commercial real estate

While I often claim I threw out my crystal ball a long time ago, I will now go out on a limb and make a prediction: retailers are going to feel a lot more pain through the holiday shopping season. I predict more bankruptcies, more store closings, and more alternatives for your existing tenants that might have expiring leases.

If you’ve been thinking about selling that strip center, now’s a fine time to take some money off the table. Cap rate won’t be as attractive as in 2007 but who can time the market? And remember you’ll be buying into the same market you’re selling into.

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Langley

NAI KLNB is pleased to offer this 50,000 square foot office warehouse building on 2.13 acres.

Building has two occupants: seller (who will vacate or lease back) and Fortune 500 tenant.

Great cheap building for warehouse user, investor, or office conversion.

Email or call Chris Kubler at 443-574-1415 for more details or a tour.

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Try C-loans.

They maintain a database of 750 commercial lenders eager to make a loan.

Enter your criteria at this link and their database will spit out at no charge the 20 or so lenders best-suited to work with you.

You can then submit your loan application to them electronically or give them a call to discuss!

No charge to query the database - it’s free!

I saw a blogger suggest raffling off your home. Four thousand $100 tickets, for instance, would take care of a $400,000 house. Let a charity work as your partner, and they keep the overage (say you sell five thousand tickets in all).

Might be an interesting play on the commercial side, say for a smaller single tenant net leased investment (say a little $700,000 Dollar General with some assumable non recourse financing?). That could be marketed across the country, unlike a house.

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For commercial brokers to thrive:

10. Focus on the buyers: who can close a deal in this environment? Who is active? Monitor the comps.

9. Call on lenders. Broker the sale of troubled notes and REO (real estate owned by the bank).

8. Make short sales: that involves convincing the lender of a mortgage sale to discount the mortgage balance to facilitate a sale.

7. Prospect: How many of you actually make cold calls? Knock on doors? Try harder!

6. Call on owner occupants of real estate and suggest sale leasebacks. This is often the cheapest source of capital for companies in times when the lending market is tight.

5. Review your listings. Punt sellers that aren’t willing to adjust to the new pricing reality but remain demanding of your time.

4. Look to list and sell property encumbered with attractive, non-recourse financing: since this kind of financing is hard to get and rare, these assets are particularly sale-able today.

3. Take a page out of the residential agent’s playbook and call on “expired listings” and FSBOs. This is a fine time to be the 2nd or 3rd agent to take on a listing that’s due for a fresh face and a reduction in price.

2. Consider tackling a new unique product type: think car washes, mobile home parks, golf courses, churches, timber land, theme parks, cell phone towers, power generation plants, etc. etc. etc. Anywhere the competition isn’t.

1. Use some of that free time you’re not spending making deals to get some professional education: www.ccim.com.

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Isn’t commercial real estate a miserable subject about which to blog? Could my commercial real estate blog be any dryer?

Ameribank of Northfork WV bit the dust on September 19. This is the 12th community bank that went down for the count this year.  Five have tanked since August 1 alone.

This is unfortunately the fault of a regulatory environment that did little to stop predatory lending practices targeting subprime borrowers.

My world, the commercial world, has been dragged down simply by association.  There is little-to-no non-recourse debt financing available to fund commercial real estate acquisitions, despite sound market fundamentals in my area. The volume of CMBS loan originations — the primary source of non-recourse debt up until 2008 — is down 90% over last year.

A cap rate, or capitalization rate, is an expression of return calculated as follows:

Net Operating Income/Purchase Price = capitalization rate

A cap rate does not take into accout return over time, as it only focuses on one year’s income.

As such, to only evaluate a real estate investment by looking at its cap rate is foolish. What does the 2nd year’s income look like? The 10th year’s income? Where are rental rates in place compared to market? Are you paying more or less than it costs to replace the building? What will cash on cash returns look like after the property is financed? What is the internal rate of return after a 5 or 10 year hold?

It’s your return on an investment over time.  It calculates the present value (ie the value today) of cash coming to you or leaving your pocket in the future.

In the case of evaluating a real estate investment, you have to project cash flow for a period of time into the future to give yourself a series ofcash flows to use in your calculations.

Then, because a dollar today is worth more than a dollar tomorrow, you discount the future dollars. The farther into the future, the bigger the discount.

IRR calculations are subject to big time manipulation in negotiations. By changing the sale price at the end of the analysis you can drive the IRR up or down dramatically.

Take a class from the CCIM Institute — on line or in person — to learn how to calculate an internal rate of return. Or just use Excel…but then you’ll never really understand how it works.

NAI KLNB is pleased to offer for lease 6500 to 8500 sf of office/warehouse space available in attractive business complex in capitol heights.

attractive entrances and office in front; warehouse with loading in back.

Email or call Alan Coppola at 443-574-1404 for more information or a tour.

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