Exciting Developments Coming ...

Some exciting news regarding Commercial Real Estate News and opinion coming soon, linked with these pages. Within 30 days myself and another will be rolling out an online forum for CRE news and opinion, discussion, best practices, and more.

Stay tuned for details!

'Nuff Said

I Don't Believe This, But . . .

. . . it still makes for a hilarious, if not downright boneheaded, attempt for added value in an investment property.

I'm all about installing storage units for multifamily residents, as well as coin-operated washers and dryers. Even renting out the vacant lot at the property perimeter to seasonal entrepreneurs selling Christmas trees. Added value year 'round should be the name of the game.

But this announcement that a landlord plans to charge extra for his tenants if they want to use the elevator? THAT takes the cake, not that I believe the story.

If it's true, however, this owner is a lunatic and deserves the award for biggest d**k of the year. All balls, no brain.

Sheesh.

Just Sayin . . .

Buckeyes Rock! Just sayin . . .

Less Than One Week To Kickoff 2014

The Race To Eight . . .

Last season, the Ohio State Buckeyes were the only undefeated, yet unranked, Division 1 football team in the U.S.

This year it's different.

Go Bucks!

Lenders Are Back In The Market!

Lenders are back in the CRE market in a big way.

So much so, that in projects where our office had to search some 20 or so lenders two years ago to get a deal done, today we have them battling each other for our investors' large acquisitions.

How bad do they want to differentiate themselves? A fellow agent heard from two lenders that did not get a particular deal in our office, asking via email "what could we have done differently to have been chosen by your buyer?"

Wow.

Chrome Divas To Hold Event for Stephanie Spielman Fund For Breast Cancer Research

Not commercial real estate related, but an incredibly important cause to mention.

The Columbus chapter of Chrome Divas, a national group of charitable-minded motorcycle-riding women, are holding their annual "Rockers For Knockers" fundraiser to benefit the Stephanie Spielman Fund For Breast Cancer Research.

The event, in partnership with The Blitz, 99.7 FM WRKZ, takes place August 10 at Screamin' Willies in Columbus. Eight bands are scheduled to play during the fundraiser, which runs from 3 pm on the 10th, to 2:30 am Sunday, August 11.

A rockin' event for a very important cause. Hope you can come out, and/or support the fight against breast cancer. For tickets, go to:  www.columbuschromedivas.ticketbud.com.

I Like 'Em Raised N Glazed, But . . .

This Central Ohio boy prefers his donuts like many southerners -- raised n glazed.

Raised in this area, the home of the Max & Erma's "Garbage Burger," the Thurman Cafe's "Thurman Burger," and the birthplace of Wendy's, which gave us "Hot & Juicy" burgers going way back to the 1970s, gives me a unique aspect on burger quality.

But I have to draw the line on a Krispy Kreme Burger, which is now available at the currently running Ohio State Fair. Bogey & Bacall, Country & Western, Rhythm & Blues, Bacon & Eggs . . . yeah they go together well.

But a huge dripping burger sandwiched between two Krispy Kreme glazed donuts? Nope. Even I have my limits . . .

Prudential Co-Parent, Brookfield, Completes Fundraising for $4.4B Global Real Estate Fund

CRE Powerhouse Brookfield Asset Management, which, with Berkshire Hathaway, owns HSF Affiliates LLC, operator of Prudential Real Estate, announced it has completed fundraising for a $4.4 billion global real-estate fund, one of the biggest property funds raised since the economic crisis.

It marks a new direction for the giant asset manager, according to The Wall Street Journal.

The fund's amount was well ahead of the firm's official target of $3.5 billion, and even ahead of the Brookfield's internal goal of reaching $4 billion, fund officials said. The fund looks to buy individual buildings and property-related companies, primarily in the U.S. and Western Europe. Fund officials say they also invest in Canada and Brazil and other markets, and have made significant investments in Australia. The new global fund already has invested about $1.1 billion, including paying about £210 million ($322.6 million) in June to acquire EZW Gazeley, a U.K.-based logistics firm with industrial properties throughout Western Europe. The fund also invested about $500 million last year to acquire Australia's Thakral Holdings Group, which owns hotels, office-development rights and other real estate in that country.

Things are looking up. I'm proud to be associated with two such influential companies as Brookfield Asset Management and Berkshire Hathaway.

Disclose Disclose Disclose

While the headline for this post could easily be "DUH," the content is as current today as it was a decade ago.

