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The 2009 Southeast Retail Roundtable was printed in edited form in the October issues of Shopping Center Business and Southeast Real Estate Business. The following is Part Two of the full transcript of the event. SREB: Hazel [Dennis], are you seeing activity in Macon among tenants? Are they looking for better spaces in centers? Hazel Dennis: Tenants were looking 2 to 3 years back for something but couldn’t get from the market they’re currently in to the market they wanted to be in at the price they wanted. A number of these were self-funded, but the ones that were dealing with the banks, one of the things that was helping us with our deal time and shortening it a little bit is that the bank is guaranteeing an interest rate for a shorter period of time; it’s put a little bit of pressure on the tenants to make up their minds. Before, they knew that they could get a good interest rate forever. It’s helping a little bit from an unexpected side of banks. We’re seeing tenants like Dollar General very active in the market. SREB: As a tertiary market, does Macon have a lot of vacant space in and …

The 2009 Southeast Retail Roundtable was printed in edited form in the October issues of Shopping Center Business and Southeast Real Estate Business. The following is Part One of the full transcript. Recently Southeast Real Estate Business hosted its annual Southeast Retail Roundtable at the offices of Arnall Golden Gregory at Atlantic Station in Midtown Atlanta. The attendees at the 2009 Southeast Retail Roundtable were Christopher Decoufle, CB Richard Ellis; Hazel Dennis, Fickling & Co.; Steve Gunning, SRS Real Estate Partners; Alan McKeon, Alexander Babbage; Robert Mimms and Brad Shoemaker, Mimms Enterprises; Bill Read, Developers Diversified Realty Corp.; Abe Schear, AGG; Reece Stead, Stead Retail Group; and Marc Weinberg, Shopping Center Group. SREB: Chris [Decoufle], give us an update on the investment market here. Christopher Decoufle: There are certainly trades out there. We’ve traded a couple deals this year. We’re working on about $400 million in deals which we think have an opportunity to trade, but in the current climate, even if you have a willing buyer and seller, it can be challenging. The activity is driven by pricing that investors can start to sink their teeth into. If you look at the seller pools, it’s not developers. That group …

Wally Harding Depending on who you talk with, the troubled commercial real estate situation is continuing its downward spiral, approaching the bottom or has bottomed out and will begin recovery late this year. A look at today’s market paints a picture of either a sunny ray of hope or continued grey clouds of financial woe and despair. The problem is not money. There are more than ample funds sitting on the investment sideline. This money has been there for months, and new investment funds are being created by numerous groups that hope to take advantage of someone else’s problem assets. Loan money is also piled high in the vaults of life insurance companies, banks, credit unions and investment banking groups. By virtue of the amount of money waiting to be utilized and the number of new funds being organized, it’s safe to say the bottom may be near. Should it be invested now? In 6 months? In late 2010? The problem lies with lending collateral (product), conservative underwriting, lack of sales (comparable data for appraisers and valuations), falling rental rates, lack of borrower liquidity and over-leveraged existing loans with near-term note repayment dates. Adding capital ratios to the picture, you …

Tim Ehrhart Business owners in the southeastern United States are all too aware of the looming threat posed by hurricanes. While the 2009 season has been comparatively mild so far, the economic downturn has thrown new exposures into the mix that business owners may not have considered as elements of hurricane preparedness. As is the case throughout the country, the economic downturn has dealt a substantial blow to the commercial real estate market in hurricane-prone states. With numerous commercial properties standing vacant, this year’s hurricane season presents a new level of risk not only to the owners of these vacant properties, but to the businesses operating nearby. Understanding the exposures vacant properties create for surrounding businesses during hurricane season is crucial for business owners looking to protect their assets. Taking precautions before a hurricane hits will position local businesses to survive both natural and economic disaster. In the event of a severe storm, debris is one of the biggest hazards a vacant property poses to surrounding buildings. Structures with large windows, like car dealership showrooms or contemporary office buildings with extensive glass paneling, are both the most vulnerable and the most hazardous to surrounding properties. The contents of abandoned buildings …

Joe Lewis The reasons that people choose to occupy one piece of real estate over another are legion. The usual suspects are location, amenities, economics and improvements — quantifiable attributes that can be explained in a memo to the board or to the boss. Most buildings on a prospective tenant’s short list will be fairly equal in these left-brain reasons for occupancy, but there are simply not many unique reasons to choose one building over the other. There is one unusual and indefinable attribute that prompts prospective occupants to choose one place over another. People speak of it in unquantifiable terms that are often expressions of feelings — “I love the feel of this place; I feel at home here” — rather than analytics. Although these are not the typical comments one could write in the memo to the board, the real reasons for selecting one building over another are emotional. Basically, marketing is a connection with the buyer. In a market where occupancy is 95 percent, this is really not an economic issue. As long as the building operator matches the competition, occupancy will in his property will remain at an acceptable level. However, in a market where occupancy …

