Friday, July 29, 2011

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.

Wednesday, July 27, 2011

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.

Tuesday, July 26, 2011

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!

Wednesday, July 20, 2011

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

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).


Tuesday, July 19, 2011

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

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?

Sunday, July 17, 2011

Senior Housing Market Turns Corner

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.

Wednesday, July 6, 2011

Evaluating Hotels For Investment In A Surging Hospitality Market

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.

Tuesday, July 5, 2011

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

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!

Monday, July 4, 2011

Happy Independence Day

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.