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!