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The construction loan market from 2000 to 2007 was extremely profitable for banks. Loan spreads were strong, opportunities were plentiful and there was no shortage of buyers for finished properties. The permanent loan markets, including commercial mortgage-backed securities (CMBS), government-sponsored agencies (GSE) and life insurance companies were all aggressive and accommodating for the buyers. Defaults were virtually non-existent. Even poorly executed deals were bailed out by the ever-growing needs of real estate investors. When the real estate transaction world slowed to a crawl in mid-2008, the pain started for permanent loan holders of CMBS, mezzanine and whole loans. Values dropped, and holders were forced to take markdowns on their financial statements. The slowdown in transactions and falling values will have an even greater impact on the banks that originated construction loans between 2005 and mid-2008, as these loans were based on ever-increasing rent rolls and even lower cap rate exit assumptions. A few facts about construction loans in the current market: * Most apartment construction loans have a 3-year term with two built-in extensions for a year each. The terms for obtaining the extensions varied widely between asset type and lender. Loans originated in 2005 have already expired on the …

The dramatic growth in commercial real estate values that peaked in 2007 spurred a wave of development and unquenchable investor demand. As the market cooled, what was a booming real estate market quickly transformed into an ever-growing inventory of distressed properties, foreclosures and seemingly never-ending workout situations. While many read the headlines and see doom and gloom, savvy investors see opportunity. Given the virtual trickle of appropriately priced deals hitting the marketplace to date, many buyers are vying for each offering. Financing for these projects, however, can be a challenge, as credit is no longer widely available and underwriting standards have tightened. For investors who have identified an opportunity, the ability to obtain financing can be a key factor driving, or limiting, returns on equity. Short-term bridge financing is most commonly used for the acquisition, renovation and repositioning of in-transition properties. This financing enables the execution of a business plan that brings the property from an “in-transition” state to a “stabilized” state, upon which the borrower seeks to “exit” the bridge loan via a refinance or sale. Bridge loans can take on many forms and vary from conventional short-term financing provided by a local bank to high yield loans. As …

Dennis Reed While the hotel industry across the nation has been hard hit by the recession, the tough times are not going to last forever. Whether you believe in a u-shaped, v-shaped or w-shaped recovery, an economic resurgence will happen. When the recovery starts, the South, particularly Florida, will move forward before some of the other regions of the country. The pent-up demand for leisure travel, put off by so many Americans who have lost their jobs and have seen their savings decline, will spur visitation in the South more than in other regions. We saw this occur after the terrorist attacks of 2001; total international visitor arrivals for 2001 declined by double digits over the prior year. It wasn’t until the end of 2003 that we saw progressive improvement over 2002 and 2001. In 2009, we are experiencing a similar decline in visitation. The U.S. Department of Commerce announced that 5.1 million international visitors traveled to the United States in July, a decrease of 6 percent compared to July 2008. Specifically, visitation to the United States from the European Union countries declined 11 percent in July. Total visitation in the first 7 months of 2009 was down 10 percent …

Bruce Jackson Water is being fought over in Georgia and around the Southeast, and new laws in Georgia are changing the water-law landscape. Georgia’s General Assembly mandated in 2005 the creation of a comprehensive statewide water management plan. The plan, approved last year, is naturally Georgia-centric in terms of its policies toward water management. However, most major drainage basins are not confined to Georgia’s borders. The result of these water wars could have wide-ranging implications regarding commercial real estate development and the renovation of existing buildings. Georgia is in litigation with Florida and Alabama over the Apalachicola-Chattahoochee-Flint (ACF) basin and with Alabama over the Alabama-Coosa-Tallapoosa (ACT) basin. Tennessee is restless as Georgia eyes the Tennessee basin, a healthy amount of which is in Georgia. With South Carolina, Georgia shares the Chattooga, Savannah, Tugaloo and Seneca basins. Then there is the Floridian Aquifer, which lies under an area of more than 100,000 square miles below South Carolina, Georgia, Alabama and Florida. The interplay between the surface water above the aquifer and the aquifer itself is not well understood. The point of the geographic scope of these water basins and the aquifer is that other states have co-existing claims to virtually every …

Jon Ross Two words — potential and unknown — can be used to sum up the current state of the medical office real estate market. Officials in the real estate and healthcare industries are anxiously waiting for the federal government to decide on a given path for healthcare reform and are hesitant to pursue new deals. At the InterFace Medical Office conference October 21 at the InterContinental Buckhead in Atlanta, real estate brokers and developers joined with healthcare providers and hospital representatives to talk about the healthcare industry. In six panels and a roundtable session, attendees discussed the current lending climate, the state of the market and the future of healthcare real estate. The underlying theme of the day-long conference? Confidence is needed for investors to re-enter the market and for tenants to stop fretting about the future. “Until we get some clarity on healthcare reform and until we get some improvement in the capital markets, I don’t think we’re going to see a ramp-up of transaction volume,” said Scott Evans, managing director of Cain Brothers & Co. On the leasing side, tenants don’t want to make a move until they know how the office market will play out in …

