Simple Advice Can Go A Long Way

January 23, 2012

It has been quite a while since I added a post to my blog but that doesn’t mean I haven’t been busy. Most of my focus has been on developing new business, carving out some niches and keeping myself informed. In today’s commercial real estate market, this type of action is mandatory for survival and success.

Commercial real estate professionals are working harder than ever. Deals are fewer and competition for clients and customers is fierce. But, like other service businesses, only those who think outside the box and take action will be around when the commercial real estate market eventually recovers, which it will, in time.

A recent article by the National Association of Realtors’ chief economist showed that all commercial real estate sectors (office, industrial, retail, multi-family) began to improve last year. Over the next 12 months they are expected to improve once again ‘but a solid turnaround is still another year away at least’.

But despite the gloom, there are some bright spots in the commercial real estate market. Multi-family investments are performing well. This is no surprise. With the lack of confidence in the housing market and high unemployment, renting is the only alternative to buying. The warehouse sector is stablizing since minimal new construction has come on-line and companies are beginning to feel some confidence in their businesses.

My father who is a respected bank executive, now retired, always told me ‘not to worry about things you can’t control but work on things you can’. To me, this advice is most relevant in today’s challenging business climate. Basically he is saying don’t dwell on the way things are, just get out there and make it happen. Focusing on current real estate market conditions is not an option because it is way beyond my control. But I can focus on delivering more and better services to my clients which is exactly what I have been doing.

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Posted by Commercial Steve

Metro Boston South Region Ready To Roll

October 8, 2010

South Shore and Southeastern MA have some huge economic development projects in the works. The projects include both the public and private sector and will create hundreds of temporary and permanent jobs. Not only jobs will jobs be created but also revenue from construction of buildings and a bunch of other sources.

So now you ask, what are the projects? If you don’t already know, they include the South Coast Rail expansion, the redevelopment of the Weymouth naval station and the redevelopment of Quincy Center. There are also some other medium-sized projects like the expansion of Myles Standish Industrial Park in Taunton and the redevelopment project of Weymouth Landing. In addition there are numerous stand-alone projects in the works all over the region like a new Wal-Mart supercenter in Raynham, a new Compass medical building in Middleboro and a new 180,000 square foot office building for Meditech in Fall River. When all of them get rolling, the Metro Boston South region will experience a surge in population and new business like nowhere else in Massachusetts.

Even though the current economy is not showing a lot of signs of improvement, the region is becoming an attractive destination for businesses looking to expand or establish a new location. Seeing this amount of capital investment into the regional infrastructure and economy will have both immediate and long-term benefits. When we come out of this flat business cycle, the region will be transformed like never before.

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Posted by Commercial Steve

The ‘Great Standstill’

July 20, 2010

Today’s economy shouldn’t be referenced as the second ‘Great Depression’. It should be the ‘Great Standstill’. Between an increasingly flat economy and the continuation of the credit crunch, the overall commercial real estate market is idle. Business owners and real estate investors have little confidence in the economy so they are sitting on the sidelines when it comes to making a new purchase. Unless pressed to sell, sellers are holding their assets if and when the economy improves. Financing for commercial real estate is available but only for the better-risk properties and for the better-credit borrowers. Banks want to make loans but won’t risk their funds.

Unemployment & Vacancies
The unemployment rate is good way to track the health of the commercial real estate market. High unemployment will typically show higher than normal vacancies and decreasing rents and the opposite is true of low unemployment.

The unemployment rate across the country is about 9.7%. Massachusetts’ unemployment rate is about 9.2%. The state rate peaked during the economic downturn in January 2010 at about 9.5%, so there has been state-wide job growth since then.

The region south of Boston has an unemployment rate just above the state average of about 9.3%. When state unemployment was at its highest in January 2010 the unemployment rate in the region was about 10%. Ironically, vacancy rates in the region for industrial and commercial space have been at their highest levels in several years since January. The industrial vacancy is now at 17.3% and the office vacancy is now at 18.5%.

Somethings Gotta Give
Job growth will be closely watched in the commercial real estate market. Once companies start hiring again and new companies begin to emerge the vacancies will decrease and we will be on our way to a recovery. Modest job growth is expected this year but for a true recovery we need noteworthy growth.

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Posted by Commercial Steve

Its An Ideal Time To Buy Or Lease

October 13, 2009
steve-portrait-closeup-revised-v32Over the past couple of months small businesses have been actively on the prowl for buildings in Metro Boston South/South Shore and Southeastern Massachusetts. Most are tenants interested in purchasing and occupying their own property. The majority of them are warehouse and light manufacturing users. Office users are also actively looking to purchase but they are fewer primarily due to the lack of confidence in the office market and overall economy.

