Features

Designing, building and operating multiple retail centers in a given market may seem like a counterintuitive strategy for a developer to adopt. At first glance, such an approach might seem like an unnecessary exposure to problems such as redundancy and market saturation. It may seem like competing with yourself for a limited pool of consumer dollars; a particularly relevant concern during a recessionary cycle. But for retail and mixed-use developers, the strategy of developing multiple projects in one market can actually yield surprisingly valuable synergies. From relationships to revenue and from valuable efficiencies to invaluable and enduring financial and strategic leverage, the advantages of building portfolio synergy by developing, redeveloping or acquiring multiple shopping centers in one market can create extremely beneficial economies of scale. At a time when every boost to the bottom line is a precious commodity, taking advantage of portfolio synergy and leveraging those economies of scale is all the more important. In the current precarious financial environment, as banks continue to reclaim projects, opportunities to acquire “package deals” are increasingly abundant. As a result, developers are able to operate in an environment where portfolio synergies are not only more available, but are potentially more effective. Package …

Troubled residential real estate loans have received a great deal of media exposure, and now banks and the government are recognizing that commercial real estate loans are a serious cause of concern for the continued viability of banks. Credit problems resulting from commercial real estate have been escalating. There is roughly $3.5 trillion in commercial real estate loans held by banks, commercial mortgage-backed securities (CMBS), or other institutions in the United States. More than $2 trillion in loans are maturing by 2013. However, the combination of tightened underwriting standards for new loans and falling real estate values will result in many property owners not qualifying for re-financing. This will lead to many owners looking to sell, resulting in substantial supply of available properties in the market and a further decrease in property values. According to the Federal Reserve, banks hold $1.8 trillion of the $3.5 trillion in loans. In the first quarter of 2007, 1.4 percent of these loans were delinquent. More than 2 years later, that figure is approaching 8 percent and rising. These delinquencies are causing bankers to be overwhelmed with a myriad of issues and a wave of foreclosures, which has contributed to the dramatic increase in …

The use of social media sites to market real estate has exploded during the past several months. Social media offers an opportunity for instant, personalized two-way communication between developers, sales agents and prospective real estate purchasers. As the number of people using social media increases, so does the likelihood that companies engaged in real estate transactions will utilize social media as a secondary storefront or that representatives of such companies will discuss their real estate endeavors on social media. When used appropriately, social media can be an effective, inexpensive way to facilitate real estate transactions. Social media, however, also opens the door to legal liability. For example, if land sales laws are not followed, a brief entry could become the basis of a major lawsuit. Legal issues are complex, in part, because the law has not kept up with advances in communications technology. This article provides a quick overview of the potential pitfalls and emphasizes the importance of a comprehensive training program and policy to minimize legal risks when using social media to market real estate. Legal Representations Social media entries by company representatives can be documented representations about real estate products. While companies can more readily control the content …

As we enter a 2010 that, with any luck, will be kinder than 2009 for commercial real estate, we also look forward to the decennial census. The results of the census will provide valuable insight on population and migration trends in the United States, which will be very useful for government agencies. The information is also of interest to commercial property investors and office investors in particular; demand for office space in metropolitan areas is driven by employment growth, which is in turn driven by economic and population growth. It's almost certain that the U.S. job market will actually lose more jobs than it created this decade, something that has never happened since the collection of such data began. Due to the residential real estate bubble and the resulting financial crisis, office employment has been hit extremely hard in this recession. Still, some regions have fared better than others in terms of economic and office-job growth. Real estate investors can look at these disparities carefully when considering investment and diversification strategies for the coming decade. Some of the best-performing office markets during the last 10 years include those in the CANVFLAZ (California, Nevada, Florida and Arizona) area. For most of …

To put it bluntly, 2009 was one of the worst years for the industrial real estate market. Record levels of industrial space were vacated, and the national industrial availability rate surpassed its previous historic high of 11.8 percent, which was reached in early 2004. The outlook remains uncertain, but 2010 is shaping up to be a better year — not necessarily a great year, but a better one. Strong export activity and increased intermodal transport use are emerging trends that will play a significant role in industrial performance in the coming year and beyond. Trade levels have rebounded, but export growth has so far outperformed import growth. According to the latest monthly trade data, export growth that began in the second quarter of 2009 has reversed 36 percent of the recession-related losses. Imports, which also began growing in the second quarter, have erased only 25 percent of their decline. U.S. goods exports have also increased for 6 consecutive months (through October 2009), while imports have grown for only 4 of these months. This strong export performance is expected to continue. The dollar remains low, making American-made goods relatively inexpensive for foreign consumers. Furthermore, global demand appears to be strong, judging …

