of "hair." Run your numbers, make your evaluation. If it works, don't waste time trying to decide whether to write an offer. I will guarantee you, someone else is looking at it and WILL, and they will wind up first in line.

Sure, CRE is still weak. But it will improve.

Its a little like consumers who are continually shopping for a new computer because they are waiting for the next great development/enhancement to come out. Only they never buy because they are constantly looking for yet one more great enhancement to come out. In commercial/investment real estate, those who sit and wait, thinking something better will come along next week, will be sadly disappointed. Because the one they want may slip away because they waited too long.

The gems may present themselves right now. If so, act.

In This Climate, Commercial Real Estate Myths Abound

2011-07-26T13:16:00.001-04:00

I was forwarded an interesting article from the Los Angeles Times by a a colleague in Naples, Florida, Garren Grup, that talked extensively of the many myths out there today in residential real estate.

After looking at it, I realized it applies to the commercial/investment world, as well.

So here are some of the headline items, in no particular order, and my thoughts regarding the "myth."

-- The notion that you will hunt for an investment property until you find the "perfect" one.
Wow, sufficed to say there is NO "perfect" commercial/investment property. They all have something that isn't the perfect fit for what the buyer has in mind. Further, a lot of the stuff on the market today has some bit of "hair" on it. A colleague over at Chase indicated it another way: "Pretty much everything for sale out there is on the market for a reason, and its not because they've used up the depreciation or its on a 5-7 year turnaround. There is an issue."

-- The longer a commercial building or complex is on the market, the more willing the seller will be to negotiate.
Uh, no, I wouldn't go there. A significant time on the market may well indicate that the seller has dug in their heels and is being unrealistic about price. Or they aren't motivated.

-- A buyers market in the housing sector means its a buyers market in commercial/investment.
Nope. While commercial values have lagged, in many markets they have been rebounding. Further, the idea that buyers can routinely make outlandishly low bids, no matter how unrealistic, particularly with investment properties is just ludicrous. I have received low-ball offers on properties that have so pissed off my sellers they have elected not to respond.

-- The price seems a little high so I'll wait a little while for it to drop.
Yeah, right. Good quality investment properties are few and far between and they are snapped up fast. If you don't jump on it, another buyer will. I have dealt with buyers over the years who hemmed and hawed before deciding whether to put in an offer on a building with strong financials. In the meantime the complex has already gone into contract and there are backup offers in place. Currently, news reports show that some REITs are so flush with cash they are moving into secondary and on rare occasions, into tertiary markets just to find something that might work. They need to pull the trigger and add to their portfolios after sitting on the sidelines for a couple of years. Further, industry media is reporting that in this desperation to acquire decent properties a small but increasing number of buyers are occasionally ignoring iffy fundamentals and buying certain buildings anyway just to have them.

-- Real estate is too volatile. Just look at the news.
Okay, this is probably something that passes through the mind of the first time investor, rather than the sophisticated or institutional buyers. And the vast majority of news reports are focused on residential real estate. When looking for stable, reliable commercial investments, look to Globe Street, LoopNet and Co-Star to see what is really happening in this sector of the industry. Plus, commercial real estate offers a number of different tax advantages. And remember, real estate is local. Work with a seasoned commercial/investment real estate counselor to understand what is happening in the market or markets in which you have an interest.

-- Nationally, the commercial real estate market appears to be headed .....
Headed where? Please, if you know something, let me know, okay? Seriously, there is no way to know! Please review again the commentary immediately above this one. There is NO such thing as a national commercial/investment real estate market, any more than there is a national residential market. All commercial real estate is local. Know what is happening in your market before you make a move. Know the economic trends, is average income moving up or down, is the population increasing or decreasing, if increasing what is the relative economic power of those who are moving into the area. And so on. This information is available. Just ask your commercial/investment agent.

Truly, we are seeing a market that continues to be in flux. It will get better. Will it get worse first? No one knows. But fundamentals seem to be improving. While there were several quality properties showing up on the market a few months ago, it seems sellers are not currently listing a lot of properties. Particularly during the past 30 days. Perhaps they are waiting to see what happens with the economy while Congress and the White House try to show the American public which is smarter on economic policy and budgeting. Perhaps they are waiting until next year. Or perhaps it is just the summer doldrums, and as soon as we hit Labor Day we will see an uptick in quality properties coming to market.

The myths are out there though. Got questions? Ask!

First, They Came For The Light Bulbs . . . .

2011-07-20T16:59:00.000-04:00

Just because, okay?

Starring at a bookstore near you, er well, at an online bookseller. The bricks and mortar booksellers are dying too.

You have GOT to love the title! .... "I Light Bulb: A Death Row Testimonial" (as told from the perspective of a condemned 100-watt light bulb).

Heh....

Why Social Media? Well In Just 60 Seconds....

2011-07-19T12:45:00.002-04:00

If anyone in any industry, in particular commercial/investment real estate, has any doubts about whether they should be investing in at least "some" social media usage to propel their business, take a look at this graphic.

The source of the graphic is an internet marketing company, and they hit the nail on the head! This is just so incredibly illustrative of how investors, consumers, and the public in general exploits communication technology every minute of every day. With the increasing usage of technology by buyers of pretty much every product and service, buyers who to the internet first to do a little research before they call an expert or visit a bricks and mortar store. NOT exploiting these technologies leaves you unable to be found.

Get that? If you're not there, you cannot be found. And your potential clients will go elsewhere, no matter how much experience you have. In fact, some individuals or firms who espouse their credentials, but are not using these tools, are conspicuous by their absence. Prospects actually assume something is wrong if they are not hooked into social media, and go elsewhere because of a seed of doubt planted because they could not find an individual or firm online.

The bottom line: If you want to differentiate yourself from the rest of the pack, the use of these tools -- most of them free -- is a no brainer.

Judge for yourself....

Whether its the number of emails sent, the number of search queries, or the number of people who look at a blog, the numbers themselves are truly staggering.

So tell me again . . . why would anyone not be interested in social networking for their business? I have a colleague who will jokingly say that he's not interested because he's a dinosaur.

Well, ahem.... we know what happened to to the dinosaurs, don't we?

Senior Housing Market Turns Corner

2011-07-17T12:37:00.000-04:00

According to a new report by Marcus & Millichap looking at the first half of 2011, the slowly expanding U.S. economy is going to restore numerous facets of seniors housing demand.

Driving this momentum? Aging baby boomers who are looking ahead. With some new job creation (though it is slow) there has been a resumption of health care benefits. This is enabling the "re-employed" to move ahead with procedures requiring rehabilitative services in skilled nursing facilities.

Specifically, think rehab after your shoulder surgery, or knee surgery, etc. Quickly moved out of hospitals following surgery, patients often spent their rehabilitation time in senior housing facilities that, or their residents, offer superior rahabilitation services.

But on top of that, the study is showing that as health-care oriented operations are stabilizing, and a growing share of baby boomers are on the brink of retirement, cash-rich REITs are back in the marketplace and driving sernior housing sales activity. They are buying mostly large portfolios, and not individual properties. But investor demand for single "modernized" facilities is remaining high.

Interestingly, two areas that weathered the economic downturn better than others was student housing, senior housing and, overall, multifamily housing (MUH). Seniors housing probably had a tougher time of the three because, well, people keep aging and passing away, but boomers put on hold their plans to move into such facilities. Or they simply couldn't afford to make the transition because their plan had been to sell their homes and move. But with home prices falling so drastically, many could not afford to make that decision, or elected to wait out the recession and re-evaluate after a price rebound.

Here in Central Ohio, a group of us put together a package to re-develop a mothballed senior housing project that just weeks prior to completion was shut down by lenders. With a creative touch, and a fresh look at the possibilities, and with enthusiastic input by suburban city leaders in which it is located, we placed the detailed plan in front of a handful of qualified investors. Several were excited about the possibilities, as they had been previously led to believe it was just a hole in the ground. One outstanding player came out with 14 key decision makers and representatives from all over the nation and were impressed not only with our re-development plan and how the facility could be completed to complement their business model, but also how the adjacent acreage eventually could developed into a community with benefits to the new owners.

But (and its always a big but, isn't it?), obstinant banks and a recalcitrant receiver who had convinced that player they didn't need our development group in the mix pretty much killed the deal. Now the banks remain stuck with a property they padlocked more than two years ago. And an underserved seniors market goes unmet in Central Ohio.

With the slight uptick in the economy and the drive in healthcare-related seniors housing, someone is going to step in fill that need -- and soon.

But this example is the exception. Seniors housing will remain strong. This year's building pipeline is expected to remain light now that we are already in the second half of 2011. And as the M&M report notes, quality assets brought to market will receive multiple offers.

Frankly, I would wager that cash-rich, aggressive seniors housing buyers are also contacting current owners, making unsolicited offers for what they feel are quality operations.

Evaluating Hotels For Investment In A Surging Hospitality Market

2011-07-06T12:23:00.002-04:00

The hospitality industry is a breed in and of itself. Oddly, we have one promiment colleague here in Central Ohio (not in my brokerage) who categorizes hotels as a multi-unit housing product.

They are not.

Hotels resemble multifamily in only one distinct characteristic. True, they both are comprised of multiple dwelling units in a single building. From there, everything else changes. A huge difference is that where apartment dwellers sign typically a one-year lease, hotel room guests sign a one-day lease. Or a lease for multiple days.

But when evaluating hotels for investment, today it is about 1) Condition; and 2) Current financials and the ability to re-position for a better occupancy and monetary return. Sure, there are other factors, such as zoning possibilities in case there is an alternate highest and best use, and proximity to other services and businesses.

Some hotels have alternate uses, such as conversion to senior housing or student housing, or conversion to apartments. In Florida, I have seen small, older hotels converted to condominiums. Here in Columbus, The Ohio State University a couple of years ago purchased a busy campus-area Holiday Inn (which had a pretty decent occupancy rate and was party central on football Saturdays) and converted it to student housing apartments. Much to the lasting chagrin of die-hard Buckeye fans. But I digress...

A huge difference between hotels and other real estate investments is that an average 60-70 percent occupancy rate is a place where you are typically already making money. Not so with other investment real estate. If you are sitting at 60 percent occupancy with other CRE categories -- industrial, multifamily, retail, office, etc. -- you have problems.

Recently a colleague came to me with a listing opportunity and asked me my opinion because the seller did not want to share any financials, but had an asking price she insisted be used. My question: How did the seller come up with that number? The answer: I think they owe a lot of money to someone. Fine, but as with ANY investment property type, what the seller owes to anyone does not dictate the value of a property. In particular, investment properties. Then I asked him why he wanted to take the listing if the seller wasn't going to be cooperative. When evaluating a hospitality property, all of these factors come into play.

And why even bring this up? Because interest in hotels is surging. Group rates are up and REITs are dominating the acquisition market. But, as Globe Street news notes, there is still a lot of opportunity out there for the savvy buyer, if they can dig deep. Luxury is coming back strong and big brands are doubling down on their efforts. Stagnant employment has raised some red flags, but projections are looking up in this previously struggling sector as assets are turning around fast.

In our market, several new hotels are being constructed. Two of them are on ground that previously housed other types of real estate -- one on the former site of a large restaurant/banquet facility, the second on a mixed-use entertainment redevelopment site previously home to a massive grocery warehouse complex that once covered 90 acres.

No matter the hotel type, the same evaluation factors apply to flagged brands, or independent or boutique facilities. Buyers are looking at condition, location, factors impacting an upside plan, government regulations, and the general economy and employment conditions in a given area.

Sellers need to understand this and be realistic about their pricing. And listen to the counsel of their commercial real estate broker. For our job is not to make someone feel good about the number they pull out of the air, but to share with them the reality of the situation so that they may make the very best decisions about their investment property dispositions.

The Top 75 Commercial Real Estate People You Must Follow On Twitter

2011-07-05T15:03:00.001-04:00

Duke Long is a respected commercial real estate broker in Indianapolis, and, like I, an intense advocate of exploiting (YES, I used the "E" word) bleeding edge technology to communicate and drive business.

And like, like this author, he doesn't clutter his blog with listings or sales pitches. The best commercial real estate blog sites educate, their authors share knowledge. That's just noise. As I have written before, buyers don't need agents to find properties. There are a million and one tools that do that. What experienced brokers and agents do is cut through the chaff, help eliminate red tape and hoops. Or at least make the hoop-jumping less painful.

So I am delighted that Duke's latest roundup of the Top 75 CRE People You Must Follow On Twitter includes your truly. I ranked in at Number 45, which for a number of reasons is a quite meaningful number to me. I am surrounded by incredibly talented peers, whom I am not even going to begin to name for fear of leaving someone off the list. It is an honor to be included among these talented, hardworking, creative practitioners!

Duke, thanks! I am flattered you feel my Tweets on the industry are worthy! As for Lucky .45, as a straight shooter with prospects, suspects and clients, alike, that's one heckuva number with which to be associated!

Happy Independence Day

2011-07-04T11:02:00.000-04:00

Brilliant men, learned men, signed a document pledging their lives, their fortunes and their sacred honor, on this date in 1776. It began an experiment that has been the envy of the world.

For all our triumphs, for all our failures, for all our hopes and dreams, and for all our best intentions, this nation still is where people want to come to live, to have an opportunity to be their best. This nation donates more to charity, and reaches out to help peoples in other parts of the world more than any other nation.

And it would not be possible had those forward thinking souls in foul, smelly, hot Philadelphia declined to signed their names on a piece of parchment, forever linking themselves to a revolution that would change the world in ways they could not imagine. Much has happened since that day. We have had our ups and downs, but the United States of America moved forward. Not knowing what was in its future, but hopeful that what it dreamed of would come to pass. In some ways it has, in others it has not. But this nation has never looked back.

The 4th of July. More than hot dogs, brats, apple pie and fireworks. Worth thinking about...

Happy Independence Day, America.

Bifurcated Commercial Property Market Makes Trending Tough

2011-06-27T07:23:00.002-04:00

While I have been cautionsly optimistic of late, it is clear that just as their seem to be two Americas politically, there are two commercial/investment real estate markets.

Some are calling it bifurcated -- a situation where the strongest values coming out of commercial real estate are on the coasts, think Los Angeles and New York. With everything else in between caught in a struggle.

Even here in Ohio, and in Central Ohio, you see areas with stronger values and others in a far weaker situation. For the most part, this area has stabilized. But the large institutional players are not coming here. They are looking at the largest markets only, and while flyover country investment opportunities might include the occasional Chicago property, but for the most part they are not interested in Middle America. Fanning the flames of concern that commercial property prices may not yet have stabilized (though that depends on the property itself, and the quality of hte tenants), are the Moody's Investment Services numbers. Moody’s Index is now 49 percent below the peak of October 2007, and at its lowest point in data going back to December 2000, according to this Bloomberg report. About 30% of the reported April transactions involved distressed real estate (which might be conservative; this is defined by Moody’s as only those assets where a known default, foreclosure proceeding or bankruptcy of the owner has occurred).