Due to space constraints, the 2009 Chicago Roundtable was printed in edited form in the October issues of Shopping Center Business and Heartland Real Estate Business. The following is Part Two of the complete transcript. Shopping Center Business recently held a Chicago Retail Roundtable hosted by law firm Levenfeld Pearlstein. Despite a lackluster year for retail, turnout at the roundtable was robust and the discussion was again lively, offering a snapshot of activity within the market and a view of general industry trends. In attendance this year were: Adam Secher, Baum Realty Group; Peter Eisenberg, Clark Street Development; Peter Caruso, Intercontinental Real Estate & Development; Lew Kornberg, Jones Lang LaSalle; Marlon Stone, Katz & Associates; Richard Kahan, KB Real Estate; Marc Joseph, Brian Kozminski and Keith Ross, Levenfeld Pearlstein; Terry McCollom, McCollom Realty, Ltd.; Ben Wineman, Mid-America Asset Management; Jim Schutter, Newmark Knight Frank; Robert Rowe, Sierra Realty Advisors; Marc Siegel, SJS Realty Services; Ryan Murphy; SRS Real Estate Partners; Tim Thanasouras, Thanasouras Commercial Properties; Aaron Gadiel and Jonathan Payne, The Jaffe Companies; James Turner, The PrivateBank; Sy Taxman, The Taxman Corporation; Richard Dube, Tri-Land Properties; Glen Todd, U.S. Cellular; and Camille Julmy, U.S. Equities. SCB: Rob [Rowe], you are …

The 2009 Chicago Roundtable was printed in edited form in the October issues of Shopping Center Business and Heartland Real Estate Business. The following is Part One of the complete transcript. Shopping Center Business recently held a Chicago Retail Roundtable hosted by the law firm Levenfeld Pearlstein. Despite a lackluster year for retail, turnout at the roundtable was robust and the discussion was again lively, offering a snapshot of activity within the market and a view of general industry trends. In attendance this year were: Adam Secher, Baum Realty Group; Peter Eisenberg, Clark Street Development; Peter Caruso, Intercontinental Real Estate & Development; Lew Kornberg, Jones Lang LaSalle; Marlon Stone, Katz & Associates; Richard Kahan, KB Real Estate; Marc Joseph, Brian Kozminski and Keith Ross, Levenfeld Pearlstein; Terry McCollom, McCollom Realty, Ltd.; Ben Wineman, Mid-America Asset Management; Jim Schutter, Newmark Knight Frank; Robert Rowe, Sierra Realty Advisors; Marc Siegel, SJS Realty Services; Ryan Murphy; SRS Real Estate Partners; Tim Thanasouras, Thanasouras Commercial Properties; Aaron Gadiel and Jonathan Payne, The Jaffe Companies; James Turner, The PrivateBank; Sy Taxman, The Taxman Corporation; Richard Dube, Tri-Land Properties; Glen Todd, U.S. Cellular; and Camille Julmy, U.S. Equities. SCB: How are retailers viewing the Chicago market …

Michael Mele Everyone is interested in self storage these days. At a time when most product types in commercial real estate are facing hard times, many are taking a look at this so-called “recession proof” investment. But like all product types, the self storage industry is feeling the pain of this economy as well. Self storage — or mini warehousing, as it was first called — was created in the late 1960s by land speculators who wanted to find a use for the parcels they bought that were not quite ready for development. As a way to help pay taxes and make the land self sufficient until development caught up to the area, they erected cheap steel industrial buildings mainly geared toward small businesses. The idea caught on, and the industry grew steadily through the 1970s. By 1979, there were 3,500 mini warehouses nationwide. The high flying 80s led to tremendous expansion in the industry. The buildings were becoming better, the facilities were getting larger and the properties were no longer relegated the edges of town or in industrial areas. Self storage facilities were now being built in major commercial and retail areas. Although most operators seemed profitable, the jury …

J. Scott Rae Buono According to the Work Design Collaborative, 40 percent of the American workforce will work outside the traditional office environment by 2012. Small business owners aren’t the only parties benefiting from this shift. As the American workforce becomes more and more dispersed, commercial real estate developers are starting to look toward serviced office center concepts, coming aboard as investors and adding a lucrative opportunity to their portfolios. The key to success for a serviced office center is to understand and keep pace with work style trends. Increasingly, companies are freeing employees to work when, where and how they want. This means rather than bringing all the workers to a central location, businesses are distributing work to their employees, but they need to provide a location where that work can be done. When a company finds someone with a required skill set who is hundreds or even thousands of miles away, relocating that person is no longer essential. And if that individual leaves and his replacement is in another city or state, no problem; work is no longer a place to go, it’s a thing to do, and it can be done from almost anywhere. The growth of …

Timothy Van Valen With vast amounts of land, financial and technical resources and access to trade corridors, New Mexico is a state of expansive opportunity for real estate developers. It’s also a state with some of the most aggressive incentive packages in the country. While the New Mexico Constitution generally bars the state and local governments from providing direct cash grants to private businesses or project-specific tax abatements, both of which are common in other states, New Mexico offers a plethora of incentives that can help facilitate real estate development. These incentives include industrial revenue bonds; Tax Increment Development Districts; infrastructure funds provided under the Local Economic Development Act; and the Investment Tax Credit. As with most states, New Mexico also offers numerous gross receipts and income tax incentives, particularly for the film, renewable energy and aircraft industries. It also provides a generous job-training program for qualifying businesses. Industrial Revenue Bonds For substantial commercial projects, one of the most commonly used economic development incentives in New Mexico is an industrial revenue bond issued by a county, municipality or the New Mexico Finance Authority. While obtaining an IRB requires a developer to navigate the political process, it has been used for …