In the current market, should a potential seller hold or fold? For real estate companies, one of the biggest challenges is deciding whether to hand on to a money-losing commercial property or to sell it at a deeply discounted price. The decision is risky, nerve-wracking and complex. Methodical analysis is called for, requiring robust financial modeling and realistic market knowledge. The current and future cash position of the company must be determined. The company needs to understand its level of debt, when it comes due and what it costs. Most difficult for the company will be to try to determine the value of each asset. Critically, the company must consider its entire real estate portfolio—not just look at a single property. Despite signs of a nascent macroeconomic rebound, the commercial real estate sector still faces tremendous obstacles to its own sustained recovery. The only properties being sold now are those purchases with nonperforming loans and high-end, one-of-a-kind trophy or foreclosed properties. While differences between buyers and sellers are becoming less pronounced than they were at the peak of the global crisis, the sides are still far apart. Buyers, expecting a rash of commercial properties to flood the market, await a …

The following is Part One of a two-part article. Check back Thursday for the second half. In the past decade, a wave of high-density mixed-use development has swept the country. The activity was fueled by a demand for more housing, historically low interest rates and escalating land prices. Developers took action by building mixed-use projects and converting old apartment buildings, office buildings and hotels into predominately residential condominium developments. During the process of converting a building into individual residential condos, the evolution of the street-level portion of the development into a retail condominium was born. The retail condominium has become a phenomenon that has now emerged as a popular and alternative real estate investment platform to sell and acquire real estate. Traditionally found predominately in major metropolitan cities, retail condominiums have now appeared in suburban markets throughout the country. In Scottsdale, Arizona, a former office building was recently converted to an adaptive re-use development known as The 4020 Building. The development incorporated 21 residential loft condominiums above a 7,080-square-foot ground-floor retail condominium. Developers have mainly sought to profit from the sale of a project's residential component, but selling the retail space can result in the developer obtaining a higher cost …

Last week, Geoff Faulkner listed some preventative measures to keep in mind when pursuing quick-service restaurant tenants. The tips included checking on the tenant's credit and examining sales records for the concept's comparable area stores and the concept's average store. Today, Geoff finishes his list of guidelines. During the downturn, property owners have been inquiring about what to do when either a tenant is looking for a rent reduction or a tenant has gone or is going out of business. As much as we have helped investors in these situations, what is more important are the preventative measures that can be taken when acquiring QSRs. By following the acquisition guidelines listed below, investors can protect themselves even in the worst situations. Lease Terms Base Term: The Base Term on these types of leases is generally 20 years with a 10 percent rental increase every 5 years. The exposure of a lease this long is that you may experience inflationary losses if inflation is greater than 2 percent per year (which it usually is). If you are negotiating a new lease in a sale-leaseback scenario, do your best to negotiate CPI increases. If there are not any increases in the rent …

In the real estate industry, properties that have Quick Service Restaurants (QSR) as tenants are commonly referred to as “coupon clippers.” These QSRs have NNN leases that require the tenant to pay for all taxes, insurance and necessary property maintenance. Essentially, the only job a landlord has after they acquire these properties is to watch the rent get wired into their checking account each month, or “clip the coupon.” Once acquired, these investments are quite simple to own. In contrast, the due diligence that is necessary before acquisition is not quite as simple. During the downturn, property owners have been inquiring about what to do when either a tenant is looking for a rent reduction or a tenant has gone or is going out of business. As much as we have helped investors in these situations, what is more important are the preventative measures that can be taken when acquiring QSRs. By following the acquisition guidelines listed below, investors can protect themselves even in the worst situations. Credit of the Tenant The first item to consider when purchasing a QSR is the credit of the tenant. The guarantee can range anywhere from a publicly traded company to a sole proprietor. …

Framed against a seasonal backdrop of busy New York City consumers getting a jump-start on their holiday shopping, approximately 5,800 (down from 6,200 in 2008) retail developers, brokers, representatives from retailers and assorted vendors converged at the International Council of Shopping Centers (ICSC) convention at The Hilton New York & Towers last week. While the mood in stores lining Broadway and the Avenue of the Americas was spirited, the attitude among ICSC participants was one of guarded optimism. During the 2-day New York National Conference and Dealmaking session is that retailers were everywhere except manning booths on the trade show floor. “Continuing a trend that we experienced at the annual Las Vegas convention, retailers by and large, are still on the sidelines, with the majority not expected to ramp up new store site selection efforts until sometime in 2010,” explained Tom Maddux, president of KLNB Retail, whose firm sent more than 35 brokers to the show. “It is still extremely valuable to network with retail real estate professionals and establish new contacts, but serious deal-making was not a significant part of this show,” he added. Maddux explained stores that did establish a strong presence at the show included Auto Zone, …