The seemingly never-ending flow of money for commercial properties of all types -- fully leased to creditworthy tenants, of course -- continues to flow. Among REITs, pension players and other institutional investors, prices are being bid up as each as a huge "war chest." with which to fund acquisitions. In fact, some properties have wound up being acquired after bidding wars.

The best approach, however, is still an analysis of a property's relative strengths and weaknesses. This can still be performed, and should be. While the pension funds have deep pockets and can afford to make a mistake, for my clients, a thorough analysis if a potential acquisition is the absolute best insurance one can have on have

Office Innovation Witnessed First-Hand

2011-06-25T12:17:00.005-04:00

All of us in commercial/investment real estate don't just act as paper-pushers. Well some do. But the majority work to solve problems. We counsel, we console, we create, we research and recommend. Both based on our experience, and what we find in the discovery process.

One of the items I have talked about for some time is the changing office. Technology is dramatically impacting the modern office, in ways people didn't see coming. More people in any number of industries telecommute, meaning they work from home or the local Starbucks. At the kitchen table, or home office, or sipping a latte with extra foam (in truth, I am a tea drinker), all the while on the web using any number of mobile applications to get the job done.

Which has office owners and Tenants totally rethinking -- and in many cases -- already modifying how they look at space requirements and allocation. In fact, we experienced this phenomenon ourselves. We moved our Prudential Commercial Real Estate offices from downtown Columbus to just north of the northern freeway outerbelt, in an office area known as Northwoods. Nice facilities, slightly smaller space than what we left. But as I was packing my stuff, and watching my colleagues negotiate boxes and files and so on, many felt they had to bring every last item with them. But we didn't need the larger office we left. More of our agents work from home, or as we have recruited agents, they work from offices in other locations they have maintained themselves for years.

And when our big move happened? Well let's put it this way . . . I found myself asking one overriding question, over and over:

Um...Where the hell did all these filing cabinets come from?????

Many of them are empty today, just sitting around in corners or tucked into otherwise unused closets. In fact, we disposed of a number of older lateral file cabinets once we got into our new space. Nothing truly teaches you how much equipment you really need for your business than a move. But innovation, changes in workplace practices, and even technology are playing huge roles in space allocation. We, like other companies are able to do more with less. Tech has obliterated the need for file cabinets. We no longer have a largish server room for our technology. One telephone switch room now. "Cloud" computing reduces not only our need for dedicated information technology space, but for companies in other industries also.

We have a lot of desks, too. Interesting considering that half our commercial agents -- some of the most productive in our shop -- work remotely.

Doing more with less space is the watchword, and companies like ours -- with only a handful of exceptions -- are making it happen. It is both the technology and changes in human behavior that are at the heart of the office makeover revolution.

Forbes Online has an article about how college kids are more accustomed to doing their homework from virtually anywhere but home. They even don't go to libraries or a place where there is a desk anymore. And as they gravitate toward the workforce, they bring those "telework" habits with them. They can work anywhere. Products like the iPad make it easier also for collaborative creation. Far less need for offices and those desks.

Our front line tech at PCRE is our new phone system. We no longer need a dedicated receptionist, as the modern commercial real estate brokerage and other firms are utilizing, well, modern telecom systems. Incredible efficiency that is allowing us to redeploy our resources during a down economy to areas where it is more sorely needed. We had some initial hiccups with the deployment of VOiP. But the underlying philosophy is sound.

Elsewhere in commercial real estate, Forbes notes that shopping malls are changing. With the rise of e-commerce combined with advancements in mobile technology, malls are desperately working to adapt to attract shoppers. How? As they want more shoppers and for people to come to the mall more frequently, they are creating destinations that are less about the retail, and are more about the social meeting experience. Witness the rise of upscale restaurants, spas, performances cultural activities and educational classes.

The Web is changing our physical space. And some project it may spur an unheard of construction boom, and more and more fiber optic lines must be laid to upgrade communication infrastructure, Why? For as the Christian Science Monitor noted recently, physical presence is very expensive. It costs a lot to get from where you live to where you work or shop. Office and retail space are expensive to build, rent, and maintain. Keeping the space cool in the summer and warm in the winter, and clean at all times, is expensive as well.
So you shop online? Well, think about it. You reduce the need for bookstores, drugstores, and many other retail functions. Many of these same stores will shrink to small sizes where they are almost unrecognizable -- or they will evaporate.

Today our office is our computer, writes one Monitor guest columnist. "Physical mail and the need to sort it and deliver it is less important. Most of our files are electronic. Many of us spend little time at our office desks and more time working at home. More firms are having their employees share office space or are making offices very small and sharing conference space."

All of this may lead to a significant construction boom, predicts one futurist in the Monitor. He speculates that as people are required less to drive to work, that public transportation equipped with wi-fi may grow as business people opt to just go to the office one day a week. He sees malls with empty retail spaces being demolished, to be replaced by more single family or multi-family housing stock. That a new society constructed under the influence of the internet (just as the advent of the previously unheard of drive-in theater was influenced by Henry Ford and the Model T). A society that relies less on brick and mortar destinations.

Truly, I don't see anything that immediately transformative happening. People still want to get out. They want to drive to the mall, or wherever, to have a meal out. Human beings are social animals. We can't be cooped up inside homes and apartments working, ordering our jeans and take out meals. People need to get out. They like to peruse shops. And we travel. Still, it is an interesting prediction whose results will only be known over the span of time. But malls, offices and other commercial space is morphing as technology applications continue to explode.

Nevertheless, in the present day many commercial brokerage clients are looking at energy usage also, and as Tenants and Owners, alike, start focusing on smarter usage practices, commercial real estate practicioners will increasingly look for and recommend the best methods for marketing, financing and promoting social incentives to lease space, or even move office and other buildings that are for sale.

Technology is changing things. And in most areas, making businesses and square footage usage far, far more efficient.

Following Up On Social Media Tools, Strategies For Real Estate Practioners

2011-06-25T09:48:00.004-04:00

Recently I published a short post about social media and small brokerages. I had about 20 attendees at a recent luncheon presentation, and have been asked to give an updated overview of social media there in the fall, as well as a similar presentation soon to the members of the Licking County (Ohio) Board of Realtors. The very reason I was at the Independent Brokers Association to start with was because social networking is a passion, and an approach I have advocated for years.

In fact, my invitation came about from Doug McCloud, a past president of the Ohio Association of Realtors, who suggested IBA approach me about such a presentation due to my avid CRE blogging and use of social media. Doug had attended one of the LinkedIn classes I had taught to members of the Columbus Board of Realtors. A few hundred attendees each time, with great questions and feedback.

The reason for this brief commentary is that in the past week I have received more than a dozen comments from a number of sources. Each one an advertisement or link to sites where they are selling stuff. I publish useful comments, constructive comments. I provide links to other sites of interest, where readers can learn. I do NOT permit links to advertorials or flat out spam. Sorry won't do it.

With that said, I'll give a brief rundown on my philosophy for social media and real estate brokerage. This works for me. It might not be everyone else's cup of tea, but since this is my forum (my sandbox?) I get to share my philosophy first and foremost.

I do not believe in putting listings on social media sites, such as blogs, Twitter, Facebook, LinkedIn or some other equivalent tool. Links to a list of listings are okay (thats what I do), but your site should not be populated with listings. It is a waste of space and time. Listings can be found everywhere -- buyers and sellers (consumers all) don't need agents to help them find property. Your social media site should be about differentiating yourself from the competition. Showing the agent is the expert. It should be about teaching, educating, informing. Making the reader more knowledgeable. But at the same time, increasing the author's credibility and reputation. THAT is the best use of an agent's time in social media, IMHO.

Case in point. I have buyer after buyer who say they were drawn to me because I shared knowledge. I didn't brag (generally), and I wasn't trying to shove buildings down thier throats when I had no idea anything about their goals and needs. True, commercial/investment brokerage is different from residential real estate, in thatwith the latter people simply want to buy, or sell, a house. Find their home. Create their shelter, their domicile, their respite from the rat race. In my biz, there are any number of different motivations. Those differences often are extensive -- they could be: early retirement, set up personal pension plan, put aside money for kids' or grandkids college, built a nestegg for travel, protect the value of an existing family estate portfolio, and so on. Often, the type of motivation dictates the type of investment property one is seeking.
Here is another thing: I don't use or like Facebook for real estate. A lot of agents love it, and that's fine. If it works for them, great! But I have found that most people using Facebook for their real estate business are just throwing listings on it. There is no strategy behind it. Secondly, rightly or wrongly, I have a bias against sharing the same platform that teenagers use (FB) to candidly and credibly promote complex business practices designed to help build portfolio wealth and support the the bottom line of well known institutions and corporatons. Facebook is a great tool, respected by millions of people. It just isn't for me.

Notice what I said earlier, also. If there isn't a strategy behind what someone is doing for business with a social media tool, it is not only a waste of time for the owner/agent who is using it, but visitors will quickly find that these same sites are either not dynamic (they don't change very often). or they offer nothing but listings that can be found anywhere else.

What I teach, preach and otherwise advocate is how agents can use these tools to set themselves apart from the rest of the pack.

That is what has helped my practice. So, to those folks who expected me to publish their comments (in reality, links to the stuff they are selling), sorry. Like I said. If you have something on your site to share that is constructive and educational, I'm all over it. Just trying to sell your CDs, books and tapes? Not gonna happen......

As always, thank you for your support!!!

Distress Is Everywhere; Impacting Pricing, Property Management

2011-06-22T17:41:00.000-04:00

The economy continues to be hit at all levels. But there are rays of hope....

Case in point -- A lot of residential housing stock is now firmly entrenched in the investment RE category. And more is coming. A new report shows that many agents (primarily on the residential side) are switching gears due to the poor shape of the economy and becoming property managers. How and why? As more and more owners are upside down on their houses, and haven't been able to find buyers, they are renting their homes and using (hopefully) experienced agents as their managers/marketing representatives.

In short, the weak housing market has given light to what we in the real estate industry are calling "accidental landlords." And the renters? In many markets, they are new to the city and don't trust the economy enough to buy. But they have income, stable jobs and are finding bargains as they peruse the inventory of available rental homes.

Secondly, according to Moody's Investors SErvice, U.S. commercial property prices (on average) fell in April as sales of distressed assets made up a large share of transactions. The Moody's/REAL Commercial Property Price Index dropped 3.7 pecent from march and 13 percent from a year ago. It is now 49 percent below the peak of October 2007 and at its lowest point in data going back to December 2000.

In fact, Moody's reports that nearly 30 percent of transactions in April 2011 involved distressed properties. THAT, my friends is an amazing number. We're talking commercial/investment buildings here -- NOT single family housing. And Co-Star Group stated earlier this month that prices for investment-grade properties declinced 5.3 percent in the same month, April.

Now for the good news -- BTW, I concur in this. Moody's and Cash On Cash believe the transaction volume -- which was up -- helps lay the groundwork for a "meaningful broad recovery" in the U.S. commercial real estate market. Prices are on the increase in certain areas of the nation. We are seeing stabilization here in Central Ohio, even a little uptick as well.

It will take time. We may have another round of rough sledding in 2012. But the fundamentals seem to be getting better. At least for now. For me? I have hungry, qualified investors. Not bottom feeders, but active, quality buyers looking for smart opportunities.

Transactions are happening...

Social Media For The Small Broker

2011-06-21T09:22:00.000-04:00

I am heading over to the Columbus Board of Realtors midday today to give a luncheon presentation on "Social Media For The Small Broker." I am honored to be a guest speaker of the Independent Brokers Association, which is comprised of, you guessed it, smaller real estate brokers from the Central Ohio area.

Definitely looking forward to the exchange!

Metals 'Dust' A New Way To Add Value (Even When The Business Is Dead)

2011-06-20T12:14:00.002-04:00

I can't say I am the end-all, be-all guru on adding value where others say none exists, but I do like to think I'm a pretty creative guy when it comes to creating new streams of income for my clients. Frankly, a lot of it I picked up on from our company owner, David Mussari, who is a frigging genius at the art of creating ancillary revenue.

Anyway, I'm usually talking to fellow agents or owners about extra land next to an apartment complex or retail center (lease it during the summer to local nurseries for plant and bedding impulse sales; leased in the winter for Christmas tree sales); below grade space (add coin-operated laundry for income, or caged storage space); two or three acres as part of your multifamily complex (construct public storage units), etc. There are any number of ways to add residual income if you just put on your thinking cap.

So I was having a conversation with a colleague who runs an auction firm last week, and he told me about a company he dealt with in California. It seems a Midwest jeweler with multiple locations went out of business and the bankruptcy court had everyone involved working hard to squeeze every last nickel out of the owner and the properties themselves to settle the bankrupt jeweler's millions of dollars of debt.

Enter a giant sucking sound from the West Coast. The news was money to my ears! Each of the stores had hardwood floors installed in the areas where custom work was done on rings, watches, pendants, etc. Anything where precious metals were being formed or sculpted -- you name it. The flooring was taken up in several Midwest locations, carefully wrapped, and shipped to the California "reclamation" firm.

The result? The bankruptcy court received a check for nearly $500,000 from the firm, which had extracted gold dust, silver dust, titanium dust, diamond dust, and the dust of other precious metals and gems. That $500k was AFTER the firm had taken its fee.

The next time I am talking jeweler business -- whether it is business only or real estate, I am going to be asking questions about the flooring and how often the firm cleans in the custom/repair workspace.

As for the bankrupt jeweler? It wouldn't have made a difference as the owner's debt was voluminous. But it is really too bad the company had to go out of business for anyone to "find" additional value -- in the floor, of all places. Sort of like found money on the floor of a neighborhood pub, when you look down and see a 20-dollar-bill, and no one else around.

Only I've never looked at the floor and seen a half million dollars. But the next time I look at hardwood, the story of the jeweler will definitely cross my mind . . .

NHL Blue Jackets Lease Deal Fix May Be In Jeopardy

2011-06-18T10:32:00.000-04:00

One of the most prominent commercial leases in Ohio is back in the news again.

The National Hockey League Blue Jackets lease with Nationwide Arena, and its details, are well known to Central Ohioans. Particularly those who passionately follow the beleagured hockey franchise's ups and downs. The latest news is a proposed "fix" -- lets call it financial help -- from the Ohio General Assembly may be in doubt because of new budget cuts in funding to local governments.

Details here.

MUH Owners Either Raising Rents Or Offering Incentives

2011-06-16T07:27:00.001-04:00

As the old real estate saying goes, its all about "Location, Location, Location."

Two stories published this week regarding apartment vacancies are at polar opposites: One discusses how the housing downturn is a boon for some renters, particularly in hard hit markets of Florida, Las Vegas and Southern California.

There, the Associated Press reports that explosive condominium development and conversions of apartments into condos for sales are finding those units unloaded onto the rental market because developers can't sell them. In some areas of the United States, apartment vacancies are edging up as frustrated sellers instead try to rent out their homes and condus in once red-hot housing markets. This "shadow market" of investor owned homes and condominiums is creating competition for traditional rental markets. In some cases, incentives such as a a free month of rent or upgraded unit fixtures have re-emerged after disappearing several years ago.