If you're pursuing a CRE transaction, disclose any known financial issues up front. Yes, there are lenders that will put your various body parts through the proverbial ringer. But knowing any "defects" in a financial statement upfront will go a LONG way toward moving a transaction along.  I routinely counsel my buyers looking at investment properties on this very subject. Often asking some hard questions. And I'm not talking about the individual or two-doc LLC looking to buy a small building. Financial "issues" during the Great Recession have impacted buyers at all levels.

Steve Bram of George Smith Partners reiterates this common sense theme in a bylined article appearing at GlobeSt.com this week. Now, I do take exception to his saying we are out of the Recession. But that's my personal professional opinion. Nevertheless, the main theme is right on!

His bottom line? Like mine. Disclose everything to potential lenders. Surprises freak them out.

Equity Investors Pouring Millions Into Single Family Homes

More and more evidence is piling up that a big chunk of the single family housing resurgence is due to institutional investors of a sort. Which is creating a paradox – many private owners-to-be who rely on conventional mortgages are being crowded out of the market by big buyers with buckets of cash.

To name but a few:

n  Title Capital Management is helping big investors scout, buy and manage homes in Florida. The company has plowed more than $100 million into residential real estate for investors in the past year, and is on course to spend $250 million to buy an additional 2,000 homes in 2013, according to the Washington Post. The firm bids on about 200 houses a day, making it one of the largest players in Florida that help hedge funds and other Wall Street firm buy distressed properties.

n  Who are those firms? Private equity groups like Blackstone, which in the past year has amassed a portfolio of 20,000 rental homes worth $3 billion. Another, American Homes 4 Rent, owned by warehouse magnate B. Wayne Hughes, has purchased approximately 10,000 rental properties, according to news reports.

n  Delavaco Residential Property Trust in Fort Lauderdale says it is scooping up many homes for $60,000 to $70,000 – a fraction of the building costs. After some repairs, the company rents them out for as much as $1,700 per month.

Delavaco co-founder Dallas Wharton says investors are propping up the market, and asks where the bottom would be in neighborhoods. The alternative, he says, is that they “sit there and rot.” Others disagree, saying well monied investors are crowding out those families who want a chance at the American Dream – home ownership.

“Investors are making it hard for a regular homeowner to buy a property,” says Robert Ruscotto, a broker with Better Homes and Gardens Real Estate in Fort Lauderdale. “They are getting outbid by people with cash.” He notes that out of some 20 home sale contracts he has in process, 17 of the buyers are major investors.

Before the housing crash, big investors almost never wanted single family homes, largely because of slow returns and the money-draining hassle of managing tenants in often far-flung properties. But with prices still depressed and with low interest rates and high stock prices limiting prospective returns elsewhere, major investors see the prospect of healthy profits in single family homes.

Time will tell whether this is a good thing…..

SMH ....

Shaking by my head this morning ....

1) Broker (hereafter referred to as Broker 1) at local residential agency that made a big deal when it opened its doors a couple years back, announces it is winding down. Too much growth too fast, and difficulty making it a profitable company while the economy is off. He doesn't like flagship's marketing plans looking forward. Complains that flagship company, hereafter referred to as The Mother Ship, with whom he is aligned isn't being helpful. His issues with the flagship, he claims, make it impossible for him to sell his brokerage, or transfer it.

2) My broker, Broker 2, informed by this author that our statewide residential sister company might be able to pick up new agents, reaches out to Broker 1.

3) Broker 2 helps Broker 1 resolve the issue with The Mother Ship.  An understanding is quickly agreed to that Broker 1 will recommend Broker 2's highly successful, statewide operation to his agents.

4) Broker 1, once unencumbered from his obligations to The Mother Ship, more or less ignores the gentleman's agreement, and recommends his agents transfer en masse, if they want, to a third brokerage that wants to enter the Central Ohio marketplace in a big way. 

No good deed goes unpunished.

Finance Propels CRE Recovery

U.S. commercial real estate markets continue to recover, with transaction volume building modestly into 2013, according to CRE news service GlobeSt.com.

Pushing the recovery, somewhat, is the return of the lenders. The Fed has stated interest rates will remain low into 2014. Institutional funds will continue to be allocated for commercial real estate in the form of preferred equity and mezzanine loans. This, coupled with ample, low-cost debt, will drive increased transactional volume.

Read the full story here.

When A Golf Course Isn't Always A Golf Course

A friend of mine, who also is a a long-time investor in commercial real estate, asked me the other day whether I might have any buyers for a golf course he owns in Indiana.

