Features

By Michael P. Guerriero, Esq. The build-to-suit transaction is a modern phenomenon, birthed by national retailers unconcerned with the resale value of their properties. Rather than simply redevelop existing buildings to suit their needs, the build-to-suit model calls for the development and construction of new buildings that match the trade dress of other stores in a national chain. Think CVS pharmacy, Walgreens and the like. National retailers are willing to pay a premium above market value to establish stores at the precise locations they target. In a typical build-to-suit, a developer assembles land to acquire the desired site, demolishes existing structures and constructs a building that conforms to the national prototype store design of the ultimate lessee, such as a CVS. In exchange, the lessee signs a long-term lease with a rental rate structured to reimburse the developer for his land and construction costs, plus a profit. In these cases, the long-term lease is like a mortgage. The developer is like a lender whose risk is based upon the retailer’s ability to meet its lease obligations. Such cookie-cutter transactions are the preferred financing arrangement in the national retail market. So, how exactly does an assessor value a national build-to-suit property …

Alan Chosed New accounting regulations may soon be enacted that could significantly impact commercial real estate businesses and professionals. Revenue recognition, fair value accounting and disclosure, receivables accounting and disclosures, and goodwill testing could be affected. But the biggest impact will come from the new joint Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) project on leasing. A number of accounting pronouncements implemented during the past 8 or 9 years have been a result of Enron and other corporate scandals, or the intended convergence of U.S. and international accounting standards. The leasing project is both. Existing leasing rules have been criticized for omitting relevant information about rights, and, more importantly, obligations that may meet the criteria to be recorded as assets and liabilities. These new rules will cause these assets and liabilities to be recorded by the lessee in most situations. No shortage of opinions An exposure draft on the new rules issued in August 2010 received so many comments that it was withdrawn for changes and will be reintroduced. The FASB and IASB have had numerous meetings since the release of the exposure draft and have reached certain “tentative decisions” that significantly changed the rules as …

Jack Halpern In this challenging time for shopping center owners, what steps are they taking to increase efficiencies? Here are five tips that have worked for us in our business that may be of help: 1. Review your retail center’s property tax valuation every year: We have found that valuations sometimes don’t match reality. And since your tenants usually pay a pro-rata share of taxes owed, they will greatly appreciate you conducting this review. At two of our Georgia retail centers this past year, we were able to have the property tax valuations reduced by 10 percent and 12 percent, respectively, and these savings were very significant for each center’s bottom line. Consider using tax professionals who are paid as a percentage of tax savings they find for you. We have had good success with this approach, and have been able to pass the fees along to the tenants on a pro-rata basis. Use consultants who are familiar with such factors as the value of other properties in the area, the value of comparable properties in other parts of town, the impact of vacancies and rent concessions on value, and recent sales prices for comparable properties. 2. Consider using local …

Atlanta, GA — In its inaugural forecast of the commercial/multifamily real estate finance markets, the Mortgage Bankers Association (MBA) projects originations of commercial and multifamily mortgages will hit $230 billion in 2012, an increase of 17 percent from 2011 volumes, and continue to rise to $290 billion in 2015. Commercial/multifamily mortgage debt outstanding is expected to also grow in 2012, ending the year above $2.4 trillion, two percent higher than at the end of 2011. By the end of 2015, mortgage debt outstanding is forecast to exceed $2.5 trillion. MBA previewed its forecast of the commercial/multifamily markets today at its Commercial Real Estate/Multifamily Housing Convention in Atlanta. “Our forecast anticipates continued strength in lending by life companies and the GSEs, increased lending by banks and others, and a slow but steady return in CMBS activity,” said Jamie Woodwell, MBA's vice president of commercial real estate research. “Low loan maturity volumes over the next few years, coupled with moderate sales transaction activity, will mean that a relatively robust supply of mortgage capital will be a catalyst for deal activity.” Commercial/multifamily mortgage bankers' originations volumes are projected to rise to $230 billion in 2012, $245 billion in 2013, $265 billion in 2014 …

A newly released report from Axiometrics Inc. shows that during the last three months of 2011, national effective rental rates for the apartment sector declined by 1.05 percent. This compares to a decline of just 0.59 percent over the same period in 2010. However, because effective rents had grown so much during the previous eight months of 2011, and because units at the upper end of the market are nearing capacity, pricing power for apartment owners remains strong. Consequently, rents should continue their upward trajectory nationally in 2012, the Dallas-based apartment data provider predicts. Axiometrics, which measures the performance of the apartment sector every month by surveying more than 18,000 properties and 4.8 million units, projects effective rent growth in 2012 to reach 5.50 percent. “The apartment market’s strength is being driven by demand from modest job growth, strong renter household formation, and low supply,” said Ron Johnsey, president of Axiometrics Inc., in a news release. “These factors will make 2012 a strong year, better than both 2010 and 2011, at least from the owner and landlord perspective,” continued Johnsey. “Residents in most markets will begin to move more to control their housing costs, such that people in Class A …