Some invstors will take any dollar amount just to get some cash flow. On the downside, many of these same residents are being displaced with distressed owners ultimately are foreclosed upon.
Conversely, MSNBC reported that rents are going up in many markets due to tightening supply of apartment housing. I would throw in that inflation is a factor as well. But simply put, with apartment and rental housing construction halved in recent years and a wave of former homeowners competing for apartment space with "echo boomers" and other renters, conditions have suddenly ripened for owners to raise the rent. Many national apartment operators adjusted their projections recently and expect to be nudging rents up across the nation.

Nationally, rents are expected to rise 5 percent this year and another 5 percent in 2012, according to Greg Willett, vice president of research and analysis at MPF Research in Carrollton, Texas. The trend is not expected to moderate until 2013, when new multifamily housing construction adds to supply and the housing market stabilizes enough to attract new buyers.

For existing owners, if you are in a market with a tight supply, you will likely be edging your rents up over the next few years. For investors looking to buy in these markets where the apartment business has been relatively untouched by the recession, and this includes Central Ohio, however, you will be paying higher prices to invest in multi-unit housing properties. On the other hand, investors who aren't afraid of those markets terribly hard-hit by the economic downturn, and who have deeper pockets to wait out the fiscal rough waters, will continue to be able to pick up bargain rental properties as developers and others cut their losses and dispose of long-empty inventory.

Investor demand for apartment building is heating up (I am seeing it among my investors and with conversations with colleagues and peers). Interestingly, we are seeing inquiries coming from either coast, where investors are realizing the Midwest and so-called "Middle America" provide significant opportunity, either to pick up any available distressed assets or invest in stable, steady growth properties. In fact, sister company Prudential Mortgage Capital last week sold a troubled portfolio of 4,681 apartment units in Western Pennsylvania, Indiana and Ohio to a venture led by Kushner Cos.

Meanwhile, giant lenders Fannie Mae and Freddie Mac are facing potential reforms under pressure from borrowers, advocacy groups, and Congress. Even Congressional leaders who several years ago, despite overwhelming evidence that the two organizations' lending practices were creating a figurative house of cards, resisted changes or oversight to the two iconic lending bodies, are admitting that they made huge mistakes. Now, members of Congress from both sides of the political aisle are pushing for change.

The likely result? Tighter lending standards. In fact we are already seeing a tightening in line with what most traditional lenders have instituted. And with an incredibly heavy supply of homes for sale, as I have written in these pages previously, we may well be raising a generation of renters. Many renters either are choosing never to buy, believe they can't qualify, or have decided to wait to move into home ownership some years down the road after uncertainty about jobs and looming inflation level out.

Bottom line: Investors have choices, many choices, depending on location.

Globe Street Poll: 2011 -- How's It Going?

2011-06-15T19:38:00.001-04:00

Globe Street, the commercial real estate news service, continues to run its weekly polls and the results of last week's query is interesting. Well, at least to me. Here it is:

OK, We're Well Into 2011. How's It Going?

41% It Sucks & I'm Tired of the Recovery Chatter

38% Starting to See Some Activity. Waiting for '12

21% I'm Busier Than I Have Been in Two Years

For what it's worth, I fall into the third category. Mostly because I changed the way I do business. Right now I am working day and night, and making significant inroads I was unable to make in past couple of years. I think we may be backsliding a bit economically and 2012 may possibly be as rough as 2010. But there is a window of opportunity now through the remainder of this year.

What we collectively -- investors and my colleagues alike -- make of it is up to us ....

Warren Buffet's 'Moat Investment' Philosophy Holds Plenty Of Water

2011-06-15T19:21:00.001-04:00

Bad play on words in that headline, isn't it? Because moats hold "back" water, right?

But the billionaire investor's thinking and strategy is sound -- it holds water. Buffet talks about "moat economics" and describes a moat as being that barrier of safety sorely needed as we weather this stormy economy.

So what is a moat investment? To be succinct, it is an investment -- in this case we are talking about commercial/investment real estate -- that has some barriers to entry that keep your competition at a minimum (there is no way to prevent competition), AND keep your principal and interest dry. Okay, now I'm really stretching the moat metaphor.

I will write even more simply: You work with your investment adviser, investment counselor, etc. (each of whom should be working with your investment real estate counselor, unless the latter wears the hats of the former) to carefully select and analyze commercial properties throwing off strong returns. Now, your risk level may differ from your neighbor or best friend. You might be okay with a strong cash-flow property that won't appreciate much, where your peer, friend or colleague may, in fact, be willing to accept a lesser cap rate in return for more stability and future appreciation.

The bottom line is you never know how the numbers will shake out until you perform the analysis. But those "moat" real estate investments are out there! If bought right, if analyzed correctly, if a strategy is in place and well thought-out five-year projection is established -- and it all makes sense, you will have some of the best protection you can imagine for your real estate.

Just like the guy in Vicksburg, Miss. who built a home-made moat around his house when the Mississippi River was well over its banks in the Deep South in May of this year. But he had the right idea -- he thought it out, he executed the plan well, and he stayed high and dry for some time.

Sometimes, there are projects with huge profit potential in the early stages. In these cases, capital is at a premium (critical, we might say) and the property developers may consider SIGNIFICANT discounts to early investors. But you won't know until you inquire or make an offer to get the conversation started. Geography can also serve as an econonic moat, with certain areas filled with expensive homes, expensive multifamily, and expensive high-end retail. At least in most cases. There is some risk, however. All you have to do is look at parts of Las Vegas or Collier County and Lee County in Florida and see places were upscale housing and retail were built, or construction started -- and remain idle and empty today.

Do your homework.

The opportunities out there are limitless right now. Interest rates are low and the inventory is high. But it is easy to get emotionally attached to a property, or sucked in to a deal that seems to good to be true. RUN THE NUMBERS! If you don't know how to conduct the analysis, consult with a seasoned commercial/investment real estate agent who knows what they're doing.

And finally. Quit trying to "steal" property. There are plenty of solid deals out there to be had. Waiting for the bargain of all bargains only delays your entry into the game, or prevents you from growing your portfolio sooner. So-called "steals" will come in their own time. I've written offers for serious, big-time investors whose M.O. is to throw a lot of stuff to the wall at a time and see what sticks. But they are players. The guys who are dipping their toes in the water and only want to commit larceny (figuratively, of course) their first time out . . . well, good luck to you. In my experience, these folks take their time and almost never get around to buying because the deal just isnt' good enough.

I know an agent here in northern Columbus who has a significant portfolio of apartments, and the buyer got what he wanted for loan terms from a solid lender. Read that again . . . he got what he wanted. But then he decided it wasn't enough. He is now shopping the loan among other lenders. Guess what? I'll be $100 he loses the apartments because he is trying to shave a fraction of a fraction of a fraction of a percent off the interest rate. Okay, I get that. But he is going to lose the deal if he isn't careful.

The "moat" properties are out there. Again, you can't entirely eliminate competition, but you can find properties that fit your economic goals. There will be many times when you need to act fast in order to snag the opportunity when it appears. But the more you put pencil to paper, the more properties you'll will find, and "the one" throwing off the results you want will emerge.

When Warren Buffet looks for real estate, he has gone on the record numerous times saying he looks for "moat" properties -- opportunities that boost his potential for profit.

A pretty smart guy in my book....

Venting

2011-06-14T10:03:00.001-04:00

For the fifth or sixth time in a month or so, I've been sent on a wild goose chase by colleagues in this profession. Specifically going out to take an initial look at a building that might work for a buyer, then finding reality bears no resemblance to what was advertised.

Where do wild geese come in? Because the information being posted in the online listing is incredibly misleading. And when I use the word "misleading" I am being polite. When agents decide to list the potential Net Operating Income as actual, but fail to disclose it is a projection. The same issue with cap rates.

My partner at Blue Rock Realty Advisors, Jack Turner, and I have been neck deep in analysis of too many buildings in the past several weeks, only to find out in more than a half dozen instances that the actual numbers bear no resemblance to what was advertised. Now, I am totally in favor putting the best spin on a story, polishing the apple and all that. But this is flat out dishonesty. If the numbers don't show so well, tell other agents that the numbers you are listing are "potential" caps and NOI.

Case in point. A 40,000 SF+ office building. Listed at more than $2M. Noted that the occupancy is only 47 percent, but the NOI is $506,000. And a capitalization rate of 23. We knew the building, so drove out to take a look to see what shape it is in present day. Lots of upside potential, considering the numbers and what we saw. In pretty decent shape with minimal deferred maintenance here and there. The parking lot needs to be replaced. But overall, very doable. Then after yet another call to the listing agent (3 calls since last Thursday; as we know a handful of companies don't want to openly market listings in an attempt to find their own buyers, thereby doing their sellers an incredible disservice) we finally received a detailed financial analysis. Reality check: actual numbers -- NOI is negative $80,380, and the actual cap rate is negative 3.65. Plus ridiculously below-market rents.

This is only the latest instance where this has happened. In the past four weeks I have experienced:
- NOI being dramatically different in reality than what was advertised in a medical office building in an upscale suburb;
- Rents being dramatically different (occupancy too) in a MUH property south of the city;
- Every tenant (there are five) lease expires in two years in high-end neighborhood retail strip, but the property is advertised as having 10+ years left on the leases. Get the funny math? Five tenants multipled by two years equals 10? Huh???

The count where this has occurred? The aforementioned corporate office building, a suburban medical office building, a retail plaza, a second MOB, a retail strip center, a multifamily complex east of Columbus, a portfolio of government office buildings, and a high-end retail strip center.

We have seen actual occupancy rates, length of leases, cap rates, NOI, property size and price -- different factors in different properties at polar opposites of what was advertised. Not just off slightly, but in no way close to the reality once you got into due diligence. If only these had been disclosed up front, with projects then showing the upside, AND realistic pricing from the agents and owners. Because agents should be representing the best interests of their sellers. If someone is taking the listing just to have their name on a sign, but there isn't a snowball's chance in hell the building will sell (unless a real rube walks in, unrepresented, and decides to make a run at the building), then what help is the agent giving the seller? How is the seller truly being "assisted" if an agent is blowing smoke up their a**?

Frustrating for me, but for those CoC readers who are investors, who go it alone and choose to travel these waters without using seasoned counsel, I cannot imagine how you react when you run into this. For I know what is going on. But to the unitiated, you could pretty much get a hate on for everyone in our industry, perceiving that everyone lies. The reality? A few bad apples are spoiling it for everyone. Please know this is not standard operating procedure.

In the residential world, agents will get needled about advertisements for "cozy" (small) homes, "handyman specials" (it may fall apart soon), and so on. But to blatantly present best-case projections as actual financials and not disclose? Grrrrrrrr ........ You do know, right, that the truth will be revealed in the due diligence period anyway? Right?

As far as my projects? Today's resolution is Move On. Our many investors have needs, are motivated, are WELL qualified and bankable, and are ready to move now. No time to dwell on it other than shake our heads and remind ourselves ..... we do not operate that way.

Vent concluded.

NIMBYism Impacts Investors, Residents; Takes Toll On Local Economy, Illustrates Law Of Unintended Consequences

2011-06-13T18:29:00.004-04:00

I saw a piece on Inman News over the weekend, which was inspired by Builder magazine. No matter which headline you use, the resulting message is the same:

-- There is a cost to NIMBYism, and its impact on housing affordability.

But I want to take it a step farther. The "Not In My Back Yard" trend impacts an area's entire economy. We see it over and over. People who want jobs, or already work in a given area, need affordable housing. Often times that isn't a single family dwelling. So they look to apartments. And not "dive" housing, but upscale apartments. Or mid-range apartments. What they can afford based on the wages they are receiving in a competitive, market economy.

But the focus more and more of some communities is to preclude certain kinds of residential housing, with a perceived eye toward preserving property values. This quite often actually backfires. Call it the law of unintended consequences.

Now, let it be known I am all in favor of good zoning. But many community leaders, or neighborhood rabble-rousers, or even city council people in cities and townships large and small, sometimes take their power and their authority to the limit. Thinking it will get them re-elected, they will jump on the NIMBY bandwagon and prohibit ANY kind of multifamily housing solely because a vocal minority has an issue with said property type. And that "perception" again that apartments -- no matter the quality -- negatively impact their property values.

But what are the results?

Take Naples, Florida for example. I am very familiar with the area, as my family holds investment property in Collier County and has been spending time in this beautiful area of southwest Florida for nearly 40 years. Some years back, a number of areas began some restrictions on construction of apartments, in favor of condominium development. As a result, service workers sorely needed in the area -- teachers, firefighters, hotel and resort staff, and police -- often could not afford to live in the city itself and were forced to reside outside the growing community. There was discussion about making people live in the city as a condition of employment. So what happened? There was intense discussion about increasing the pay of many service workers on the public payroll, helping them earn higher wages that might enable them to live in the service area.

Of course, there was a backlash from the controlling authorities -- the city and county, the local school boards . . . even taxpayers already feeling the financial squeeze of escalating taxes opposed increasing wages. And why? All because a decision had been made to severely restrict new multifamily housing developments. And what do developers do? The single family and condo developers who want to build in Southwest Florida are sitting tight right now because of the economy. Multifamily -- the only commercial real estate market segment that remained strong during our recent recession -- is still off-limits for discussion in much of this area. So the developers with money, who are ready to go, move to other markets -- taking their money with them.

Is there rental housing in the Naples area? Sure. There are a handful of newer buildings that went up before the real estate market crashed, and a number of building conversions that are receiving Section 8 funds. But those are for people who in our economy are the most vulnerable, and earn the least. What about the middle income worker who doesn't want to own, just rent. Well, thanks to the economic downturn, a LOT of newer condominium developments that could not get buyers, or condo sellers who can't find buyers, are renting their units just to cover the note. I see this continuing for some time. But just try to get an apartment complex development approved. It is an uphill battle because of entrenched biases.

In Central Ohio, there are a number of suburbs and bedroom communities -- not all -- but several, that have put severe restrictions on multi-unit housing development. For no other reason than "we don't want it here." Particularly along the northern loop of the Columbus freeway outerbelt. And yet they don't realize that they could be adding to their tax base almost immediately, rather than waiting for the economy to turn around and for housing developers to once again start putting up single family homes. There are MUH developers who, given the right circumstances, will built right now because they know the apartment market is stronger than pretty much any other commercial/investment market segment.

But as I hinted earlier, this impacts the economy of an area. The demand for workers earning moderate wages remains. Yet they often cannot find housing they can afford without driving for miles; NOT an attractive situation to be in when gasoline prices continue to hover near $4 a gallon! This impacts workforce availability.

Worse yet, when a strong, willing and able workforce is not present, potential employers who might consider coming into an area will pass, and go somewhere else. Thereby denying an area of sorely needed new jobs.

In the wealthy Chicago suburb of Winnetka, rental stock has been on the decline and there is a bias against new construction of multifamily housing. The area is becoming more transient with fewer and fewer full time residents giving way to owners who only come out on the weekend or once a month. This is having an impact on the local school system, as fewer and fewer students are enrolled.