My reply was somthing along the lines of, "I'd really like to sell the fraternity house you own for you! I have people lined up who would love to own that kind of asset."

"I'll bet you do," was his reply, adding that it's not for sale. I swear, the man practically stands by the mailbox once a month waiting on the USPS driver to drop off THAT rent check, so strong is this particular property. But I'm getting away from the topic -- golf courses.

Pete told me there is a trend in the Midwest, and he has seen it in Indiana, that has high-priced golf courses -- many of which previously were farms -- being purchased by farmers and taken back into grain production. Specifically, in a down economy like we have today, not as many people are out hitting the little white ball. I knew this development had been proposed, but I hadn't followed it.

It's true. Over the objections of many, particularly homeowners who built half million dollar houses lining various fairways, golf courses in Illinois, Iowa and Indiana have been plowed under. The golf courses aren't making money, but there is demand for prime farmland (as Will Rogers famously stated, "they aren't making any more of it"), largely driven by spikes in corn futures as a world focused on ethanol from grain continues its juggernaut.

Of course, the moral issue (i.e. unintended consequences) is that the spike in corn prices worldwide has put affordable cornmeal for peoples in third world countries out of reach. Now, the raw materials for tortillas, et al are stupid expensive. But that's a post, a very long post, for another day.

Executive homes overlooking this green, or that fairway, now are worth often times half their earlier value. All because the highest and best use for the land along which they were built is -- a corn or soybean field.

Pete's golf course? It was built in the 1920s as a private country club. He took it public when he purchased it many years ago. Rolling hills, trees -- not the topography best suited for farming. So his golf course is likely to remain a golf course. Too bad. Not a lot of call for golf courses these days unless you can grow 122 bushels of corn an acre off it.

What Renters Want

As if how to increase NOI isn’t enough, believe it or not the more aggressive owners of multi-family investment properties continually wrestle with the ever-present question: “What Renters Want.”

Because it can have implications for how to increase NOI (Net Operating Income).

Better titled, “Are You Sick of These Five Apartment Designs?,” trends constantly come and go. Some attract higher paying residents. Others . . . well, not so much.  Several elements are growing in use in today’s apartment communities. If owners don’t feature them in their community, then, good luck attracting new lessees. New residents want the latest whiz-bang. You want new and better residents.

Here is the Top 5 List, according to MHNblog, and my take on each:

-        Stainless Steel Appliances:  They are all the rage and have been for several years. They make kitchens look more professional. Reasons for them to go? All the “chef” shows on cable have residents thinking they want professional-grade kitchens. Everyone wants to be Anthony, or Giada. Likely to stay? Yes. They are striking, and stainless is gender neutral, appealing to all kinds of residents.

-        Granite Countertops: Preeeetttttyyyyy!!!  They look more expensive than other types of countertops (because they are), and they come in various colors. Reasons for them to go? Please refer to earlier “expensive” reference. Have I mentioned they are uber-heavy! There are less costly alternatives, laminates among them, that look like granite. Likely to stay? Yes, but popularity is waning due to cost. AND, its not a deal-breaker for most new residents.

-        Hardwood Flooring:  Way to make an apartment look classy! While few want to beat a rug and most “dustbust” or mop or vacuum. Wood is classic, color neutral and goes with pretty much every décor. Reasons to go? Have you ever had to sit for a long time on hardwood? Not comfortable, and running around with socks doesn’t create enough static to shock a significant other, roommate or annoying sibling. Then there is the cost of hardwood. And there are cheaper laminates that mimic the look. Likely to stay? Yep! If you’ve got ‘em, FLAUNT ‘EM! If building new and can afford it, go for it.

-        Paint:  It’s simple. It’s cheap. Dirty walls? Paint over them simply and cheaply. See the pattern? Reasons to go? Neutral colors are drab. Bright colors can look gaudy.  Bring back wallpaper? Ooohhh… that's a subject for another day. Likely to stay? For rentals, neutral paint will stay. It appeals to every caliber of resident.  Mix with wall decals featuring catchy, impressive sayings to appeal to the intellectual, or folksy (depending on the audience) set. Your mileage may vary.

-        Open Floor Plans:  Doggone those high-profile cooking shows! Everyone fancies themselves a Gordon Ramsey, Paula Dean or Swedish Chef. Entertaining is popular and now EVERYONE wants to be in the kitchen! Reasons to go? Not many, when you think about it. Open floor plans open up small apartment spaces and enable people to watch TV from their living room while they’re slaving over their stainless steel stove whipping up a delightful crème brulee to go with their mac-n-cheese.  Likely to stay? Duh! Here for the duration.

