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As the national economy begins to work its way out of a significant recessionary cycle, commercial developers everywhere are coming to grips with some sobering new economic realities. While some industry analysts who have been tracking tenant sales numbers have begun to see a few tentative signs of a turnaround, in the short term, the prospect of a sustainable and robust recovery is still in doubt. While some regional and local markets have performed better than others, the overall state of the national leasing landscape has been relatively grim during the last year and half. In the face of these new challenges, commercial developers and shopping center managers who simply hold their breath and hope for a turnaround are unlikely to emerge in a position of strength when the marketplace does improve. On the other hand, savvy industry professionals who are willing to innovate, be creative and flexible, and adapt to the current circumstances, are finding that there are ways to operate more efficiently and effectively – even in a downturn. Especially in a downturn. Some of the most successful developers and managers are focusing more time, money and energy on effective tenant retention techniques, recognizing that there is enormous …

Under budget and ahead of deadline are words that bring music to any clients’ ears, especially with today’s increasingly tight financing and complex building needs. Particularly in the wake of the recent worldwide recession, more developers are looking for means to control costs and increase efficiency. So when a model emerges that promises to minimize waste and not exceed the target cost for the project, it’s no surprise that people are taking notice. Poised to revolutionize the design and construction industry, Target Value Costing (TVC) has literally turned the standard design practice upside down. The traditional approach is to design a project and then determine how much it will cost to build. TVC completely reverses this process, allowing the design to be developed within the framework of the overall budget cost to offer clients more control over the final price tag. In essence, the cost of design options are being evaluated simultaneously, which insures that the final design — and the cost — is in line with the original goals. At the heart of TVC is collaboration and communication among the architects, engineers and contractors. Right from the initial planning stages these teams come together to share their expertise and …

Commercial real estate landlords commonly face this scenario: one of your tenants sends you a letter indicating that it has sold its business to a third party and has assigned the lease to the third party. Your tenant’s letter requests that you countersign and return the letter acknowledging your consent to the assignment of the lease to the third party. What should you do in response to the tenant’s request? This is Part II of Jay Gitles' article. Part I (steps one through three) ran on Wednesday. Step Four: Evaluate the proposed form of Consent to Assignment and Assumption of Lease and modify, as necessary. The assignor’s and assignee’s form of Consent to Assignment and Assumption of Lease is routinely deficient in many respects, and landlords should expect to modify the consent provisions. Most landlords will want a Consent to Assignment and Assumption of Lease to include that the landlord consents to the assignment of the lease by the assignor to the assignee (and reflects that the same is made in consideration of the payments by the assignor to the landlord as described in the Assignment of Lease, as well as the assumptions, covenants, promises and agreements of the assignee …

Commercial real estate landlords commonly face this scenario: one of your tenants sends you a letter indicating that it has sold its business to a third party and has assigned the lease to the third party. Your tenant’s letter requests that you countersign and return the letter acknowledging your consent to the assignment of the lease to the third party. What should you do in response to the tenant’s request? Step One:Evaluate the lease to determine the landlord’s and tenant’s rights and obligations concerning an assignment of the lease by the tenant. Most landlord-oriented lease forms provide that the tenant shall not have the right to assign the lease (or sublet any part of the premises) without the prior written consent of the landlord. Such lease forms also usually provide that the landlord’s consent shall not be unreasonably withheld. Although reasonableness standards for consents are frequently subject to differences of opinion, most authorities would not consider a landlord to be acting unreasonably if there is any uncured default of tenant or the proposed assignee is either an entity with which the landlord is already in negotiation for other space. The landlord may also reasonably withhold if the lease would subject …

Big-box space — specifically the massive headaches caused by the proliferation of the large empty spaces — was a major topic of discussion at the recently concluded International Society of Shopping Centers ReCon Convention at the Las Vegas Convention Center. The annual ICSC gathering attracted more than 30,000 retailers, landlords, brokers, financial institutions and assorted product and service suppliers involved in the retail real estate industry. The emptying or continued vacancy of big box spaces, which are defined as a retail space containing 50,000 square feet or more, has been a national phenomenon during the past few years. Space-eating retailers such as Boscov’s, Circuit City and Linens ‘n' Things have gone dark, leaving gaping holes in neighborhood strip centers and regional malls. Because centers depend on these anchor stores to act as prime traffic generators, a domino-like effect from the vacancies has been felt down to the smallest “mom and pop” stores. With few big box replacements stepping up to fill the void, landlords, brokers and owners have been scrambling to fill the boxes, many of which are located in prime retail locations. Mez Birdie, director of retail services for NAI Realvest in Orlando, Florida, moderated a panel at ReCon …