Chris Barnet During the last 45 years, there have been a number of regulations and laws that have dramatically affected the commercial real estate industry, and will continue to do so, both nationally and in Texas. With the passage of the Medicare Act on July 1, 1966, which guaranteed government-sponsored healthcare coverage for all citizens age 65 and older, healthcare employment increased 331 percent more than the national employment with an estimated 19 million people becoming Medicare beneficiaries. This significant increase in healthcare employment equated to more than 1 million healthcare jobs in clinics, hospitals, nursing facilities, etc., thereby increasing the demand for medical office space. A game-changer In 1989, as part of the Omnibus Budget Reconciliation Act, the Stark Law was passed. This law has forever altered the relationship between doctors and hospitals by, amongst other things, prohibiting doctors from making referrals to facilities in which the doctors have a financial interest. The Stark Law had a profound impact on the commercial real estate industry since the act made it no longer possible for a doctor to receive a below-market lease rate when occupying hospital-owned space, in return for which the doctor would make service referrals to the hospital. …

Ann Hambly From January 2009 through 2010, the CMBS default curve resembled a steep climb up Mount Everest with an approximate 90-degree incline. The default rate reached a peak of more than 12 percent of all outstanding CMBS debt — or over $80 billion — before starting a slight decline during the middle of 2011. Amid the slight ebb in loan defaults, there was widespread speculation in the industry that maybe all the defaults were behind us and that this was a sign of a gradual recovery. As it turns out, that perception was actually an illusion. Throughout 2009 and 2010, CMBS defaults were increasing at a fast and furious pace with virtually no resolutions or recoveries. The reason there were no resolutions is that no one knew when real estate values would increase again. The majority of people took the wait-and-see approach, including most special servicers. We referred to this hesitation in the CMBS industry as a period of “kicking the can further down the road” or “delay and pray.” When it became clear by early 2011 that valuations were not going to increase significantly anytime in the near future, the approach changed from kicking the can further down …

John Battle The best way to describe the current state of the commercial real estate investment market is bifurcated. At one end of the spectrum are institutional buyers with literally billions of dollars to invest. These buyers are only acquiring Class A properties located in gateway cities such as New York, Washington D.C., San Francisco, Los Angeles and Seattle. When these types of properties become available, they generate 20 to 40 offers or more, resulting in a bidding war among the top three or four bidders at capitalization rates in the low 5 to 6 percent range. At the other end of the spectrum, Class B buildings continue to struggle. So too do Class A assets that are not located in gateway cities. Although some of the bidders that have been unsuccessful in their preferred markets are now considering smaller markets such as Philadelphia, St. Louis and southern Orange County, they expect to get a much better return on their investment, typically a cap rate in the neighborhood of 7 percent. The general feeling around the country from acquisition managers who have been most active is that this trend will continue for at least the next two years while the …

Liz Burlingame For all of his financial success, philanthropist and billionaire grocery magnate Frederik Meijer insisted on simple living. He drove an old car and he and his wife, Lena, lived in the modest Grand Rapids home they built in 1957. “He was down-to-earth and very approachable,” says Earl Clements, a principal at the Grand Rapids office of Colliers International, who first befriended Meijer in the 1980s. “And it was never 'Mr. Meijer.' He said, 'Call me Fred.'” Meijer, the founder and chairman emeritus of Meijer Inc. super center chain, died Nov. 25 in Grand Rapids. He was 91. Meijer's rise in the retail world began simply enough in Greenville, Mich. At 14, Meijer was a grocery bagger for his Dutch immigrant father Hendrik's store. Hendrik was a barber by trade, but opened his first store in 1934 in the grip of the Great Depression. In 1962, the Meijers' opened their first department store called Thrifty Acres. They were pioneers of the one-stop-shopping concept later replicated by Wal-Mart founder Sam Walton. The stores were renamed Meijer in 1984 and the company became one of the largest family-owned retail businesses. Today, Meijer stores have expanded throughout the Midwest, with about 200 …

Ann Hambly When it comes to restructuring a bank or life company loan that is still on a lending institution’s balance sheet, the negotiation really boils down to two individuals — the borrower and the lender — agreeing on a solution that hopefully creates a “win-win” scenario. Negotiating the possible restructuring of a CMBS loan is a completely different story, however. Therefore, it is important to understand the objective and motivations of the party you are negotiating with. The special servicer, who is tasked with making decisions on a defaulted loan, has a number of objectives, and often they are competing objectives. The special servicer’s primary obligation is to make a decision that results in the least amount of loss to all bondholders in the pool, without regard to its own bond position. That is the servicing standard that a special servicer agrees to when it signs a pooling and servicing agreement at the time of securitization. A hypothetical example So, what does all this mean in practical terms? Let’s walk through an example of a loan that is underwater. Let’s assume that the loan balance is $10 million and the value of the real estate today is $7 million. …