Joseph Smith “Challenging” would accurately describe the past few years in the hotel industry, with many owners in underleveraged positions on historically performing assets. For hotel management professionals, the question of how to quickly turn things around for a struggling property is paramount. These days it often is not enough to make gradual changes and long-term investments; many hotel owners need results now as hotels struggle to boost net operating income. It requires competent, bold leadership to immediately impact bottom-line results. A hotel turnaround an all-inclusive solution that covers asset quality, service delivery, revenue generation and capture, accurate and detailed forecasting, margin controls tied to forecast models, and a comprehensive analysis of challenges and opportunities. Leaving one of these elements out of the equation will lead to mixed results. Only management companies with nimble, aggressive and dedicated professionals can drive the necessary change. All too often, the management team of an underperforming asset resorts to a single focus on expense cutting to offset a lack of execution on the revenue side of the business; the result is a downward spiral for the asset. As a wise hotelier once said, “Continue focusing on expenses only and you will get sales down …
Matt Valley Today’s extremely low interest rates pose a danger to commercial real estate investors, particularly those with billions of dollars to deploy such as pension funds and sovereign wealth funds, warns Ethan Penner, founder and president of CBRE Capital Partners. In order to receive a reasonable rate of return, these investors are being “crowded out” of low-risk investments and forced into high-risk investments. The 10-year Treasury yield, a benchmark for commercial real estate finance, currently is hovering around 2 percent, not far from its record low. “There is almost no way to invest large amounts of money in today’s market — specifically in today’s real estate market — and not be set up for a major disappointment sometime soon,” remarked Penner during his keynote address at the Commercial Real Estate Investment & Finance 2012 conference. Law firm Morris, Manning & Martin along with France Media’s InterFace Conference Group hosted the day-long event at the Grand Hyatt in Atlanta. “The major disappointment may take the form of economic non-recovery, it might take the form of very, very high interest rates, which will render your returns very, very inadequate,” explained Penner. “I don’t know what [factor] it is going to be, …
Barry B. LePatner, Esq. With needed construction projects proceeding despite the ongoing slowdown in the economy, negotiating construction that ensures completion on schedule and without avoidable cost overruns can be a considerable task for most owners, developers and lenders. Fortunately, a few carefully considered steps can be taken to ensure the financial health of your projects by following the Four Golden Rules of Construction Cost Certainty. The U.S. population is poised to grow by 100 million through the year 2050. The net result is that we will be embarking on a $25 trillion building spree for new schools, hospitals, roads, offices and residences nationwide to accommodate this growth. But critical to this national endeavor is that we build anew without the recognized inefficiencies of our construction industry, where nearly 50 percent of all labor costs pay for waste and corruption, rather than completing a project. There is simply no reason for new construction projects to begin without cost certainties built into the contract. To address the fact that contractors too often provide bids based on incomplete design documents and low-ball the contract price — only to subsequently seek profits on unwarranted change orders and delay claims — our firm has …
Dan Marcec On September 11, 2001, the confidence inherent in the American spirit was shaken considerably, which without a doubt extended to the economy and the real estate industry. With two of the country’s — and indeed the world’s — iconic office buildings directly destroyed, the Lower Manhattan commercial market not only took a physical hit, but also a psychological one. REBusinessOnline takes a look at Lower Manhattan today and the steps it took to reinvent — and at the same time reestablish — itself as a destination market for growth and development. In The Aftermath As a result of the 9/11 attack and its subsequent fallout, Lower Manhattan lost more than 12 million square feet of space — nearly 26 million square feet was either destroyed or damaged, says Tara Stacom, vice chairman with Cushman & Wakefield, who is also responsible for leasing One World Trade. Because of the immediate flux in space, there was an obvious impact on vacancy and rental rates in the aftermath. Interestingly enough, in mid-2001, the Lower Manhattan market had an unusually low vacancy, hovering around 6.5 percent. According to Stacom, 7 to 9 percent is considered equilibrium, where there is balance on both …
Scott R. Saunders Selling one property and acquiring several replacement properties in a tax deferred exchange can have significant advantages over a simple trade of one income property for another. The following discussion describes some of those advantages and certain tax rules relating to exchanges involving multiple replacement properties. To set the stage, let’s take a hypothetical case of an exchange scenario involving the acquisition of multiple replacement properties. Suppose a real estate investor in Los Angeles, California, is selling a single family rental (SFR) that she acquired more than a decade prior. She is under contract to sell the SFR for $600,000. For the sake of simplicity, let’s assume she has no debt on the property and will pay no closing costs. She has an adjusted basis in the SFR of $200,000. If she simply sells the property, rather than engage in a tax deferred exchange, she would incur a tax in the amount of $114,700.¹ Given the potential tax, this investor desires to engage in a 1031 exchange. In the process, she decides that she would also like to diversify her real property investments, take advantage of differing market conditions and improve her cash flow. Accordingly, she decides …