In Salisbury, Conn., new hires to the school district cannot find homes they can afford in the city. The city's community fire department and ambulance service are losing firefighters and EMTs because these critically important people cannot afford to live in the city. Many of the individuals who are leaving grew up in the area, and if given a choice would gladly stay as they love the city and their jobs. But with people quitting because they can't afford to live there, there is now discussion of turning over fire and ambulance services to neighboring communities or to the county -- at an increased annual cost of actual service and increases costs to taxpayers. Oh, BTW, that cost to taxpayers? It is expected each taxpayer in Salisbury will face an estimated 36 percent increase in their taxes, primarily through property taxes, should the city need to pay another municipality to provide these fire and emergency ambulance services.

Again, the law of unintended consequences in action. NIMBYism doesn't just cost people the opportunity to live in an area, it costs cities economically.

And finally, I step away from the business side of this discussion to comment about a cultural note. I find fascinating the double-standard that seems to be emerging. Today's progressive, open-minded homeowner will insist that the laws on discrimination are "right on," and our neighborhoods should be open to anyone who wants to live there. I couldn't agree more! Our neighborhoods are far more diverse than ever in history.

BUT .... (and it is a big but), as the stock of rental and affordable homes decline, and areas seemingly cater to only one kind of resident, the lack of housing diversity is leading to a lack of resident diversity. Are we backsliding???

Food for thought ...

Columbus Green Real Estate Examiner

2011-06-09T19:24:00.000-04:00

Examiner.com this week named me their Columbus Green Real Estate Examiner. I will be writing stories for Examiner.com about sustainable buildings, both in the commercial and residential sector.

Should be interesting....

Whaddaya Do With An Old Firehouse?

2011-06-08T13:05:00.000-04:00

Many of us at one time or another, commercial/investment agents have been presented with the dilemma of being asked to list a property that has outlived its usefulness.

Or to be more precise, there is a higher and better use for the property. But what if the building on a property can be "repurposed?" It happens all the time. Restaurants converted into banks; homes turned into dental offices; automobile sales lots/buildings turned into medical school offices; even retail strip centers turned into charter schools.

So what do you do with an old firehouse? That place where in iconic photos of the past muscular firefighters slid down a pole at the sound of a bell and jumped onto fire trucks, racing into the night, having only minutes to save someone's house, or office, or warehouse, or store, or restaurant....

Well, these days, classic fire stations are being converted into spectacular homes!

Again, its a highest and best use thing. And there are consumers who love the architecture and history of our oldest firehouses. And they often beccome the owners because of their spectacular love for all things historic and iconic about architecturally significant old fire stations.

The link above takes you to a page that includes photos of fire stations / ne beautiful homes in Tampa, /Fla., New York City, San Francisco, Calif., and Wellesley, Mass. Some incredible work to bring these gems back to life, but their owners took shells of yesteryear and made them worthy of any home and garden tour.

America's Hottest Investment -- FARMLAND

2011-06-08T08:24:00.001-04:00

Not me saying it, but TIME Magazine. Here is the cover story --

"America's Hottest Investment: Farmland."

Yep, what I and others have written about for some time. Particularly producing cropland in the American heartland. The demand for commodity crops -- particulary corn (which is driven by worldwide demand for corn for ethanol fuel production) has driven up corn prices. Which has pushed farmers around the globe to plant every acre they can in the maize-colored crop. Even to the detriment of other crops, or land they previously had in hay (which has created, at least in the U.S., a hay shortage, thereby driving up hay prices).

American humorist Will Rogers famously said, buy land - they aren't making any more of it. That coupled with the commodity push around the world is driving up prices. In my neck of the woods, the areas seeing the largest spikes are western Ohio, which is considered the eastern edge of the American "corn belt."

A very good story about modern farming and land values. TIME says the return on investment right now is a better return than stocks or gold. Worth reading and passing on.

Spreading Around The Meltdown Blame -- Many Homeowners Need To Fess Up

2011-06-07T17:53:00.001-04:00

As so many have been so quick to trash lenders, irrationally holding banks solely responsible for the ecnonomic meltdown that occurred in the U.S. and abroad, one of my pet peeves has been the comments of those who ignore the actions (or inactions) of Congress, and the blatant manipulation of home home mortgage and re-fi market by some very smart (or just greedy) homeowners.

This post is not about making money in commercial real estate, but serves as an example of the hubris, not of lenders, not of lawmakers, but of many, many home and business real estate owners. Not everyone tried to game the system. But as I have written before, there were certain members of Congress who willfully ignored loud, dire warnings about the problems with Fanny and Freddie (attn. Mr. Barney Frank); certain mortgage lenders who talked buyers into purchasing more than they really could afford; certain slimy mortgage brokers who intentionally altered loan applications; and certain home and commercial building owners who used their properties like ATM machines, constantly pulling out cash though re-financing.

So for those who want to irrationally just blame banks banks because they harbor some bigotry toward commerce and the entities that make the markets hum, I give you the following:

-- 40 percent of underwater borrowers took cash out of their homes.

Got that? Yes, 40 percent of those people who owe more on their homes than their homes are worth, re-financed at one time or another and pulled out cash. Probably to play, buy some expensive toys, or even pay a couple bills. And that 40 percent bears the blame for their trouble. Especially those who purchased other un-needed consumables (boat or cruise, anyone?).

NOTE-- THIS IS NOT AN INDICTMENT OF ALL HOMEOWNERS WHO ARE IN TROUBLE!!! Many homeowners are honest, hardworking, and ran into some trouble, and tried hard to work things out.

BTW, its not me pontificating on the subject (well, I have, but I am not the source of the info). The new study showing these statistics is none other than real estate and loan data aggregator CoreLogic.

An interesting story, to be sure. Check it out. And if you have a friend, colleague or neighbor who puts the blame on the banks, please correct them. And put this information in front of them.

They are not stupid, just ignorant. And as is well known, ignorance is uneducated innocence....

Green Energy Update

2011-06-07T15:37:00.001-04:00

For those in both commercial and residential real estate looking for more tips on incorporating green energy components or services into their property or properties, you might want to take a look at the latest edition of GEO News.

GEO stands for Green Energy Ohio.

Click on this link to read the electronic edition of GEO Spring, Vol 4, Issue 1 (Spring 2011).

Weekend Warriors

2011-06-07T14:46:00.014-04:00

With rather short notice last week I was asked to assist with security measures at an event in the Hocking Hills area of SE Ohio. The event -- Warrior Dash.

A friend and I had talked of signing up for it last November, then promptly forgot about it. It quickly sold out. When presented the opportunity to be involved in a behind-the-scenes role, I jumped in mostly because I wanted to see the event in person. It was something else! I ran into many people I knew, including clients of mine whose apartment buildings I have sold near The Ohio State University, and an office colleague who was running with her brother, sister-in-law and friends.

Below is video taken from someone's helmet-cam, with a view of the course as run Saturday and Sunday. I wound up staying over Saturday night rather unexpectedly, and we had two severe thunderstorms during that time. What had been a rugged 3.1 mile obstacle course on Saturday, was a wet, muddy mess come Sunday. Over two days, between 25,000 and 30,000 people competed over the two days. Plus, there were thousands more in attendance to take in great music and food, and cheer on their friends and relatives who were busy jumping fire, crawling through mud, climbing rope cargo nets, swimming large farm ponds, etc.

I it was an incredible event with which to be associated. The organizers have it down to a science, and my hat is off to them. Ryan, Molly and Brianna, really sharp people charged with making Warrior Dash a financial success for its owners, and just plain fun competition for the participatns, pulled off an incredible weekend.

Warrior Dash is one of those spectacles you witness, and while watching both what the participants see, and getting to peek behind the curtain, you say to yourself, "I wish I had thought of that...."

If You Own, You've GOT To Understand The Generations

2011-06-03T07:30:00.001-04:00

As some of us get a little older, we notice that our investors seem to be getting younger....

But as an owner of any commercial/investment property, particularly multifamily, its always a good idea to understand how our customers/tenants/residents/lessees think. And understanding that often starts with knowing how old they are, and what motivates their particular "generation." If you manage yourself, it wouldn't hurt to be aware of the following. If you use professional management, well its a fair bet that your management firm is boning up on this info themselves.

So, courtesy of Cam Marston at http://www.generationalinsights.com/, here is a primer on Generational Differences, understanding how to push their hot buttons, and learning how to sell your property to them:

Matures -- born between 1909-1945. Traits are dedication and sacrifice. Believe that experience will always be the best teacher. Conformity, blending, unity, team. Hard times gave way to prosperity. To reach them as consumers: Show that you value what they've learned through their experiences. Quality is important -- emphasize it. Never mention a product is good for their age group. Standard and pre-packaged are good.

Baby Boomers -- born between 1946-64. Traits are being workaholics, competitive, they view success as "visible" (trophies, plaques, certificates), they are optimistic, they are consumers, and are defined by their jobs. To sell to them as consumers: Your product or service, or working with you, should emphasize time-saving elements; help them feel victorious -- they are competitive and want to win; become a member of their "team" because teams are important to this group; customize your service for the individual; and consistent themes within this group include "forever young" and "rebellion."

Gen X -- born between 1965-1979. Traits include questioning authority (they were taught this), they have no real shared heroes, they are somewhat disdainful of Boomers, this generation began the trend of parents and children as "friends, they are somewhat cynical and pessimistic, they have shorter time horizons, and have taken a carpe diem approach to their lives. To reach them as consumers you need to list every available product, service, option and solution; this group is VERY skeptical of too much advertising/hype or promotion; peer-to-peer testimonials carry much weight; and be prepared to answer "Why?" often; you will have to prove you are an authority.

Millennial -- born between 1980-2000. Key traits with this group are that these individuals are optimistic, they have been programmed and coddled, they are group-oriented, busy and stressed, like Gen X they were raised as their parents' friends, and while they are ambitious they appear to be directionless. To sell to them as consumers your product must have an immediate application to satisfy their need for instant gratification; your product or service must be unique to them and have individual relevance; they like to be admired as individuals; technology is assumed, and they are acutely aware of what others have and are doing.

Clear as mud, right? For me, the key to working with my clients' Residents or Tenants is understanding what makes them tick. Sure, to many old school owners it simply revolves around "pay your rent on time and you will be left alone."

But that understanding of their motivations can be another key factor to retaining quality lessees, particularly in multifamily communities.

Your mileage may vary. But its worth considering....

Are We Growing A Generation Of Renters?

2011-06-02T19:40:00.002-04:00

A fascinating story is out this week, courtesy of Harvard University's Joint Center for Housing Studies, and it suggests that we may be creating a generation of renters -- people who are either too hesitant about private home ownership, or don't want to risk losing a home as they have seen family or neighbors.

The State of the Nation’s Housing report released this week verified a number of trends

my colleagues and I who work the multifamily market have seen emerging for many months now. One stat is that renter households keep growing. The report said that from 2006 to 2010, renter households increased 692,000 annually on average, to 37 million. In the same time span, the number of owned households fell on net by 201,000 annually.

The report also notes that renters who have put off homebuying and homeowners who became renters again are driving this shift. Even as the number of households aged 25 to 34 increased one percent from 2007 to 2009, the number of households that bought their first house decreased 14 percent. The number of first-time homebuyers between 35 and 44 fell 21 percent.

Not surprisingly potential buyers are waiting it out. “With home values still falling in many markets, even would-be homebuyers appear to be waiting on the sidelines until they are convinced that prices have bottomed out,” the report said.

But (and its a BIG but...), things could be moving too far the other way though. With rents for professionally managed apartments moving up 2.3 percent from the fourth quarter of 2009 to the fourth quarter of 2010 around the country (according to information cited from MPF Research), the Harvard report says that some renters could again start to think about buying. In particular, the report cites a Fannie Mae National Housing Survey that reported the percentage of renters saying they will probably continue to rent fell to 54 percent in the first quarter of 2011 from a peak of 59 percent in June 2010.

For now, however, a growing number of Americans can't afford a home or don't want to own one, a trend that is spawning a generation of renters and a rise in apartment construction across the U.S. As I have written before on these pages, many of the new renters are former owners who lost homes to foreclosure or bankruptcy. And others? They feel it is too costly. Or too risky. Or the doubt a home's potential appreciation. Unfortunately, if purchased "right" (and it is easy to do now since inventory is high, prices are low and interest rates are bottomed out), homes today will surely appreciate nicely over the next decade.

At this writing, nearly 38 million households (not people, but households) in the United States are renters. Also, as noted earlier, demand is driving up rents, and spurring new construction. Which again is why we are seeing multifamily prices on properties remaining high, as demand is keeping ledgers in the black.

Interestingly, before the housing bust, mortgage rates were so low it was often cheaper to buy than rent (plus you got all those great tax deductions as a homeowner). According to Moody's Analytics, a decade ago it was cheaper to buy than rent a home in more than half of the 54 biggest metro areas. Today, it is cheaper to rent in about 72 percent of metro areas.

One fascinating aspect to all this is the talk about the so-called "Millennials," the children of the Baby Boomers. Millennials are not quite as attached to the single family detached residence in a far suburb. They watched their parents commute long hours to jobs, either in cars or by train (at least on either coast). Long drives, combined with the high price of gasoline, has them shunning the McManse in the fringe suburbs. They would rather live in urban centers in apartments, or condos, or renovated houses. And when you look at cultural trends, an incredibly large percentage of young people say they have no plans to ever have children. These shrinking family sizes means that fewer people aspire to a suburban lifestyle.

I never twist someone's arm if they don't want to invest. It is a personal choice. But if you are going to buy, buy for investment and be selective. I was talking to a colleague earlier today in Cincinnati, and we agreed. There is still time. If a prospective buyer is on the fence, rent where you want to live, and invest your funds in a property that can be treated as a commerical/investment vehicle. Where you can take full advantage of the many tax deductions available with investment properties (and not with a personal residence).

For as many of us have said, a house is NOT an investment unless you are charging your children rent for their rooms.

Either way, the even heavier pressure on multifamily is a boon for the time being, both for owners and for investors who get in sooner rather than later. But the "buy-right" time on multifamily may already be past.

When Adults Act Like Children

2011-06-02T19:28:00.000-04:00

When adults act like children, it is insulting. To children.

The owner of IP address 70.30.23 (Roadrunner Commercial account) is well known to me. And for some juvenile reason, they seem to have nothing better to do during the past 12 months or so than spam my comment section. But the name calling of about a week ago brings a particular chuckle. For when one resorts to name calling, as everyone knows, an individual has now surrendered the battle. For they have run out of argument if there was any to begin with. Abandoning the intellectual high road, and intentionally joining with the morally bankrupt who are a growing stain within our communities.

IP 70.30.23, I feel sorry for you. I urge you to get some counseling.... Soon. You need it.

Property Management Is ALL About Response Time (And Follow Up)

2011-06-02T16:22:00.000-04:00

A lot of building owners, unless they have professional property management handling their property for them, tend to get to maintenance requests as they have time.

Most often, that is not good enough. And it shouldn't be. For keeping quality tenants, or residents if you own a multifamily complex, is about providing quality service that makes them want to stay. Think about it; how satisfied your residents or tenants are living or working in your complex is largely influenced by how satisfied they are, which influences how likely they are to renew their leases.

