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?