Bob Bach The commercial real estate investment sector has seen a strong increase in activity over the past year. Transaction dollar volume is up 116 percent for deals valued at $5 million and more through the first six months of 2011, compared with the first six months of 2010, according to Real Capital Analytics. Moreover, nearly every type of buyer, including publicly traded REITs, institutions and private investors, are taking part. Low interest rates and an increase in leasing activity, particularly for apartments, have stoked activity. Institutional-grade properties are seeing more buyers than sellers. Debt and equity capital continues to focus on core assets in primary, supply-constrained markets, or in other words, the best properties in the safest markets. However, investors suffering from “yield fatigue” have been willing to assume more risk this year, purchasing Class B+ properties or those located in secondary and tertiary markets for example, particularly if they can get them at a bargain. Property values in a handful of 24-hour downtowns have rebounded and are nearing pre-recession levels. Prices in smaller CBDs and most suburban areas remain well below their prior peaks, and in some cases are still mired near their cyclical low points. A look …
A Q&A with Chris Roth In June 2010, President Obama sent a memo that proposed $8 billion in real estate cuts for the federal government by the end of 2012, to be overseen by the General Services Administration (GSA) and the Office of Management and Budget (OMB). At the time, there was wide speculation on how this might affect the commercial real estate industry. So a year on and a year closer to the proposed deadline, REBusinessOnline (REBO) checked in with Chris Roth, managing director at Jones Lang LaSalle and the national manager for the firm’s contracts for GSA tenant representation services for federal agencies that work through the GSA for their real estate needs. REBO: What is the current state of President Obama’s proposal to cut the federal government’s real estate spend? Roth: With so much going on with the debt ceiling, and everyone is wondering what part of the Civilian Property Realignment Act [CPRA, a bill proposed by Rep. Jeff Denham (R-CA)] is going to play, not much has happened yet. Something is definitely going to happen, but we’re not certain of the extent of it. REBO: What is your perspective on the market for federal space, and …
A Q&A with Matt Zifrony Transactions continue to pick up around the country across commercial real estate sectors, and especially for properties with debt issues, there are opportunities for investors to capitalize. However, negotiations for these types of assets remain challenging. REBusinessOnline (REBO) took some time to chat with Matt Zifrony, a director with Tripp Scott, to discuss what challenges investors are in fact facing in distressed deals, and how they can better work with banks to overcome some of the hurdles in acquiring assets. REBO: Where are the opportunities for discounted deals? Zifrony: There are a lot of investor groups out there looking for opportunities knowing that the banks have a lot of troubled loans on their portfolio, through foreclosure or otherwise, that they’re trying to get rid of. REBO: What property types and classes provide the best opportunities for investment in this market? Zifrony: Unfortunately, the breadth of the downturn has been so far and wide that, for better or worse, these opportunities everywhere. You have your obvious pockets on the coasts and the major markets. But you can also go out to smaller markets that were hit as hard as anywhere, but they don’t have the same …
Fernando Levy-Hara The real estate bubble spanning from 2000 to 2006 was driven by a basic economic system: when demand increases, production launches and sales commence. As development plans progress, one of the roles of a municipality is to maintain control as growth occurs and potentially climbs to unsustainable levels. While municipalities that have too many restrictions tend to remain underdeveloped, the responsibility of a zoning department is to mitigate growth for the betterment of a city, and to anticipate necessary infrastructure enhancements in the pockets of an area most likely to be affected by new construction. Municipalities can control housing oversupply, prevent city underdevelopment and provide healthy infrastructure by balancing regulations and engaging in open dialogue with development experts in an effort to create a comprehensive plan that determines the growth of a city in the years to come, and ensures its beautification. ONE MUNICIPALITY vs. ANOTHER During the inflation of the real estate bubble, when the thought of a burst was nowhere in sight, municipalities managed neighborhood development plans differently than one another, resulting in very diverse outcomes post-market collapse. As a veteran developer of residential and commercial real estate, I have observed the varying philosophies governed by …
Barry Saywitz In today’s difficult economic times, it’s important for management companies and owners of multifamily and commercial real estate to look for ways to trim expenses, maintain cash flow and survive until the markets can improve. It is safe to say that every company, whether directly related to the real estate industry or not, has been and is in the process of continuing to run as lean and mean as possible, making moves that include personnel changes and lay-offs, consolidations, and revamping of expenses and compensation structures. Once a company has finished with its “tightening of the belt,” the only way for the firm to continue to be successful going forward is to maintain positive client relations and maintain occupancy levels to keep its properties full. There is no question that whether you own an apartment building, industrial complex or an office building, the strategies necessary to stay afloat in today’s environment are: A) To keep your property full; B) To work with your existing tenants as best you can; and C) To try and attract new tenants to fill your vacancies. For these reasons, the single most important focus of a property owner or a management company is …