So with that said, remember the following: Dealing with maintenance requests is a three-part process -- submission, handling AND follow up.

John Gallagher, a certified property manager and a sernior vp of a large property management firm overseeing around 6,000 apartment units in the mid-Atlantic region of the United States, is a firm believer that maintenance processing does not end when the property technician successfully fixes the problem in an apartment.

Since service orders need no longer be phoned in (they can be received by the management office via email, internet, phone or fax), the focus still needs to be on "service," Gallagher notes. And as residents and tenants trend younger, they are more likely to use email or the internet to submit their maintenance requests, since such needs can be communicated on the lessee's schedule. Basically, anytime day or night!

A story in the June 2011 edition of Multi-Housing News talks of the importance of service follow up, which is highly criticial to tracking, measuring and ensuring customer satisfaction. Follow-up surveys are a standard best practice at Mr. Gallagher's company, Polinger, Shannon & Luchs. The company sends out a survey after EVERY maintenance request, once the request is closed, asking lessees about their experience.

While most residents to not respond to the surveys, especially if the maintenance was performed as expected and to their satisfaction, Gallagher says, the process promotes good customer service AND, perhaps just as important, makes residents feel valued. At the same time, renters who are displeased with their service will almost certainly respond to the survey.

Quite something to think about: Most owners or management firms may believe that the leasing agent is the primary determinant of resident lease renewal rates. But in actuality, the maintenance technician is just as much a factor in renewals as that leasing agent.

Report: Apartment Owners To See 'Outstanding' Returns Through 2012

2011-05-31T13:39:00.000-04:00

Once again another illustration of the strength of the apartment residents -- especially in booming markets -- are likely to find their wallets lightened by the rising rental rate.

Which is why we are not seeing much relaxation in MUH prices, except in cases of badly managed properties or situations where a Seller got into the property at far too high a price, paying far too high a note to the lender, with the result being a severely distressed property that residents are leaving because of continuing deferred maintenance (that the seller cannot afford).

Ron Johnsey, president of Axiometrics, which conducted the study, says some markets, though still experiencing solid increases in effective rents, "have slowed down a bit, but overall the trend is onward and upward."

Did I mention I LOVE multifamily? Especially campus MUH.....

Freedom Never Cries

2011-05-30T17:18:00.003-04:00

Happy Memorial Day....... Remember.

Memorial Day Much More Important Than Picnics And Brats

2011-05-29T18:28:00.001-04:00

This weekend is one that marks the beginning of summer, a time where families and friends will gather and enjoy picnics, parades, brats, perhaps swimming. A weekend to share fun with good friends and loved onees.

But lest we forget the meaning and roots of Memorial Day. Originally known as Decoration Day, it is a time to honor those who have served our nation's military, and are no longer with us. Whether they fell in battle, making the ultimate sacrifice, or survived those many conflicts that kept this nation free, made a life, raised a family, and succumbed in some other fashion.

It is a time of solemn remembrance.

Yesterday morning I witnessed a 90-minute, moving scene in Powell, Ohio, a suburb of Columbus. There, in a solemn ceremony, large American flags on pvc poles were marched four-at-a-time in the capable hands of a Boy Scout Honor Guard, and affixed on metal rods in the ground. With the "planting" of each flagpole, a name was read by the Boy Scout leading the cermony. The young man in full Class A BSA uniform organized the ceremony as part of his Eagle Scout project.

He ready 239 names.

The 239? Ohioans who have worn our nation's uniform, and who were killed in action in Iraq and Afganistan.since the Global War On Terror began shortly after the murderous attacks on our nation on September 11, 2001.

A very small turnout for the cermony, its meaning, however, is thought-provoking. And a stark reminder of those who have gone before us in the fight for freedom. The display, at the Greater Powell Veterans Memorial in Village Green Park, can be visited 24 hours a day. Local Boy Scout Troop 428 is watching over the flags, which are lit at night.

The Ohio Flags of Honor Memorial is a traveling tribute started by Gino and Lisa Zimmer of Columbus, whose son, Army Spc. Nicholaus Zimmer, was killed in Iraq. They formed a nonprofit organization and tour with the flags a few times a year. A total of 550 flags, including American flags, and flags representing the various military branches, MIA/POW, and message of support to the troops are in the entire display.

Please take a moment this weekend to remember those military who were killed in action defending America all during out nation's history, and those who served, came home to civilian life, and today are no longer with us. I am reminded of my father, who served in WW2, and earned a combat medical badge and a bronze star for heroic action during landings at Okinawa and Leyte Gulf. Dad, you have been gone nearly 18 years, but your nation, and your son, thank you for sacrificing your youth to defend our nation.

The Memorial Day weekend. .... A time for gatherings of friends and family .... A day of solemn remembrance ....

Strategies For Green Office Improvements

2011-05-28T13:49:00.003-04:00

For owners of medium sized commercial properties, and even large scale office complexes, there are a number of initiatives owners can take to make their buildings more "green-friendly."

Remember, the benefit is a dual-whammy, of sorts. One, there are cost savings to be had, as well as the opportunity to charge lessees a higher per square foot rent. Second, more and more tenants (especially young decision-makers) are gravitating toward sustainable facilities.

Here are a few ideas for owners of smaller office buildings who are giving their structures even the most modest of face-lifts. Most of these concepts focus on improvements to restrooms and come from House And Garden Television (HGTV).

1) Cabinetry and Vanity Tops
Look for cabinets made from wheatboard or other low Volatile Organic Compound (VOC) materials. Standard cabinets typically are made with urea-formaldehyde, which some experts say can excrete gases from VOC compounds for up to 15 years.

2) Lighting
If possible insert a window or skylight into the bathroom area. Sean Ruck, spokesperson for the National Kitchen &Bath Association says any natural light you can introduce, even from a tubular skylight, will dramatically lessen your dependence on electric light.

3) Low and No VOC Products
Many caulks, adjesives and sealants made for bathrooms include some sort of mildewcide or other mold-inhibiting compounds. While these make it easier for janitorial staff to keep bathrooms clean because less potentially irritating cleaning agents are required, many also include harmful VOCs. During renovation, it is best to look for paints, stains, adhesives and caulks labeled "Low VOC" or "No VOCs."

4) Hot Water Heaters and Toilets/Urinals
Tankless hot water heaters (instand hot water) cost several hundred dollars more than traditional hot water heaters, but they use 20 percent less energy than the traditional units. In just a few years, the extra up-front cost will be recovered via savings in energy used to keep a large, traditional tank hot 24 hours a day.

Additionally, composting toilets and waterless urinals, in particular, are becoming very popular in green commercial buildings in Europe and the U.S. because of the water they save. A number of companies manufacture these systems, and they increasingly are piercing the residential bathroom market.

Just a few ideas to help owners make the leap into the sustainable world. Again, as I have written before, its not about what owners believe. It is about what more and more tenants want.

With increasingly frequency, and budget, lessees are gravitating -- by choice -- toward green buildings or buildings that have gotten facelifts and whose owners are incorporating sustainable business practices.

Congrats To Buddy Tony Yacoub, CCIM

2011-05-26T17:23:00.001-04:00

I am sending a quick shout out to my good friend and colleague Tony Yacoub, who recently earned his CCIM designation. Tony was my VP when I was president of Columbus Real Estate Exchangors, and was great counsel to me as we led the organization for a year.

A great guy, a super friend, and a gifted counselor to his clients, Tony has spent the past three years in New York. While he is away from traditional brokerage, he is utilizing his superb real estate skills on an assignment in New York with the General Services Administration, where he is works with the Department of Homeland Security's Law Enforcement Branch.

You worked hard for the right to list those letters after your name, Tony. Congrats my friend!

We miss you.

Columbus, Penn National Shake On $400M Casino Deal; Annexation Fight Appears To Be Over

2011-05-26T11:21:00.000-04:00

Like the song, The Long And Winding Road, it has taken the City of Columbus and officials at Penn National -- the gaming company charged with developing a $400 million casino on the city's west side -- quite some time to come to an agreement.

At issue? Annexation into the city. Water/sewer tap in fees. And who reaps the reward of income taxes for the 3,500 construction jobs leading to a 2012 opening, and the 2,000 full-time jobs at the casino.

With a deal in place, the parties now have a few months to iron out the details. But the argument isn't over entirely. Franklin Township would have liked to have been the beneficiary of the income taxes, and had already granted a certificate of use for the property, an old Delphi automotive plant site.

Of course, relations between the city and Penn National have been cool at best much of the time. When voters across the Buckeye State went to the polls and were asked whether casinos should be allowed to be constructed in Ohio, Central Ohio voters voted against the measure. Still, the proposal called for casino sites in Columbus, Cincinnati, Cleveland and Toledo. So whether city officials or residents wanted one, people residing in Ohio's capital city were getting a casino. That was only the beginning. Then there was the mayor, who said he didn't want a casino downtown in the Arena District (a superior location if you ask me, but no one did....). The replacement site on the west side suggested and acted upon, but accusations from both sides that the other had reneged on some oral agreement.

And things sort of went downhill from there. The issue of how much the casinos will pay the state in royalties, taxes has come to the forefront again, as well. Here is hoping that the resulting development do as promised: breathe new economic life into the stagnant Columbus west side. New businesses, a refurbished mall or two, and perhaps some new hotels. Time will tell....

Mortgage Deduction, Commercial Lead Paint Disclosure, Lease Accounting and Dodd-Frank Among Critical Issues Facing CRE Owners

2011-05-25T14:01:00.069-04:00

Unwritten rules implementing Dodd-Frank, mortgage interest deduction elimination, lease accounting, commercial property lead paint proposals .....

What do these items have in common? If you guessed they all are proposals before members of the U.S. Congress, and highly detrimental to commercial property owners and commerce depending on which way the political winds blow, you would be correct!

The pages below are forwarded from Central Ohio colleague Greg Hrabcak, a fellow commercial real estate practitioner at Real Living: The Commercial Partnership, who is involved on the national level with the National Association of Realtors' government affairs division.

In the Issue Brief I have inserted below, I have highlighted in yello the major issues facing commercial real estate owners AND lessees. Those items with a green star next to the highlight are those issues which I believe merit particular scrutiny.

Keep in mind, in Washington DC there are few people or groups representing property owners -- whether they be owners of their own homes, or owners of commercial/investment property. As such, the National Association of Realtors is stepping up and launching an aggressive lobbying campaign to protect the interests of commercial/investment property owners and homeowners, alike. Such as the impact of the proposal that commercial buildings be mandated to submit to the same lead paint reporting requirements, etc. as required for residential structures. When was the last time you saw a child sitting in an office building eating paint chips? In addition, some of the lease accounting proposals are problematic, both for owners as well as lessees.

And don't even get me started on Dodd-Frank implementation. While well meaning, it is a clear illustration of the pendulum swinging too hard one way. For example, talk to anyone in this industry and you will get hugely divided opinions on whether the 84-year-old woman in Florida is allowed to sell her Ohio farm land for house development lots using land-grant financing. You know... owner financing. There is significant evidence to show she would be a felon if she did so. HUH? How does that protect anyone, or help spur property movement and development for the good of all? A great debate, to be sure, but just try to get a consistent answer to the very simple question out of lawmakers or their staff in Washington. You can't even get attorneys to agree on much of this, but on one thing about Dodd-Frank they generally concur. As voiced by one local counselor whom I trust: "I can tell you what you can't do, I just can't tell you what you can do."

Then there is the ridiculous proposal to eliminate the mortgage interest deduction.......

Whether you are a commercial/investment agent, broker, investor, lessee or asset manager -- at least one (and frequently several) of these "issues" impact you, your commercial property, and your bottom line.

If you are not familiar with these critical issues, take a moment to take a look. I promise you it's worth your time. Then pass it on .......

NAR: Overseas Buyers In U.S. Getting 'Fire Sale' Prices

2011-05-25T08:08:00.000-04:00

According to the National Association of Realtors, foreign clients -- not just investors, but future homeowners as well -- spent $41 billion in the United States in 2010. That does not include the additional $41 billion that "individuals with visas to stay for more than six months" spent during the same time period.

The report shows that though "foreign" buyers tended to buy "on the high end of the market" over the previous year ($315,000 vs. U.S.-buyers' $218,000), this year invernational investors are trending downward toward sales below $200,000.

The reason? U.S. property prices are just too good to resist, and overseas investors are taking advantage of the weakness of the U.S. dollar and pouring millions of their savings and investment pool into properties here. With the current exchange rates they can invest in assets at great values with tremendous upsides.

And, IMHO, the U.S. is one of the safest places to put your money. Away from unrest of northern Africa, various places in Europe, and the uncertainty of Japan in the wake of the tsunami and resulting nuclear plant issues.

IR 1031 Tax-Deferred Exchanges Gaining Traction Thanks To Lending Surge

2011-05-24T19:41:00.001-04:00

Isn't it funny how certain initiatives or plans can be stymied because of reliance on another industry. Such are commercial/investment and development projects, each so inter-connected with others and their expected deliverables that if one piece falls out the entire project can fall apart.

And so it goes in our business, as tax-deferred exchanges -- which accounted for 30 percent of investment sales during the industry's boom years, slowed to a trickle recently as the recession ground so much momentum to a halt. But change is inevitable. And fueled by a renewed availability of capital, those deals are re-emerging.

Oh yea....

Bill Rose, a contributing columnist for Retail Traffic Online, notes that 2007 was probably the juiciest year for IR 1031 exchanges -- some $4.1 billion in tax-deferred exchanges were exeucted on 765 transactions nationwide. And as investors and practioners know all too well, the velocity was short-lived.

"The subprime lending crisis led to a full-blown credit crunch that began to rear its ugly head during the first quarter of 2008. As a result, banks, conduits and other institutions shut off the capital spigot for all types of investments. Most significant was the near shutdown of the CMBS market, which accounted for almost half of all commercial lending during the first half of 2007," Rose says. "As a result, a high-leverage, speculative investment climate was replaced by a renewed focus on operations underwriting. Of the retail transactions that managed to secure financing and close during the global economic crisis, the majority were all cash deals priced under $5 million."

No doubt. We weathered this storm in Ohio, as did investors and the market across the U.S, and yet somehow were able to eek out transactions using far more creativity than most realized they had in their briefcase of ideas. Fortunately, we are seeing things improving as the flow of capital slowly starts to pick up. Rose concurs, noting that 1031 exchange activity inched upwards in 2010, when more than $1 billion in exchanges were executed on 231 deals.

Today, we are seeing owner encouragement to upgrade or reposition their real estate holdings.

Rose believes that prior to the recession that investors were commonly seeking to exchange from single-tenant net-leased assets to other single-tenant net-leased assets. Investors now, he writes, are targeting apartment building to single-tenant asset trades.

That's not surprising since apartment assets have stayed relatively strong (assuming they were properly managed). And these savvy owners are looking to move from management-intensive properties into assets that require less-intensive oversight.

So where are we? As has been stated in earlier posts on this site, AND from other practitioners and futurists watching the commercial/investment industry, there is momentum and the environment is improving. Plus, as an enthusiastic promoter of IR 1031 tax-deferred exchanges, I am excited that numbers are ticking upward again. It shows that health is returning to our industry, that investors area ready to move upward, and that lenders are sloooooowly seeing the light.

