Features

Bernard J. Haddigan The retail sector is in the midst of a perfect storm caused by the crash in housing, frozen credit markets and the worst job loss cycle since World War II. The excess spending of 2003 to 2007 has swung to what appears to be extreme caution by consumers and businesses, wiping out numerous retailers and driving most others to contract and go into survival mode. Retail real estate, a mirror reflecting the economy and credit markets, is in turn feeling the pain. While the recession has become self-sustaining in many respects — toxic assets on bank balance sheets have led to tighter credit markets, reduced liquidity in the marketplace has caused businesses to reduce payrolls, and lagging consumer confidence has resulted in falling sales for retailers — unprecedented government intervention is expected to eventually help stabilize the system and re-establish capital flows. Nationwide, retail construction is expected to slide by more than 30 percent in 2009; however, the decline will not prevent vacancy from increasing substantially due to store closures and reduced retailer expansion. Major tenants are making significant efforts to renegotiate leases already in place to avoid closures. For quality tenants, many owners are ceding, aware …

Keith Kidwell, SIOR, CCIM Valuing a property or portfolio even in the best of market conditions is a subjective exercise. This subjective exercise is only further complicated by nature of the fact that we clearly don’t have the luxury of a robust commercial real estate market on our side. So my question is this: Have commercial real estate values hit the bottom, will they continue to fall, or are they already starting to recover? In many cases the answer to the aforementioned questions can vary based on the quality of the asset, the property’s asset class, the type and quality of the tenant mix, the property’s location, supply and demand drivers such as new construction starts, absorption and vacancy rates, capital and credit availability, and any number of other factors which make planning difficult at best. Owning commercial property during these challenging economic times can perplex even the most savvy and sophisticated principals. It has been my experience that challenging economic times require both superior strategic planning and excellent tactical execution. That being said, I’m always amazed at the number of commercial real estate owners, individuals and institutions alike, that don’t have a Strategic Asset Management Plan (SAMP) in place …

Michael S. Schimmel Although, historically investors view real estate investment trusts (“REITs”) as relatively constant, the downward trend of the real estate market and the decimation of nearly 50 percent of the value of the stock exchange over the past year has drastically impacted even fundamentally sound companies. The combination of market uncertainty and lack of consumer confidence, coupled with the fact that some believe the United States has officially been in a recession since December of 2007, helps to demonstrate the vulnerability of every aspect of the real estate sector. This article briefly explores certain basic fiduciary duties that directors and trustees of public REITs owe to the company. While many consider the concept of fiduciary duties straightforward and simple, it is quite the contrary. In fact, this aspect of corporate governance has an extensive body of case law, countless volumes of secondary sources and treatises, and most notably, a highly complex intricate web of both federal and state statutory laws. Since REITs acquire, manage and/or invest in real estate assets or loans that are secured by real estate and simultaneously issue shares in these investments to shareholders, various duties and responsibilities attach to the individuals managing and overseeing …

Jerry Wit Companies seeking new office or flex/office space typically invest a great deal of time and money visiting potential sites, comparing the price per square foot of competing buildings and analyzing tenant build-out and moving expenditures. But many do not devote equal care and effort to designing the most cost-efficient space plan, which could save thousands of dollars annually in rental costs. A quick review of the math brings this into clearer focus. ABC Technology Company wishes to lease 10,000 square feet of space at One Main Street at a cost of $25.00 per square foot. The amount invested annually in this lease represents $250,000. However, creative space planning serves to reduce the size of the conference rooms, eliminates awkward corridors and downsizes the break room so only 8,000 square feet is now needed by ABC. The cost of the annual lease shrinks to $200,000 per year and, over the course of a 5-year lease, $250,000 is saved. Small ways to save big How can your company accomplish what ABC did? For starters, start the office search and space planning process early. Depending on the size and complexity of the tenant build-out that is needed, budget approximately 10 weeks …

Tipton Housewright I attended Easter services at a grocery store. But it’s not what you think; communion was not served in the wine aisle. Actually, the space was once a grocery store, but now it is a thriving 30,000-square-foot church with an attendance of approximately 1,000 people per week. Until just a few months ago, it was a vacant anchor space in a declining suburban strip shopping center. Now it has colorful interiors organized in a lively, contemporary and very functional way. The concrete floors have been stained and left exposed. The ductwork and steel structure have been painted black. And there’s plenty of parking out front. This was a win-win for the landlord (he sold the space to the church), the church (their total cost of purchase plus improvements was less than half the price of comparable new construction), and the community (they have a thriving church filling a once-derelict piece of real estate). As the recession has plowed through the retail industry, it has left in its wake an unprecedented number of store closings. Many once-thriving brands have had to reexamine their real estate needs and close a large number of stores or simply close the entire chain. …

Stephanie Mayhew Specht In the last year, the financial markets have essentially done a 180, and according to Bobby Bakchi, chief executive officer of Hybrid Capital Markets, things are going back to the basics — the way they used to be. Before the recession gripped the commercial real estate market, the appetite for financing was enormous and generally the conduit market was the way to go. However, that market is now shut down and many in the industry wonder if any form of it will ever come back. Bakchi believes that the most problematic issue with the conduit market was the complete and utter deterioration of underwriting standards, coupled with the fact that rating agencies that were supposed to be watch dogs for the industry were just not doing their job. “As a result, people thought that they were buying one thing and they really were getting something else. There was a lack of transparency, which made it difficult for the rating agencies to accurately rate these assets,” says Bakchi. With the conduit market shut down and the fact that many of the bigger banks have pulled back on lending, more and more people are turning to their local and …

Scott A. Fisher and Abe J. Schear If you are a retail landlord in today’s market, you are reluctantly answering any phone call, e-mail or other tenant communication. That caution is realistic because you may justifiably believe that every communication from a tenant is a request seeking a rent concession. A year ago, a landlord would generally have likely met a tenant’s request for a rent concession with rejection and perhaps scorn. Rental rates were stable, if not rising, and tenants were plentiful, or so it seemed. Unfortunately for landlords, times have changed. Rents are falling, replacement tenants are fewer, and landlords are determined to maintain occupancy. As a result, tenants are literally lining up at their landlords’ doors seeking rent concessions. Some tenants aren’t even asking and, notwithstanding that it is a default, are simply sending in reduced rent with a note that they need to immediately “reduce occupancy costs.” Landlords are trying to resist this troubling trend, but are increasingly being forced to acquiesce to this new reality. The purpose of this article is to provide landlords with a checklist, which outlines key issues that should be considered in connection with tenant requests for rent concessions. While each …

Randall Shearin Sperry Van Ness has formed an Asset Recovery Team, a group of its advisors who operate nationwide as a team specializing in the various areas of distressed properties. The team’s members include everyone from receivers to brokers who specialize in monetizing distressed or troubled real estate assets. The group has a number of goals. First among them is finding situations where it can assist in providing solutions for the owner or the lender. Second, the group is identifying companies who are looking to buy properties out of foreclosure or pre-foreclosure situations. Thirdly, since SVN is a company of smaller companies, the SVNART team was formed to create a best practices knowledge bank for all members. The SVN Asset Recovery Team met in Washington, D.C., on February 12 for a day-long session to share ideas and experiences and meet the alliance team members. Shopping Center Business was invited to attend to see how one company is evolving to the changing industry. Many of Sperry Van Ness’s advisors are actively engaged in the disposition or renegotiation of many distressed commercial real estate properties nationwide. In fact, SVN expected between 30 and 40 advisors to attend the Asset Recover Team originally. …