As in every economic recovery period, there are both positive and negative indicators in the stabilization process. For each encouraging sign we see, there is another signal that reminds us that it will be a long time before the U.S. economy is self-sustaining. We are seeing signs of recovery in the commercial real estate market, but the market is bifurcated and the recovery will be very uneven. Demand for some institutional-level properties where capital is in ready supply and investors are eager to buy is increasing. But as reported by many CCIM members in response to Real Estate Research Corporation (RERC) surveys, there is also a lack of demand for second- and third-tier properties in most locations, and rents and pricing may remain flat or even erode further before recovery takes hold in some areas. Since the health of the commercial real estate market depends on the health of the economy, and the economy—despite all its improvements—remains fragile (although strengthening), commercial real estate is also fragile. Not only are the fundamentals for each of the major property types weak, and will remain so as long as unemployment remains high, the investment side of this asset class continues to struggle, except …

In today’s topsy-turvy real estate market, churches are experiencing their own set of problems. In the heyday of the mid-2000s, many churches expanded their campuses, as the number of people in the congregations swelled. Some bought existing church buildings because their membership space demands grew. Others built, while still others did both. The 2,000-seat megachurches thrived. But like many corporations and organizations, churches are feeling the pinch of the Great Recession. With unemployment increasing to levels not seen in decades, out-of-work church goers are unable to sustain previous levels of giving. These churches are finding a need to consolidate campuses and sell off once needed property to maintain a core of activity and to stave off lenders. There are some churches where the property has limited alternate-use options, and, hence, the value of church buildings is doubly hurt in a down economy. Conversions to alternate uses can be very costly. The Faith Communities Today study performed by the Hartford Institute for Religion Research in 2005 applies the term megachurch to Protestant Christian congregations having an estimated minimum of 2,000 attendees each week, although some churches report weekly attendance as high as 20,000. The development and growth of megachurches was a …

“Be Zen in Ten” should be the motto of the commercial real estate industry throughout 2010 as it comes to grips with the reality of the deepest recession since the 1930s that has seen an estimated 8.4 million jobs disappear from the economy. The impact of those job losses on office and industrial space in Georgia and across the country has been substantial, with vacancy rates at record highs, rents depressed, significant negative absorption rates and virtually no new commercial construction starts. Nationally, commercial property values have fallen more than 40 percent in the past three years. Although initial reports show that the GDP grew at a 5.7 percent annual rate during the fourth quarter of 2009 — the best performance since 2003 — it is unlikely that those numbers will be repeated in the near future. Approximately 3.5 percent of the GDP growth resulted from inventory restocking orders, as companies that held back during the recession rebuilt their reserves. Unless demand for manufactured goods increases, the boost will be a one-time occurrence and growth will remain sluggish. Mark Zandi, an economist with Moody’s Investor Services, says that the federal stimulus added approximately 2 percentage points to fourth quarter growth. …

Commercial real estate transactions are harder to close today than perhaps ever before, but the reasons may not be what you would expect. During the recession of the late 1980s and early 1990s, there was a significant lack of capital that constrained transactions. Lack of capital does not appear to be the case this time around. Real Capital Analytics reports that total commercial transactions are down by 87 percent nationally from peak closing levels in 2007. Because of the availability of agency debt from Fannie Mae and Freddie Mac, the multifamily transaction volume has been thought to be more stable. However, according to the Real Capital Analytics data, the multifamily sector is down by 85 percent nationally. In the Southeast, multifamily markets have been hit harder than at the national level. Atlanta and most tertiary markets in the Southeast have experienced an 88 percent drop in apartment transaction volume. Secondary markets like Birmingham and Memphis have experienced a greater drop at 97 percent. The market in the Southeast with the lowest drop has been Nashville, with an 82 percent drop in volume. Apartment operations have suffered as well. Dale Henson Associates reports that street rents in Atlanta garden-apartment properties have …

A wide variety of loans secured with commercial real estate mortgages are in distress because economic conditions have reduced the tenants' abilityto pay the owner the amount necessary to service those loans, or refinancing of maturing loans has become extremely difficult. This difficulty has been caused by the decline in real estate values and by the dearth of lenders in the market. In this environment, the loanholderis faced with some difficult choices. One option is foreclosure, but this can be a long and expensive process.If the lender does successfully foreclose, it will become the property owner, which for many lenders is not a desirable result. Most lenders do not have the experience necessary to effectively manage commercial real estate. In addition, many lenders do not want to incur ownership liabilities. A lender may choose to market the loan for sale prior to commencing or completing a foreclosure. Because the lender is selling the loan, rather than the property that secures the loan, the lender likely will only buyers after offeringa discount. While this may not seem desirable, if the lender has written off at least a portion of the loan, the sale proceeds may reflect favorably on the lender’s financial …