Office Market
With the office vacancy now over 12% in Metro Boston South/South Shore and over 20% in Southeastern Massachusetts, it may make economical sense to lease instead of purchase. Falling rents and an ample inventory of available space provides a tenant with an opportunity for a favorable lease. But landlords may be unwilling to provide a lease beyond five years, and possibly even three years, at tenant-favorable terms since a market recovery will likely occur sometime in the near future. With this in mind, an office building purchase may make sense. However, a tenant may not be able to locate the ideal-sized building to accommodate their business. This could result in having to purchase a larger building and then leasing the unused portion.

Industrial Market
The industrial vacancy is just over 13%. Some sub-markets are performing better than others. For instance, the South Shore (Route 3) market is outperforming the Route 495 South market which has a vacancy rate approaching 20%. Over the next few months, vacancy is expected to increase across the board as companies consolidate and retract their operations. Rents are expected to decrease by about 5% during this time. The bright spot in the industrial market is that owner users want to purchase as they come out of leases. Most of them have requirements in the 10,000 to 30,000 square foot range. Though the inventory for this size building is currently low, they are motivated by low interest rates. If a building can be located that meets their needs, the debt expense can be similar to the net rent, making a purchase worthwhile to pursue.

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Posted by Commercial Steve

Cap Rates On The Rise For Investment Properties

July 7, 2009

Metro Boston South Commercial Real Estate BrokerI have seen many real estate investment offerrings lately. One listing in particular just caught my attention. It is a net leased, single-tenant retail property here in Greater Boston. The tenant has top-rated credit and the lease was recently renewed for 20 years. It is listed for sale with a cap rate of 9.0%, assumable financing and a cash-on-cash rate of 10.80%.

In comparison, many similar real estate investments are priced at 7.0% – 8.0% cap rates. Since one component of the cap rate is the cash-on-cash rate, I can reasonably assume that the lower cap rate priced properties will provide a lower cash-on-cash return to an investor buyer.

‘Expect to see slow stabilization in the Boston investment market, while the credit crisis impedes activity. Cap rates will increase, while transaction volume will decline.’   Grubb & Ellis’ 2009 Investment Real Estate Forecast Report

Higher cap rates is a trend that real estate researchers predicted for 2009. This is not only happening in the retail market, it was also forecasted for the apartment, office and industrial markets. Of them, the apartment market was expected to experience a lesser rise in cap rates than the office and industrial markets. One bright spot is that the apartment market should experience some sales activity since investors will be on the lookout for acquisitions and banks are more confident in financing apartment buildings than other investment real estate.

Higher cap rates for properties listed ‘for sale’ means that seller price expectations will begin to reflect investor return requirements. This will have a positive impact on sales activity since the offer/ask price spread will narrow.

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Posted by Commercial Steve

Where Are The Commercial Real Estate Foreclosures?

May 19, 2009

Metro Boston South Commercial Real Estate BrokerThere is much discussion today about commercial real estate foreclosures. I get a handful of phone calls every week from buyers looking for distressed and foreclosed properties, and rightly so. The residential real estate market is in shambles so the perception is that the commercial real estate market must be in the same condition.

The recent foreclosure of the John Hancock Tower in Boston had significant media attention, both locally and nationally. About three years ago this property was purchased for $1.3 billion by a private equity firm. It was recently sold by the debt holders to a group of investors for $660.5 million. Its no wonnder many experts predict that the commercial foreclosure rate will increase over the next few years. This is partly due to the high number of commercial mortgages that are set to mature during this time and the lack of available capital to refinance these mortgages.

The CMBS (commercial mortgage-backed securities) market will likely experience the the brunt of the foreclosures since there is almost no capital available in this sector. These securities are basically pools of individual commercial mortgages that are packaged together and sold to investors as bonds. The properties vary in size, type and location and are usually top tier investments. Making a foreclosure acquisition of these properties is out of reach for most individual buyers and investors.

Many commercial lenders are extending existing mortgages for one to two years as long as the borrower is making the payments.  This can help borrower avoid foreclosure. For instance, say a lender won’t extend an existing mortgage, the borrower will then have to refinance the debt in the current market which is experiencing a ‘credit crunch’. If the borrower can’t obtain new financing due to a decrease in an appraised value, inadequate credit, etc., then the lender may be forced to foreclose.

Whether the commercial real estate market sees a flood of foreclosures is yet to be seen. Mortgage extensions are helping to keep the foreclosure rate down but if payment delinquencies increase so will foreclosures.

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Posted by Commercial Steve

Maximum Results For The Seller

April 22, 2009

Metro Boston South Commercial Real Estate BrokerCommercial and investment real estate sales are few today due to the economic recession. Property owners who want to sell can become discouraged by falling prices and demand. Therefore, it is important that all necessary steps be taken to ensure a seller attains maximum results.

