Best Wishes For A Happy New Year

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?

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

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.

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

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

"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

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

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 .....

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 . . .

. . . 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 . . .

No matter whose name is on the deed . . .

Some More 'Interesting" Properties For Sale

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

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

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

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

-- Unknown

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

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

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

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

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 . . .

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

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

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 . . .

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

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

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

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

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

"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

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

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

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

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.

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!

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

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!