More to come.....

Report: Q2 NREI/M&M Investor Sentiment Index Says Appetite For Commercial Real Estate Growing

2011-05-23T18:43:00.006-04:00

A new research study is out and the news is positive for commercial/investment real estate.

Specifically, it comes to the following conclusions: Buyers are bullish on apartments and hotels, and retail is heating up. National Real Estate Investor and Marcus & Millichap have published research since 2004. The NREI/M&M Investor Sentiment Index for Q2 2011 rose to 164 in the second quarter, up from 152 in the fourth quarter of 2010.

More notable is that each property sector reported a marked improvement in investor sentiment.

Apartments recorded the highest index rating with a score of 166, followed by hotels at 158, industrial at 140, mixed-use at 139, retail at 135, and office at 123.

Wrote the editors: "Overall, investors' increasing confidence in the U.S. economy and the commercial real estate recovery is fueling demand for assets across property types. The outlook for property values has climbed dramatically in the last few yers. In the fourth quarter of 2009, nearly half of survey respondents (47 percent) expected retail property values to drop in the ensuing 12 months., with only 15 percent predicting an increase. Now those numbers have nearly flipped with 44 percent anticipating an increase, and only 9 percent forecasting a decrease in property values."

Good news, indeed!

Hotels also are benefiting from the ability to react quickly to an improving economy and scored 158 on the index. Apartments remain the favored property choice with 59% of respondents indicating that now is the time to buy apartments followed by industrial (35%), hotel and retail (34%), office (31%), mixed-use (30%)

and undeveloped land (29%).

Among the driving factors, according to the Q2 study, is the improving jobs picture and the relatively low interest rates -- both of which are bolstering investor confidence. The addition of 244,000 nonfarm payroll
jobs in April was the biggest monthly gain since 2006. The 10-year Treasury yield, a benchmark for long-term commercial real estate financing, hovers around 3.2%, near historic lows.

In fact, eight out of 10 respondents cite low interest rates as the biggest factor driving their decision to increase the size of their commercial real estate portfolios.

Again, further evidence of what we are seeing here in the trenches.....

Property Tax System Changes Coming To Ohio; Farmers In For A Rude Awakening

2011-05-23T15:25:00.000-04:00

A new way of calculating residential property tax -- adjusting for whole neighborhoods instead of on a property-by-property basis -- will be rolled out in one Ohio county, with an eye toward statewide adoption. Designed to "fix" perceived unfairness, I still see problems with this concept.

But FAR more problematic is Ohio's practice of taxing agricultural land based on current agricultural use valuation (CAUV). Its not he practice, per se, that is wrong. But that if a land owner disagrees with the assessment there is no legal means to challenge the audit value.

Here is the looming problem that will definitely see news coverage in the coming 12-18 months. As commodity prices (corn, soybeans, etc.) spike, Ohio farm property taxes will see dramatic increases. While the valuation has generally been fair -- considering we have had more than a decade, until recently, of low prices paid for grain -- farmers are in for a fiscal whammy when they see their next tax bills.

Ohio farmers are going to see a large increase in their valuations due to state soil values, said Licking County Auditor Mike Smith at a meeting of Central Ohio real estate professionals and affiliated service providers. "Locals have no control over that and the property owner has no right to appeal, so its kind of a double whammy," he told those attending the meeting. "They'll see that next year, on their 2011 taxes payable in 2012. There is nothing you can do about it."

Wow! Nothing? Not for long, I would think. Individual farmers, the Ohio Farm Bureau, Ohio Agricultural Union and others will have something to say about it, as will rural resident/property owners who do not farm, but instead rent their farmland to professionals who grow food. Clearly, all involved will not be pleased to see their land taxes spike. Amazingly, there does seem to be no appeals mechanism at the state or local level. With commercial and residential properties, however, owners can petition to have their property taxes reduced by providing evidence through sales comparables that similar nearby properties are selling at far lower values.

Under current state law, property valuation of land used for agriculture is based on crop prices, and since these prices have been rising dramatically around the world, property values follow. Smith noted that huge increases have been seen in Fairfield County, and the people there are "grabbing pitchforks," a euphamism for rallying against taxes and demanding changes from lawmakers.

The current formula says that owners are making so much money off the soil. As corn prices and bean prices go up, soil values go up. And Ohio's six-year cycle means the jump in valuation is a big one when it comes.

Smith was a featured speaker at an area real estate association. He outlined another issue facing his office, specifically the perceived unfairness of property-by-property valuation (for taxes) adjustments. He said most of Ohio's 88 counties re-appraise on a three-year cycle. Licking County Auditor Mike Smith says market-adjusting valuations of individual properties as they transfer was either genius or it was stupid. So the plan is to adjust for entire neighborhoods, so that similar properties pay similar taxes.

I see problems here also that could impact investors or existing homeowners. There are homes of varying values in any neighborhood, based on their condition, rental income, etc. But equalizing values as an alternative to "huge inequities?" Where are the huge inequities. The value of the sale is the value of the sale. The intent is for similar properties to pay similar taxes. But that smacks of the practice of some police and sheriffs who "selectively enforce" traffic laws. Specifically, picking out one or two automobiles to chase for a speeding or other traffic infraction when far more are breaking the law.

Selective enforcement in law enforcement is harshly frowned upon. So how can it be okay wrong to market adjust at the time of each sale, and try to "equalize all the values?" I'm sorry but frankly this sounds an awful like the words coming out of Washington, whose White House leaders continue to talk of "spreading the wealth."

Keep tuned. Farmers with pitchforks upset over their land taxes, and homeowners unhappy with "neighborhood valuation" as opposed to property-by-property valuation may well be two giant political issues here in the Buckeye State. Will they have an impact on elections later this year and into 2012. Who knows?

National Flood Insurance Operating In The Red

2011-05-22T20:53:00.000-04:00

This has NOT been a good year for the National Flood Insurance Program.

Specifically? The FEMA administered program is approximately $18 billion in the red, and counting......

Is The Traditional Office Becoming Obsolete?

2011-05-21T16:26:00.001-04:00

A great question, with many answers. Of course, the variety of answers depends on who you talk to.

A new report from Regus and Unwired says the office of the past is not likely to to become completely extinct, but must evolve to meet the needs of new kinds of workers driven by technological advances, and management's desire for a lighter, cheaper real estate footprint.

Case in point? The modern real estate office, at least in my opinion. But this piece looks mostly at large traditional corporate buildings and the challenges faced by heads of real estate for companies, and the interests of their increasingly mobile work force.

This is a very good read, both for owners and prospective investors who need to know what the Tenant of today -- and the future -- want and are willing to pay for.

Click here for the full story.

In Good Company On LoopNet List Of Top CRE Bloggers

2011-05-21T13:53:00.001-04:00

Received a phone call yesterday afternoon from an industry colleague in Idaho, who asked me if I had looked at LoopNet lately. Of course, my response was I look at LoopNet all the time!

Then he said that I was featured there, and of course I thought me meant one of my listed properties was featured, which it is -- a $2.45 million neighborhood shopping center here in Columbus (SUBTLE HINT: Bring Me Buyers!). I popped over to see what he was talking about and found that LoopNet had published a list of the top commercial real estate bloggers. And there I was ranked among the top five listed at Loopnet, along with peers whom I greatly respect -- Coy Davidson of Colliers International in Houston, Texas; Tony Brettkelly of San Francisco's Latitude 38 Group, Miguel de Arcos down in Florida at Sperry Van Ness Florida Commercial; and Natvar Nana at Sperry Van Ness in Orlando. Coy, and I, BTW, both follow each other's postings on Twitter.

As they say at the Oscars, it is an honor just to be nominated. This author is truly humbled to be included among such outstanding CRE practitioners -- and writers.

Prudential To Roll Out 'Bring Your Challenges' Campaign

2011-05-19T16:56:00.001-04:00

The Prudential family of companies, which of course includes commercial/investment and residential real estate, financial services and insurance products, is rolling out a $50M national campaign centering around the theme: "Bring Your Challenges."

A multimillion dollar initiative, designed to increase visibility and understanding of the iconic "Rock" product offerings (which a long time ago expanded beyond its insurance lines), the theme will include print, television and electronic advertising with a message that crosses all areas in which our firm has a presence.

The company already spends around $60M annually on general Prudential brand awareness, and studies show the Rock device and Prudential name are recognized by 98 percent of consumers.

But this additional campaign is centered around a specific theme -- Bring Your Challenges.

Now my personal business philosophy, "What you want, how you want it." is always (of course) tempered with my counsel. What it still comes down to, however, is creating solutions that fit my clients' long- and short-term goals.

So bring me your challenges.....

(and thus concludes my shameless self promotion.....)

Recycling Shipping Containers Into Office, Residential, Medical Space

2011-05-18T06:55:00.007-04:00

You've seen photos of shipping containers stacked high on the decks of ocean-going vessels? Or perhaps being moved by rail?

Did you know there is a growing movement to convert these sturdy metal boxes into mini offices, clinics and residences?

A fascinating trend. I actually had considered acquiring one to put on a piece of family farmground in southeastern Ohio, and convert to living space. That was after I heard they were being converted to medical clinic space and transported to 3rd world nations and pretty much dropped in anywhere they need to be.

But use as offices within larger warehouse, or connecting several to create a larger office scape? I LOVE the creativity! Think about it -- in a sense, it is the ultimate way to recycle....

Not Everyone Agrees That Things Are Improving

2011-05-17T21:44:00.000-04:00

Forget the fact that, IMHO, I am seeing things improving here on the ground in Central Ohio, and that various industry publications that examine the commercial/investment real estate market with a careful, independent eye generally concur.

Still, there are those who believe CRE has a long way to come before things are better. True, some markets fared far worse than others and have a longer climb up the ladder out of the well. Las Vegas, southwest Florida, and southern Michigan are three that come to mind immediately. The recovering is coming fast in Lee and Collier Counties in Florida. Las Vegas is showing signs of life. Michigan's recovery will be, like the song, a long and winding road.

Still, this forum -- while a fusion of (mostly) my opinion, industry reports and the thoughts of others -- is not a one-sided place for all things retailMUHindustrialofficelandspecialtyusecommercial. And so I offer some contradicting opinions of the future of commercial/investment real estate.

Reuters News Service is out with several pieces during the past month that that we have a long way to go. True! I would agree that things are not rosy everywhere.

An earlier Reuters piece in February talked of prices growing too high too fast, with lagging rents unable to justify high prices. This I definitely HAVE seen. Unrealistic owners who either "need" or "want" a certain number, and seem unable to see that their income statements don't come close to justifying the asking prices. While those properties still are out there -- and are still available largely due to that gap -- properties coming to market recently seem to be priced with a dose of reality.

CNNMoney was more blunt, but for reasons I am missing someone there doesn't get it. A contributing writer wrote that CRE is still a gamble. DUH!!! HELLO!!! ALL investment, whether in stocks, gold, commodities, or a personal loan to a favorite nephew, is a gamble. Overall the story is not too bad, BUT The headline is so misleading it isn't funny. Keep in mind, also, that CNNMoney rarely writes on commercial/investment real estate, showing its continuing penchant (bias?) for the stock market. There ARE no guarantees with any kind of investment, and the editors overseeing the work of Mr.Kit R. Roane, a contributor to CNNMoney, should know that! So that story really doesn't count. But I included it to show how there are some in positions of influence who, for lack of a better way to say it, have no clue what they are writing about. Or in this case I should note that Mr. Roane's story never uses those words. The misdeed was the fault of the CNNMoney headline writer. Inexcusable......

A piece I tweeted today at @BrentGreerCRE concerned the worry that our nation's infrastructure is becoming so fractured that it is the second part of a "one-two punch" of problems facing the United States commercial/investment real estate market. Maureen McAvey, an executive vice president at Urban Land Institute, stated the obvious, but it is a problem -- we are not keeping up with our infrastructure needs, let alone developing new more efficient modes of transportation, etc. Good points all, which may have an impact on future values down the road, particularly with investment from overseas in the decades to come.

And an accounting rule change may force banks to disclose that they have many more troubled CRE loans on their books. Only time will tell...

The bottom line? Opinions are diverse. Facts are facts, and improvements or declines are trending differently in different parts of the U.S. Sufficed to say, things are improving here and there. Do your homework and learn what is happening. Like anything else, don't just jump into an investment or trade out of one because you "heard" it is a good deal. Overall, CRE is improving. In much of Ohio, things are improving though there are pockets of economic trouble here and there. Central Ohio remained relatively stable, but still saw a slight dip. The old saying that all real estate is local never was more true.

The best investor is the most informed. And that is what CoC strives to do for readers. Inform. Thanks for stopping by.

Letter

2011-05-16T18:18:00.000-04:00

Again, I am humbled.

This time by the words from one of the organizers of the annual Ohio Military Hall of Fame for Valor induction ceremony.

I received this letter today, thanking me for what I did . . .

. . . And all I could think through the ceremony was how humbled I felt in the company of these men who sacrificed their youth in so many different American conflicts. For those we never met, and only heard their citations, we are diminished.

Thank you again, Ted, P.J and everyone on the OMHFV Board for asking me to participate in your very important ceremony.

'Green' Isn't Just About Making A Difference; It Matters To Younger Investors, Business Owners

2011-05-13T15:34:00.003-04:00

Are you one who rolls your eyes when NBC, MSNBC, Univision, CNBC, M-O-U-S-E all put a little green logo at the corner of their screens once a year during their "week focused on environmental issues?"

Eyes then glaze over as news stories or syposiums talk about LEEDs certification and "environmentally responsible" or "green buildings?"

Yep. I know it well. Have seen it often. But if you are an investor/owner who thinks this is so much "hooey," think again. Its not about whether you as an owner believe the hype, or whether you think it is alot of Chicken Little-ish wah-wah. Its about what your tenants, and their customers, and your future tenants believe. AND WANT.

As the old saying goes, "perception is reality." And the base of clients out there for leaseholds isn't getting any older. But as more and more Gen-Xers, Gen-Yers and the like come into more funds, start building businesses and catch the entrepreneur bug, they are increasingly looking for lease space that is "green-friendly." You already knew these generations of future clients -- whether they be tenants next week or buyers next year -- already exploit technology like no one's business. But they are more in touch with -- and advocates for -- green building standards, sustainable community planning, energy efficiency, and the like. They are consumers, whether of electronics, food, or clothing, and they are gravitating toward firms with green policies.

Some statistics from a recent program presented to our Blue Rock Midwest commercial real estate network meeting a few weeks ago:

-- If given the choice between two office spaces in two different buildings, with all other factors being equal (rent per square foot, TI, rent bumps, etc.), the prospective tenant -- by a large margin -- will choose the "green building."

-- Though there are added costs to "green" building design, or retrofitting, above traditional construction methods, "sustainable" buildings routinely demand and get a premium per square foot rate.

-- "Sustainable" building design frequently reduces operating costs. And the one most intangible argument: For a Tenant who wants to "go green," they feel they are a part of something important, and socially responsible.