By maximum results I am referring to getting the best price within a reasonable marketing time. To attain the best price a commercial or investment property must be accurately priced to reflect the then market. If a property is overpriced potential buyers usually show little interest. Reasonable marketing time is influenced not only by the then economic conditions, but also by a property itself. Obviously, an economic recession has an impact on marketing time. Also influential on marketing time is the property’s type and features. For instance, a multi-family investment property may be in greater demand today than an office building. So the marketing time for a multi-family property would be shorter than the marketing time for an office building. Also, property attributes like condition have a significant impact on marketing time. For example, a property in need of repair may take longer to sell. So it is always recommended to perform minor repairs in order to make a property more attractive to potential buyers.

When selling a commercial or investment property in the current market it is imperative to competitively position it in order to attract potential buyers and accomplish a sale. Sellers must be patient and keep an open mind.

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Posted by Commercial Steve

You’ve Gotta Have A Plan

March 27, 2009

Metro Boston South Commercial Real Estate BrokerMarketing a commercial or investment property ‘for sale’ or ‘for lease’ in today’s economic climate requires a broker’s utmost diligence,  perseverance and talent. With fewer ready buyers and tenants in the marketplace, it is imperative that a marketing plan be developed for each commercial property listing.

‘Strategy and timing are the Himalayas of marketing. Everything else is the Catskills.’  Al Ries

I look at marketing a commercial property as a process of strategic steps. The first step is to identify the ideal prospect. For example, a single user warehouse is usually best suited for an owner occupant, not an investor. So now I can target the marketing to this prospect. Next, it is imperative that the property’s features important to the ideal prospect be emphasized in the marketing. In the case of the warehouse, obviously its size is important but equally important may be its highway accessibility, number of dock doors or its warehouse ceiling height.

This information is used to create customized marketing material such as a flyer. Marketing materials should  include a photograph of the building. I have seen property flyers with lengthy written descriptions but no photographs. Fewer words are always more effective and only the essential features need to be stated, not described. The intention of marketing a commercial property is to get the prospect to act upon the information and call for a showing.

There are many ways to seek prospects but the key is to be persistent. For example, one email blast of the marketing flyer to strategic alliances is not enough. This has to be done routinely in order to be successful. Also, putting the property in a listing service or on a website is fine, but marketing should never stop there.

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Posted by Commercial Steve

Benefits Of Hiring A Pro

March 12, 2009

Metro Boston South Commercial Real Estate BrokerProperty owners who want to sell or lease their commercial property have a choice of either acting for themselves or hiring a real estate broker. Of course there are success stories of property owners selling or leasing their commercial property themselves, but there are definitely more success stories involving brokers. The reason for this is that effectively selling and leasing commercial real estate is a specialty that requires a particular level of expertise.

There are some questions I ask commercial property owners who decided not to hire a real estate broker. Did you have a price opinion, an evaluation or some other type of analysis prepared by a professional to ensure you priced the property competitively? What was your advertising and marketing plan for the property? Did you receive a sufficient number of inquiries from potential prospects? Did your negotiations go smoothly and did all parties communicate with one another? Many commercial property owners I have spoken with responded negatively about the experience of acting for themselves. So I can conclude that this experience is frustrating for most commercial property owners and hiring a real estate broker would have eliminated many of these frustrations.

The key to hiring a real estate broker to handle your commercial property is to make sure the person is a professional commercial real estate broker. The broker should have comprehensive experience and expertise with commercial and investment real estate.  This professional gives you more than just marketing services, he/she can provide you with invaluable advice on local market conditions, current pricing, effective marketing strategy and insight during negotiations. He/she can also find creative ways to close a deal that you may not have considered and save your valuable time that is better spent on your business concerns.

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Posted by Commercial Steve

SBA Finances Commercial Real Estate Purchases

March 5, 2009

Metro Boston South Commercial Real Estate Broker

As part of the massive spending bill known as the American Recovery and Reinvestment Act of 2009, TALF (Term Asset-Backed Securities Loan Facility) is designed to open up the credit markets and increase all types of consumer and business lending. One part of TALF that should get the attention of small businesses is the $730m provided to the Small Business Administration (SBA). These funds are to be used by the SBA for temporary loan fee reductions, the 504 real estate lending program and the the micro-loan program (under $35,000), as well as other programs.

The SBA 504 program provides financing for up to 40 percent of your commercial real estate purchase at a below market fixed interest rate as long as your business will be the primary occupant of the property. The loan fees are about $12,000, but under TALF they’ll be waived for a limited period of time. You’ll need to come up with a 10 percent downpayment and the participating bank will finance the other 50 percent. In a nutshell, if you are looking to buy an office building , a warehouse or another commercial property to operate your business from, you should consider this SBA program.

Conventional commercial financing is available today at attractive terms from community banks. I have spoken to many commercial lenders in the Metro Boston South, South Shore and Southeastern MA regions who are eager to make loans on owner occupied properties. Competition among these banks for new commercial mortgage business presents good opportunities for buyers, but be ready for stringent mortgage qualifying requirements.

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Posted by Commercial Steve

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