Financial Advisers Becoming Bullish On CRE

Well, DUH!!

Oops, perhaps I should use "business-speak" to comment on the following. Here's the news:

According to the National Association of Real Estate Investment Trusts, investing in commercial real estate turned out to be a profitable move in 2012, and financial advisers see promising opportunities in 2013 as the broad economy continues to recover.

 

American Realty Capital Properties and Cole Real Estate Investments have enjoyed recent successes in the nontraded REIT space by focusing on triple-net-lease REITs. Other promising areas for investment include multifamily, local shopping centers with grocery store anchors and opportunities to invest in mortgages.

 

Definitely an intuitive observation on the part of NAREIT! (proper business-speak).

 

Yeah, no **** Sherlock! (in-the-trenches daily CRE practitioner speak).

 

 

SURPRISE: Accounting Rule Proposal Rankling Europeans Too!

Much to my surprise last week, I came across an article from the Financial Times indicating that European business people are very concerned about proposed accounting rules changes -- changes I first warned about back in 2010 when it was first proposed.

Imagine my surprise! From multiple disciplines -- financial planners to corporate accounting specialists and commercial real estate/investment advisers, such as myself -- experts are roundly criticizing the proposed changes.

Why am I shocked? Because in the U.S. this proposal has been universally promoted as bringing the U.S. into line with the way European accounting works. Only the Europeans are asking why this proposal is being foisted upon them.

Huh?

At issue is an entirely different way of looking at corporate liabilities, under the flimsy guise of protecting investors. The proposal purports to make transparent corporate liabilities, in order for investors to be able to make better decisions on whether they wish to invest in any given publicly held corporation. The impact on corporate real estate, both for owners, and for lessees (particularly publicly held companies) is significant. The most onerous of the requirements states that "options" to renew a lease must be shown as a current liability on the balance sheet (actually this applies to privately held firms also). EVEN IF THE OPTION ISN'T EXERCISED, the stated future rent costs are to be shown as a liability now. Which makes absolutely no sense to even the most accounting illerate folks you explain it to!

I have written on this subject numerous times over the past two years. It made no sense then. It makes even less sense now, considering that the powers that be promoting the change -- the Financial Accounting Standards Board here in the U.S., and the International Accounting Standards Board -- have been, I believe, less than truthful about the needs for these changes.

Now, in a letter to the IASB, the UK's Financial Reporting Council and the Accounting Standards Committee of Germany say they fear problems with the new approach, though their concern is that corporations will abuse the new system somehow. From France, the accounting stand setting body there, the ANC, is also critical of the current reform.

Our British "cousins" use the word "scheme" to refer to a plan. In the U.S. the word technically is definied similarly, but in common use has a more nefarious meaning, more akin to a secret undertaking with the intent to defraud.

With that said, IMHO, knowing now that Europe doesn't like it any more than I do, I would suggest that this scheme to push for worldwide accounting rule changes is bureaucreatic nonsense with seriously doubtful progress for anyone. Opposition to these changes is going to cause significant changes in leasing. I would not be recommending lease options to renew. And this will also cause a stagnation in growth of property values. Values today are often not only based on schedule income, but also the rent bumps and renewal options in place.

So why do this? I'm no conspiracy-type. But except for bureaucrats and others looking to make the system more byzantine, therefore guaranteeing consulting work -- or government jobs -- for life to the watchers, I see no benefit. The argument about "transparency" wore out its welcome a long time ago.

Quality Properties Commanding Solid Prices

Rolling "low-balls" at sellers may have been an effective approach between 2008 and early 2011. But in 2012’s environment – at least in rebounding markets – it was counterproductive if you truly wanted to buy.

Today, in most cases, if you trip across a quality investment grade property that someone has decided to sell, you won't get it for dimes on the dollar. Particularly in the multifamily housing sector and geographical areas that have remained strong economically.

I have numerous high-dollar buyers and we cannot find the quality they demand for the dollars they want to spend. What is available often is either overpriced or has so much deferred maintenance that the purchase cost and the cost to upgrade create a scenario where the property doesn't make any sense.

The quality is out there. The buyers are out there. I have never been afraid to aggressively go after a property on pricing, but the "steals" are mostly gone unless you are going after $15,000 single family rental dumps and can still talk owners into giving it to you for $1,200 or so, assuming they are so hard up they have no other choice.