Again, if you don't buy in to the discussion, that's fine. But your future Tenants want it. Don't take my word for it. News today from New York is that LinkedIn, the world's leading social networking tool for business has decided to lease the entire 25th floor in New York City's Empire State Building. Why? Partly because the owners are completing a "green makeover" of the building that cost $550 million. A popular networking tool utilized worldwide by business people of all ages (but with a demographic that skews young), LinkedIn is only one example. Google is doing the same in Mountain View, Calif. Here in Central Ohio, the brand new Franklin County Courts building was designed from the ground up to be green.

Going "green" attracts business, also. Numerous automobile dealers across the U.S. have installed "windmills" adjacent to their businesses. Whether those wind machines are hooked into the grid remains to be seen. But for younger auto buyers, most of whom are environmentally conscious, the windmill is not just a highly visible landmark to be used to give people directions. There is a subtle "sell" here from the retailer, signalling to the world that the business is a supporter of alternate forms of energy. And for a young car buyer trying to decide where to check out new or used rides, the environmentally conscious tend to lean to businesses they perceive as thinking as they do.

Again, it is entirely irrelevant what you and I think. What is vitally important is what a growing -- and economically powerful -- percentage of Tenants and future investors want. More importantly, "green" is what they are absolutely enthused about and willing to pay for.

A Tale Of Two (MOB) Theories...

2011-05-11T12:47:00.001-04:00

No, this post has nothing to do with Tony Soprano, but the headline probably did intrigue you! I'm talking about MOBs as they apply to CRE. Confused? Okay, enough of the acronyms -- here is the MOB 411 .....

So on the one hand prognosticators are saying there isn't a better time to invest in Medical Office Buildings (MOBs), as the market changes.

Specifically, CCIM Institute reported recently, quoting from a report entitled The Outlook For Healthcare, that demand for medical services in the U.S. will mushroom. That, combined with an aging population, healthcare reform, population growth and advances in medical technology, all will drive demand for modern medical-office buildings in coming years. Specifically, the net result will be an increased demand for new and refurbished MOBs.

Okay, with that said...

Then, the same week comes details from a roundtable discussion at the 2011 Medical Office Buildings & Healthcare Facilities Conference, attended by nearly 700 healthcare real estate executives. The headline from the conference (sponsored by the Building Owners and Managers Association)? Though there is a perception that physicians are rolling in dough and have no trouble paying hefty rents for luxurious medical office space, that is not the reality. Most physicials, in truth, are dealing with declining reimbursements from both Medicare and Medicaid -- making cost containment a priority for both the healthcare community and developers.

So which theory is right? Both actually.

For developers, the focus is now on constructing new properties at different price points, especially out-patient facilities. And be focused on size, speed and spend -- the three S's. For investors, medical office still can be a very smart investment. If purchased right (and I mean by carefully looking at the numbers and making a reasonable offer, NOT stealing it), and most importantly, if managed properly!

Conditions will vary across geographic markets and will be somewhat dependent on local socio-demographics and the eventual evolution of the healthcare market. Generally, MOB have proven to provide reliable cash flow and investment returns, performing well during both good and bad economic times. The only wild card is federal intervention into healthcare, which in actuality is not intervention into healthcare, but an attack on the insurance industry. But that is a post outside the realm of real estate. Except for how the insurance industry's real estate needs are being impacted by these proposed changes. But that is a subject for another day.

Sufficed to say, the properties an evolving healthcare industry will require must evolve themselves to account for continued advances in technology, mergers and acquisitions among hospitals and health systems, and a shift toward employed rather than independent physicians.

If some predictions are correct -- and economist E. Gary Shilling projects that MOB demand will increase some 19 percent by 2019 -- savvy investors, assisted of course by seasoned commercial/investment real estate counselors, will stay ahead of this curve.

2011 Inductees To OMHOF A Reminder

2011-05-09T14:12:00.002-04:00

When I need a jarring reminder that my "bad days" aren't that bad, there are several "places" I can go: the slow death of one of my aunts from brain cancer, the lingering death of my father from congestive heart failure, and so on.

Last Friday, I participated in a event, that I had only watched from a distance before, that adds to the list. The 2011 induction ceremony of the Ohio Military Hall of Fame.

All of these veterans honored last week were lucky to make it home alive, but what distinguishes the Class of 2011 from other service veterans is that they were decorated for Valor. They weren't just "there," but risked their lives for a greater objective.

I was honored to serve as Master of Ceremonies for the 2011 ceremony last Friday at the Ohio Statehouse. Listening to the citations, and pondering those actions described while standing just feet from most of these men or their families, brings it all back home. When I think I am having a bad day, it is nothing compared to the significant sacrifice of their youth, whether it was in one of the world wars, Korea, Vietnam, the Gulf War, or the Global War On Terror.

To the Board of Directors of the OMHOF, thank you for honoring me by asking me to emcee the event. It is a day I will never forget.

And of these honorees, we should never forget how they fought for our freedoms, and the reminder it gives us of the men and women who sacrifice right now (often in anonymity) who are fighting for our freedoms in faraway places even today.

Sister Residential Company Rolls Out Text Marketing Technology

2011-05-05T17:02:00.002-04:00

Prudential One REALTORS is our sister residential company, operating in some 17 counties in southwest Ohio, with a number of offices anchored by a huge presence in Cincinnati and Dayton. In fact, POR is the largest Prudential residential franchise in Ohio.

Anyway, I wanted to comment on a nifty marketing tool they recently rolled out. An "Text To MLS" tool that enables buyers using a smart phone to receive detailed information and photographs about a specific home, and similar homes being offered in the same neigborhood, by simply texting a five-digit number to POR.

Pretty slick.

As my colleague Nancy Cropper says, if you can vote for Dancing With The Stars or American Idol, you can use this service! Gotta love technology.....

VLOG: Life Settlement Notes Help CRE Sellers, Buyers Bridge The Gap

2011-05-05T07:15:00.001-04:00

ASU Study Shows That Commercial Market In Phoenix Rebounding

2011-05-04T07:56:00.000-04:00

Why is it important to note that fundamentals of commercial/investment real estate are coming back in Phoenix, Ariz.?

Because the Phoenix area -- like Las Vegas, like Southwest Florida, and a handful of other areas -- were among the hardest hit by the DROP in housing and commercial property values. So here we have an independent study by a major university noting that commercial property prices in the Phoenix area are "gaining steam."

More good news and yet another piece of the larger puzzle illustrating the market is coming back strong.

Warren Buffet Says CRE Showing Signs Of Strength

2011-05-03T19:38:00.000-04:00

Respected financier/investor Warren Buffet -- who is financing many multifamily acquisitions through a joint venture around the U.S. -- acknowledges that the commercial/investment real estate sector is showing signs of strength.

“There’s been certainly less of a crack in prices than I would have expected,” Buffet said in an interview Sunday in Omaha, Neb., where his Berkshire Hathaway organization is headquartered.

For the full story, click here.

New PREI Report Backs CoC Projection: Economy Improving, CRE Fundamentals Trending Positive

2011-04-30T14:01:00.001-04:00

As I have written in previous posts, and as other prognosticators have indicated as well, things appear to be improving for the commercial/investment real estate market.

And that is good news for investors, tenants, and owner/users alike. Now its not just practioners on the gound saying this. Our sister oranization, Prudential Real Estate Investors, has issued its latest quarterly report on the state of the U.S. real estate market, and it concurs: fundamentals are, indeed, improving.

Here are key points from the Executive Summary:

• With the economy growing at a healthy pace, commercial real estate fundamentals are finally moving in a positive direction in all sectors. Fears of a double-dip recession have mostly abated, although turmoil in the Middle East and the disaster in Japan are reminders that exogenous events are always lurking. Questions remain as to how strong the recovery will be and how long it will take the space markets to fully recover from the recession.

• The momentum should continue in the apartment and hotel segments, which bottomed a year ago, due to increased demand for rental units and rising travel. Fundamentals are just shifting to positive in the office, retail and warehouse sectors. Gains in those property types are bound to be inconsistent based on the market and segment.

• Capital continues to flow to commercial real estate, particularly “prime” assets in “gateway” cities. Acquisition yields in a handful of core markets have been reduced to historically low levels. Transaction activity is up about 50% from a year ago and should reach 2004 levels.

I wrote some weeks ago on these pages about e in the eventsMiddle East and Japan continuing to be a concern, but despite nagging worries about inflation (something that still concerns me greatly as a nation that continues to print money 24 hours and day and buys its own debt cannot escape severe inflation if such activities continue), the ship appears to be back on track -- for now. Better properties, properly priced, are finally coming to market. For Tenants, there still is prime space available, and many choices. Owners can rest assured that should they need to sell, the downslide in value appears to have bottomed out. Further, apart from multi-unit housing, other sectors should be seeing their slide in per square foot lease rates bottoming out as well. Bottom line? Everything is up for negotiation.

Click on the highlighted link in the body of my text above to access a copy of the full report. All in all, it backs up what we are seeing out here at the front lines.

Again, that is good news!

1099 Rule Killed; Value Depressing Leasing Rule Delayed

2011-04-29T13:18:00.002-04:00

Big news just in the past few weeks that affect CRE owners and new investors.

Number 1 -- Congress has delayed an accounting rule change that negatively impacts property owners, both corporations and private individuals. The proposal called for referencing options to purchase or options to lease as liabilities on the balance sheet. Specifically, if you were in the middle of a lease term, and in your contract you have two 5-year renewal options (meaning you have the option to continue another five years, to start), the proposed accounting rules would have required that it be shown as a 10-year liability. For publicly traded corporations, this would negatively impact balance sheets and impact share pricing in the future. For private individuals, it would similarly impact the balance sheet, perhaps lowering credit scores and potentially interfering with an individual's ability to get a loan.

Number 2 -- The Small Business Administration has announced it is expanding its commercial refinancing program, which is a win for struggling business owners.

Number 3 -- Congress has KILLED (okay, we can also say "repealed") a controversial new provision in the controversial health care bill that required anyone spending more than $600 with any one vendor in a calendar year to issue an IR Form 1099 to that person or entity. So if a company or individual buys a new computer for $600 or more, they would be required to issue a 1099 to Egghead, or Amazon, or from whatever or whomever they purchased it. As a colleague asked this afternoon, can you imagine Staples, or Best Buy being covered in a blizzard of paper every week to comply? In our business, it would have been burdensome for owners and their agents, alike. It was government intrusion at its worst, sold as a means to fund the new healthcare program and, allegedly, to battle tax fraus. Congress, thankfully, has killed it.

Things are looking up.

Synergy

2011-04-27T22:58:00.009-04:00

syn·er·gy [sin-er-jee]
noun, plural -gies.
1. combined action or functioning; synergism.
2. the cooperative action of two or more muscles, nerves, or the like.
3. the cooperative action of two or more stimuli or drugs.

The word "synergy," oft used in business circles, comes from the Greek "synerg" or "synergos," which means "working together. The American engineer, inventor and futurist, Buckminster Fuller, coined the word synergy, and defined it as "synthesis plus energy." More simply put, it translates to how the result is greater (usually FAR greater) than the sum of the parts. In agriculture, it is referred to as "heterosis," where a handful of good qualities of two plants, or two animals, are crossed. The result is incredibly superior offspring. My engineer nephew insists that 2+2=5 (for heavy values of 2). In business environments, the same concept expresses how projects or people work together to create an outcome that is of exponentially greater value. Specifically, sphere overlap leads to force multiplication. The more overlap, the greater the factor of multiplication. Hence, 2 x 2 = 20

With that said ......

In 2006, I joined the Prudential Commercial office in Columbus, leaving behind a small local brokerage (high profile in the Ohio State campus area) for one that has one the world's best known brand, and whose reach and influence is international in scope. Not sure if I was making the right decision, still, I have never looked back. The principal broker of the office was Robert White Sr., an accomplished, likeable gentleman who knew the commercial business like the back of his hand.

Bob preached "synergy" all the time. He was convinced -- and he was right -- that the best results come from personnel working in concert with each other, teaming whenever possible, leveraging off each other's skillsets, exploiting individual strengths for a larger goal. Because the team we had assembled and were continuing to grow was a living entity with capabilities no one even knew. For when you put sharp people together, you don't just get a good outcome. The result is great; head and shoulders extending far beyond the individual inputs.

Bob is gone now. I have written about him in past posts, but his enthusiasm for synergy lives on. David Mussari, our company owner and managing broker, was so moved by Bob's focus on "Synergy" that he created an annual award to be presented in his memory to an agent as recognition for accomplishments, teamwork, focus, initiative, blah blah blah.... I say "blah blah" because I don't want to toot the horn too loud.

Because, of all the incredible talent in our company, and the knowledge my fellow agents possess, and throughout our firm, which spans Ohio and Kentucky, I was presented with the Synergy award for 2010 today during our annual Blue Rock Midwest network meeting. A surprise at the end of a very long, very busy, and educational day.

To receive an award created in memory of, and to honor the drive of Mr. Bob White, I am extremely honored. To have been chosen to receive this recognition from among (and in front of) my many accomplished peers, well, it is humbling. But I am a product of that synergy in our office. For as others leverage off of me, I leverage off of them.

Because success in this business, in this economy, is almost always a team effort.

Blue Rock Midwest Network Meeting

2011-04-27T13:52:00.000-04:00

In Dayton today at our annual Blue Rock Midwest regional network meeting. Approximately 40 PCRE agents from Ohio and Kentucky, covering all our offices, convening to share best practices and hear presentations from a number of outside leveraged resources.

Presentations today on life settlements to acquire commercial properties (my personal favorite), green building standards and certification, managing the receivership process, acquiring investment property using self-directed IRAs, new lending programs including SBA requirements, and more.

We also played an unusual game of "Family Feud" on the Wii console, consisting of "Team Rock," "Team Reinvigorate," "Team Retool," and "Team Rethink." No, there was no "Team Resusitate....."

Here is a photo from the morning session.

A more detailed rundown coming soon. Particularly on "Green," "Life Settlements," and "Self-Directed IRAs." Heading back into session.....

Humbled, Honored To Be Asked To Participate In Ohio Military Hall of Fame Induction

2011-04-21T11:14:00.004-04:00

Someone asked me for a favor a couple of weeks ago. And as unusual as this sounds, I am incredibly humbled to have been asked.

In the late 1990s, a group of people got together to recognize Ohio military veterans who have distinguished themselves and been recognized for valor. Specifically, a local recognition. Something lasting. The Ohio Military Hall of Fame was born and its first class of honorees was inducted in 2000.

This year, Friday May 6, will mark the 12th class of inductees into the Hall. I know several members of the Board of Directors of the organization though various relationships, and have been an avid supporter and attendee for a number of years. Plus, my dad was a WW2 medic who served in the Pacific Theatre and saw action on Leyte Gulf and Okinawa. Additionally, I have three nephews who are active duty Army. This organization is important. What it recognizes is important. It means something.....

So by now you are asking, What does that have to do with "the phone call?"

Simply put, I have been asked to emcee this year's ceremony.