Jonathan Christianson Ownership of real property consists of a bundle of rights and a bundle of obligations. Anyone who owns a residence knows the basic truth of this statement when, from the comfort of their living room, they sign the property tax or casualty insurance check. In this increasingly complicated world, most individual investors continue to hold title to investment property in their individual names. Apart from paying for the property, the owner’s obligations include maintaining the property and ensuring the property is not a nuisance, paying property taxes and assessments, regulating access to the property, preparing and executing leases, collecting rents, managing tenant deposits, paying for tenant improvements, ensuring that tenants maintain adequate liability and casualty insurance, servicing mortgage debt, participating in the activities of local government and sometimes prosecuting or defending legal actions arising out of the sale, transfer use or occupancy of the property. Of course, few property owners handle all of these tasks personally. An owner will usually employ a variety of professionals to manage the day-to-day operations. Even though many tasks may be delegated, a significant failure on the part of the owner to continue to meet these obligations or to adequately respond to potential …

Chris Schreiber I’ve been employing various versions of a land residual or development residual analysis as a check on land prices and a test of highest and best use and the indicated land value from the sales comparison approach for the past 15 years. However, when applying the residual analysis here in Idaho, there appears to be real reason for concern. What is the development approach? The development approach is basically the calculation of what a developer can afford to pay for the underlying dirt, considering the value of property as if built out to its highest and best use today. Performing the analysis can be complicated and involve a variety of cash-flow models taking into account profit, holding costs, absorption periods, cost trending, etc. For our purpose, let’s use a very simple static model: Estimated Project Value – Construction Costs, Soft Costs and Profit Implied Land Residual Now, we’ll put in fabricated numbers for multi-tenant light industrial park: $3,800,000 (50,000 square feet at $9/SF [10% vacancy, 25% expenses, 8% cap]) – $2,750,000 in Construction Costs (50,000 square feet at $55 per square foot) – $435,000 in Soft Costs (leasing commissions, absorption and permits and fees) – $318,500 Profit (10% …

Dennis S. Pellecchia In the current market, investors face an uphill battle because achieving profitability poses more of a challenge than it did in years past. One way to enhance the probability of a healthy bottom line is to avoid five common mistakes. 1. Inadequate market research Although national real estate trends are of value, the best market indicators are those in your local market. Make sure you get a handle on local rental rates, occupancy levels, competitive space supply and demographic trends. Moreover, because expansions, cutbacks or relocations by major local employers can significantly affect property prices, regularly monitor the local news for such developments. Social and historical factors also play a role. Knowledge of a famous former resident, a historical event that took place on a property, or a neighborhood’s reputation as a hotspot for the rich and famous may drive prices up. Value-lowering factors include odors drifting from nearby landfills, factories or farms; a history of neighborhood tensions or violence; and recent flooding. 2. Inaccurate financial projections Your investing decisions are only as good as your financial projections, so it’s more important than ever to look at real operating figures when purchasing an established rental property. In …

Mark Zurlini While the residential real estate market appears to be bottoming out in the New York metropolitan area, the commercial real estate market is still lagging behind, in part because of the same disconnect between owners and lenders that dominated the residential market for so long. Commercial property owners don’t want to settle for lower prices and commercial real estate lenders are unwilling to finance overpriced properties. In combination with the lack of liquidity, this gap means the transaction volume has diminished dramatically, especially at price points of $50 million and more and especially in certain commercial property sectors — hotels are the worst, multifamily is the best and retail and office rank somewhere in the middle. The slump in the commercial real estate market raises two questions: When will the market return? What do commercial real estate lenders do in the meantime? In order for liquidity to return to the commercial real estate market, a couple of things have to happen. First, the banks need to start making money. Second, confidence needs to be reestablished. The TED spread — an indicator of perceived risk in the general economy — reached a historic level of 465 basis points last …

Chad Ricks The recent downturn in the economy, coupled with ever-changing loan programs and the distinct lack of financing sources, has commercial owners and developers turning to new and unfamiliar places for their mortgage banking needs. The only constant in the world of finance seems to be change itself. Most conventional lenders are increasing loan qualifications, decreasing leverage limits, increasing rates, requiring additional collateral or exiting the business altogether. This is especially the case when it comes to the financing of senior-housing facilities, leaving Fannie Mae, Freddie Mac and the U.S. Department of Housing and the Urban Development to pick up the slack. Agency lenders are able to provide funds for multifamily and healthcare properties, while conventional sources sort out their risk tolerance. Although HUD, as the administrator of the Federal Housing Administration mortgage insurance programs, is not exempt from changes in the industry, it is at least changing in a positive direction. The agency is allowing terms to stay the same and is shortening the processing times. Historically a HUD-insured mortgage was processed according to the Multifamily Accelerated Processing Guide. On March 1st, MAP processing became obsolete for HUD healthcare loans and was replaced by the LEAN program. It …