If you are in Central Ohio on the 6th around midday, stop by the Ohio Statehouse in downtown Columbus at the Ohio Veterans Plaza (the east lawn/Third Street side in front of the Senate office building). We will be outside, weather permitting. If the weather gets bad, the event will move indoors to the Atrium connecting the Statehouse to the Senate building. Beginning promptly at 11:30 am, and concluding at 12:30 pm, the 2011 class of Honorees will be inducted into the Ohio Military Hall of Fame. When you read the citations, which will be posted to the OMHF website after the ceremony, you will realize it isn't Hollywood. Its real. What they faced was real. This ceremony is a way for them to be recognized by their home state for their actions.

It means something....

To those who thought of me to emcee the 2011 ceremony for the public, thank you. It will be my honor to guide this ceremony for an mere hour in recognition of those who gave so very, very, very much over a period of days, months, years, and even a lifetime.

And to those honorees whom I am yet to meet, thank you for your sacrifice. I am glad Ohio will soon honor your actions and service.

Do You Own Good Debt or Bad Debt?

2011-04-20T06:47:00.000-04:00

Colleague Jon Hanson asked this very question in a book he wrote several years ago entitled (what else) "Good Debt, Bad Debt."

It was a play on titles from the popular investing book "Rich Dad, Poor Dad," penned by entrepreneur Robert Kiyosaki. But it looked at the differences between good debt and bad debt, gave examples of each. Jon wrote a very readable, informative book that taught the concept of how debt can work for you -- and against you.

Blogger The Blonde Trader has created a wonderful visual that demonstrates many of the same ideas. The blog post is titled "Do You Own Good Debt or Bad Debt?" Missing are the anecdotes that give real-life examples to each principal taught, but the concept is the same and well presented.

What is the difference? Good debt is any debt that creates value and/or cash flow. Specifically, the debt that often paid back by others (and not you). An example? An income property. Bad debt? Well that's anything charged on credit that YOU have to pay back. Credit card debt, debts that provide no return, or debts for items that will decrease in value.

I have written on this in the past but I share Kiyosaki's philosophy that your home is not your largest "investment," for if you children are not paying rent for their rooms then it is not an investment. But your home should not a bad debt either. Someone's home is their shelter, their repite from the workaday world.

This graphic representation also spells out just how much debt Americans have under a section titled "Americans Love Their Debt."

Anyway, enjoy and learn. Then pass it on .....

'Failure To Execute' May Be Biggest Reason Why Investors Miss Opportunities

2011-04-19T15:17:00.001-04:00

We are starting to see more opportunities here in Ohio, particularly as investment opportunities come and go rather quickly as buyers choose to pull the trigger when opportunity strikes rather than wait.

As I noted in some earlier posts, better properties -- properly priced -- are now coming to market and are being scooped up. We are seeing listings come to market and go into contract either on the same day or that same week. That is good news. Which leaves those investors who want to sit and analyze for weeks and weeks unable to get into the game. But then that's their choice.

They might say "I lost out on an opportunity." I would suggest that, no, you can't lose something you never had. Good analysis is fine, but "analysis paralysis" will get you nowhere. So will waiting for "the next even better deal" to come along.

Thankfully, it's not just here that improvement is occurring. In southwest Florida, particularly in the Naples-Bonita Springs-Fort Myers corridor, fundamentals are improving also. Good friend and trusted colleague Garren Grup of John R. Wood Realtors notes in conversations we have had the past few weeks that parts of the market there seem to have bottomed out. In case you didnt' know, there is a strong connection between the Midwest USA and SW Florida, as the "snowbird" population in Lee and Collier Counties is heavy with investors from Ohio, Indiana, Michigan, Illinois and Wisconsin.

Garren recently wrote me the following, and it is so worth pondering: "The market here seems to be on a good roll now that season is rolling to an end and many have lost the best deal for failure to execute."

Truer words were never spoken. I am not advocating blindly jumping into the fray. But with wise counsel from a qualified commercial/investment agent, and a solid knowledge of market conditions, when opportunities arise buyers must strike quickly (and smartly) or they will never get in. Particularly now.

Thoughts on a stormy, rainy Ohio day...

More Good News?

2011-04-18T18:36:00.000-04:00

Colleague Garren Grup in Naples, Fla. clued me into a news story in USA Today that I missed, which notes that the recovery in commercial/investment real estate appears to be exceeding projections. We can only hope.

From the news story: "Lenders were still saddled with $181 billion in distressed loans in February, according to Real Capital Analytics. But that's down from $188 billion in September. Mortgage defaults for office, retail, and industrial building loans dipped for the first time since 2005 in the fourth quarter, to 4.28 percent from 4.36 percent. They should fall further this year says RCA Economist Sam Chandan. "Worst-case scenarios have been avoided," he says."

Further, investors are clamoring to scoop up well-leased office buildings in large markets like New York City and Washington DC. The reason? Virtually no new development in the past few years, creating a dearth of high-quality inventory.

The full USA Today story may be read by clicking here.

The hope is that rising prices will temper additional foreclosures on the $1.4 trillion in commercial mortgage that some financial houses say are maturing by 2013.

Springtime In Central Ohio (And Then and Now...)

2011-04-17T13:01:00.000-04:00

Spring . . . When a young man's fancy turns to thoughts of love, or something like that, so the saying goes. The only this this young man knows is that allergy season is already in high gear. A snowy, wet winter, and a wet, moderate spring with few late freezes are guaranteeing a colorful Spring and early Summer. And with it . . . a disaster for we Spring allergy sufferers. Plus, yours truly downing a lot of allergy meds. A really rough time a little over a week ago, with lots of over-the-counter allergy solutions being tried in an attempt just to make it through eachday. Maybe too many. The jury is out on that one... Anyway, for a break from business I thought I would post some photos I shot in the past week. But I lead-off with off with one I shot on the evening of February 1, as a few colleagues and I worked late painting trim and walls at our new office prior to the move. A raging ice storm as we left that evening. Around a 3/4 inch coating on roads, ground and trees overnight, and someone of the strangest sounds as trees dropped limbs onto rooftops through the night hours. The same shot from two days ago is immediately below it. Wow, what a difference a little over two months makes....

Pssssttt!!! Wanna Buy The Empire State Building?

2011-04-14T15:20:00.000-04:00

Have we got a deal for you! Want to own the Empire State Building? Or part of it....? Details are uncomfirmed at this time, but word on the street in The Big Apple is that the owners of the iconic tower may launch an initial public offering of their holdings, according to the New York Times. The Malkin family did not comment on the story, but they have spent millions on upgrades to the Empire State Building. Other buildings may be involved in the offering, including 1 Grand Central, and six buildings in Westchester County and Connecticut. The full NYT story is here.

International Investors Invade U.S.

2011-04-13T20:31:00.000-04:00

They're coming! They're coming! Okay, let me back up for a minute. I receive emails every now and then, or even phone calls from CoC readers who will say, "Hey Brent, you're out there saying things are rosy, jump in. Of course you would say that, you're an agent." First, yes indeed I am a licensed real estate agent in the State of Ohio, USA. Now, with that said, I haven't said things are rosy. I have said that things appear to be improving. And if you look back at a lot of my earlier posts, I said I was not nearly as optimistic as many of my colleagues in the industry. In fact I was downright pessimistic. Then I became (gasp) cautiously optimistic. I am still in that category but continue to see improvements not just in fundamental indicators, but real life activity in my market here in Central Ohio, and in some other markets I follow closely. But then remember, the health of all real estate -- whether commercial/investment or residential -- is driven, in part, by location, location LOCATION. Central Ohio fared better than many markets because it is more diversified economically, and is not a resort area that saw a steep run-up of unsustainable increases in prices over a decade or less. So with that said, WHO is coming? International investors, that's who. So don't take my word for it that things are improving. Take a look at new stats from various organizations that track that sort of thing. Here are just a few nuggets: 1) Foreign investors purchased approximately $41 billion worth of residential property in 2010, according to the National Association of Realtors. That represents about 4 percent of the market. The NAR also reports that sales to international investors were reported in 39 states. And about 28 percent of Realtors told the NAR that they have at least one international client (for disclosure purposes, I several myself). 2) Investors from China, the United Kingdom and France are taking an increased interest in U.S real estate. Canadians continue to be active. 3) And the one I love is this: European pension funds are expected to double their investment in American real estate this year to $1 billion. Why? Because the U.S. is still viewed as a safe place to park your money. Here are few other reasons why our shores are being invaded by foreign capital: -- The continued weakening of the U.S. dollar -- Residential real estate continues to be flat, and commercial/investment is only barely starting to improve. -- Unrest in the Middle East and Northern Africa. -- The European debt crisis. -- Even nuclear concerns in Japan ... And here are some reasons why U.S. investors are finally waking up. There has been a dearth of decent properties on the market for some time. And those few out there were (and in some cases still are) way overpriced. And as it is only a matter of time before higher inflation makes its way into official U.S. figures, commercial/investment real estate -- as always -- will once again provide a decent hedge against inflation. Plus, those "decent" properties are either properly priced (finally) or are in distress and can be picked up at a significant discount, creating strong upside opportunities once they are stabilized and the economy gets back on track. According to National Real Estate Investor magazine, contributing columnist Victor Calanog writes that (as I have written on this blog in months past) food prices are spiking and the price of oil was inching upward even before the latest unrest in the Middle East sparked shortage fears. Even Wal-Mart CEO Bill Simon is warning that "inflation is going to be serious." But market watchers, which include myself, are thinking that 2011 will be a robust year. I am in that cautiously optimistic category, but then keep in mind that CRE volume was off some 90 percent in 2010 when compared to 2009. A 90 percent drop in volume! Assets returning 10 or 11 percent clearly represent a good hedge against inflation. The trick to all of this will be to find quality assets -- the kind that offer significant income and solid rates of return. All things that your handy real estate investment counselor can help with. If you need help finding one, please drop me a line and I would be happy to introduce you to reputable commercial/investment specialists in most parts of the U.S. Your next logical question SHOULD be, "But Brent, could there be trouble ahead?" Sure there could. Clearly another hiccup in the economy could stall what appears to be movement toward a commercial/investment real estate recovery. If there is a double-dip problem with housing, CRE may be affected. But right now they are going in two different directions, as housing prices and sales totals still are falling while CRE values and volume is ticking upward. The real problem will be if banks sit on housing inventory, it may take years to clear -- just as it did following the Great Depression of the early-mid 20th century. There are some estimates that approximately two million more homes are slated for default in the next two years. So prices, or better said, "values," will most likely continue to fall. Thankfully, there are differences that have allowed the fates of residential and commercial real estate to diverge, causing them to travel in different paths. Specifically households suffer psychological scars from the residential bust, and there is limited access to capital. Commercial, on the other hand, has suffered from lack of access to capital and some increases in vacancies as the economy tanked. But capital is roaring back now, at least via private investors, REITs, and pension funds -- even as traditional lenders such as banks have not yet woken up. The CRE correction, according to Kevin White, a real estate strategist with CoStar Group has largely run its course because it was less inhibited. Translation from your author tonight: Government intruded less harshly on the commercial/investment real estate market than it did on the housing market. What's more, in many parts of the U.S. commercial real estate did not suffer the amount of "overbuilding" that took place in the residential sector. Therefore, while there are vacancies and things have been slow, there is less product available to fill when compared with housing that never got filled, that which has been foreclosed on and is sitting vacant, and those homeowners in serious financial straits who are watching the clock and their mailboxes, waiting for the other shoe to drop. All of which creates incredible buying opportunities. So again as I stated at the top of this post -- don't take my word for it that real estate, whether commercial or residential, is a value right now. Overseas buyers are flooding our shores with cash, looking for bargains because this is probably the safest place on the planet to park their money. American investors are waking up to this slowly but surely. Clearly, most Americans invested in 401(k)s, pensions and and other institutional investment vehicles probably don't even realize that part of the portfolio they may well be in is in real estate. And the percentage of those portfolios in such investment vehicles is growing. But Europeans, Chinese and others don't need to see what U.S. pension funds are doing to help them make up their minds. They are looking strictly at investment opportunities and are not jaded by gloom and doom news reports each night on American newscasts. My two cents .... (long-winded though it was).

Apologies But Blogger Giving Users Fits

2011-04-11T20:43:00.000-04:00

As you may have noticed, recently my blog posts have no breaks between paragraphs. Most Blogger/Blogspot users (the platform I use for the CoC blog) are reporting similar problems, particularly if blogs are viewed in Internet Explorer. Blogger still has not resolved the issue. I apologize for any difficulty you may be having in reading the material here. For what it's worth, it's no picnic for me either and I am hopeful the problem will be resolved soon . . . BUT it has been going on since late last month.

How Safe Is Your Roth IRA?

2011-04-11T19:48:00.000-04:00

Self-directed IRAs are a tremendous vehicle through which to invest in commercial/investment real estate. Roth IRAs differ from traditional IRAs in that your contribution to the account has already been taxed. But however much it grows over time, what you take out you can enjoy tax free. At least for now. Because . . . a writer for the Los Angeles Times questions why Roth IRAs are not being examined as a source of revenue for a cash-starved government beast (okay, those are my words). Actually, our government treaury is not cash starved; its just that politicians from both sides of the aisle routinely spend more than the government takes in. And it can't continue. I am in favor of cutting spending, AND cutting taxes, for the latter stimulates money flow into the treasury. Kennedy knew it. Reagan knew it. But I digress . . . Be aware that with the current administration in Washington, EVERYTHING is being reviewed to see if more money can be squeezed from it to fund the federal government. Or in the case of the Roth IRA, whether the rules might be changed some day down the road. Mr. Scorcese, the Times writer, posits the following: "Roths drive up the federal deficit and cause other pain. They're great for holders but grim for America. Its time to retire them." He calls Roths "fiscal Frankensteins," because Wow. I'm not sure what economics class this individual has attended, if any. I respectfully disagree with his position . No, strike that. I overwhelmingly disagree, particularly since Roth IRAs do NOTHING to drive up the deficit. Spendthrift lawmakers drive up the deficit. Again, money coming into a Roth has already been taxed. I will give this to members of Congress in 1997 -- the government did one good thing when it created the Roth IRA. It created a system that actually -- for the first time in decades -- prompted Americans to save. Because they don't. And when they run through savings they buy on credit. Which can, for some, cause increased reliance on entitlements at retirement time. Megan McArdle, writing at The Atlantic magazine, and I are of the same mind. This blatant suggestion to "take" something from those who have worked and scrimped and saved and carefully selected the appropriate investment vehicle for their needs somehow "offends" those who would rather spend what they have now and worry later about how they will live. For Congress, it is far "easier" to penalize (increase taxes) on those who saved for their future, rather than penalize (cut benefits) to those who did not plan for their future. Three guesses which one they will attempt first. Keep an eye on this issue. I am convinced it may become a big discussion point in the time before the next presidential election, though the trend in the U.S. House of Representatives right now is about cutting spending. Even "working people" (I am one of those, for I work 60+ hour weeks) have IRAs and 401(k)s, and I believe it could turn into an ugly issue if the matter is pressed very hard. Nevertheless, the Roth IRA is STILL an outstanding vehicle through which to purchase investment grade real estate. The bottom line: Don't stop saving -- or investing.