Archive for the 'Sell / Sale' Category

Hire Us to Represent Your Property Because We Represent So Many Other Buildings!

“Hire us to represent your property, because we represent so many other buildings…and, we can tell about all of the leads at those buildings…to help you lease or sell your building quicker!”

In this day and age, when transparency and conflict avoidance are top of mind of almost every corporate executive, I am amazed that some commercial real estate brokers still use this tired and lame approach when soliciting property representation engagements.  What is truly amazing is, that given the above, some property owners still buy this line of trash!

Some brokers actually tell property owners that they should hire those brokers because the brokers represent a lot of other buildings and will share with them the leads that the receive on those other buildings.  That is a very common pitch!  Those brokers make claims like:

  • You’ll have our complete attention (How is that possible?)
  • Because we represent so many buildings in the local market, we see every tenant (Will you share my leads with other landlords?)
  • We’ll tell you everything that’s going on in the market (Will your other clients mind?)
  • Sign with us, and you’ll have a greater chance of making more deals (More or fewer deals?)

So, let me understand this:  Some property owners are actually comfortable not receiving true representation, the kind of aggressive and objective expertise designed to protect their interests, beat their competition, and help them succeed…the kind of service to which the broker representation agreements the sign actually entitle them?

Instead, they’re ok with their buildings being thrown into a large pool, so when a tenant jumps into that pool, if the property owners’ lucky number just happens to pop up, or if the broker overseeing that pool decides it’s that property owner’s turn, only then would they get a shot at that deal?  Is that really what they’re signing up for?

Do these property owners recognize that while they’re enjoying the supposed benefits of so many more leads that come from throwing their buildings into that very large pool, that some buildings or property owners will drown?  Do they think that brokers offering this service will favor them, and that all of the other property owners who were promised the same access to “all of the leads” won’t be clamoring for the same tenants?

Have these property owners considered that while they’re feeding on all of those supposed leads generated for them by all of those other buildings, that leads for tenants or buyers who may be sincerely interested in their buildings, will also be thrown into that pool, thereby possibly diminishing their likelihood of success?  Do they see that those tenants and buyers may be pulled from that pool and rescued by some other property owner at another building?

Is this true representation?  Isn’t this approach a blatant conflict of interest?  Do many property owners actually accept this approach?  Do the best brokers offer something better?

About Real Estate Strategies Corporation

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com.

Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

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Always Cut Your Commission!

Yeah, that’s right!   “Always Cut Your Commission!”  And, why not?  If the only value you can offer your clients is your price, then you probably will have to cut your commissions to stay in business!

Actually, let’s clarify what is often referred to as “Commission Cutting.”  It simply means that one broker is willing to sell his or her services at a lower rate than he or she would for other projects, or perhaps in comparison to his or her competitors.  So what?  Does that mean every one in the local market must sell their services at the same price?  If you buy shoes from one store at a low price, does that mean that all of the other shoe stores will lose all of their customers and go out of business, just because you got a good deal?

Just like in other industries, there exist many common practices in commercial real estate, including those surrounding broker compensation.  But, no “standard” compensation or commission structure exists.  In fact, in most states, setting commission standards is considered price-fixing, and is illegal!

So, what’s all this noise about brokers who cut their commissions and how that supposedly affects the compensation of other brokers?  The response I often hear is that if one broker offers low-priced services then every landlord, tenant, buyer, and seller in that market will make the same demands.  Really?  Well, guess what?  They already want your services at the lowest possible price.  Shouldn’t they?  Don’t you want to buy those shoes as inexpensively as possible?  Don’t you negotiate for a lower price when you buy or lease a car?  Didn’t you negotiate when you bought your home?  Did everyone else get their home for the same price you did?  Of course not!  Seeking a lower price is the American way, and there isn’t a darned thing wrong with it.

Ask yourself these questions:

  • Are you a low-cost service provider?
  • Is low-cost always the winner?

NO!  If that were true, there would not exist high-priced hotels, restaurants, resorts, clothes, homes, cars, etc., etc., etc., or anything of better quality.  If low price always won, consumers and businesses would never buy the best quality or engage the best of any service provider.  Instead, they would only hire the cheapest.  And, in those instances, they’d get what they paid for.

Forget what other brokers do.  There is plenty of room in every industry for low-cost service providers, because some clients do make purchasing and hiring decisions purely on cost.  Low cost, almost always means low quality, and those who hire only on a low-cost basis typically receive services commensurate with what they pay.  And, if that’s their preference, so be it!

The answer here is very simple:  If you are a low-cost service provider, be the best one in your market.  If, on the other hand, you wish to be something other than low-cost, make sure that like Mercedes, BMW, Nobu, Gucci, and other fine products and service providers, you provide your clients with such incredibly valuable services, experiences, and outcomes, that your other-than-low-price will be warranted and you will be in demand!

About Real Estate Strategies Corporation

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com.

Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

Has Your Wife Inspected the Building Yet?

In a recent industrial lease transaction, how the deal came to a close was not only unusual, but very telling about the direction of the current economy.  A privately held company negotiated with a commercial landlord to occupy a full building in a prominent and well-located industrial park in central New Jersey.   The landlord had an excellent reputation for quality designed and solidly constructed buildings, for maintaining high service levels, and for sticking to his word.  However, the landlord’s buildings were also known to be priced higher than his competition.

The landlord, a very astute and respected business man, had recently gotten very aggressive in lowering rents in an effort to attract more tenants and fill his buildings’ vacancies.  Nonetheless, his rents were still higher than many of his competitors.

In this particular negotiation, the landlord offered extremely flexible terms and an annual rental rate that was one of the lowest he had offered in the last eight years.  After weeks of back and forth, the tenant’s CEO informed the landlord that the company would not accept his terms, and that the company decided to lease a building of similar quality located twenty minutes further south.  The CEO said that the building they had chosen was less expensive, and that given current economic challenges, the spread between rents for the two buildings was significant enough that he could not pass up the additional savings.  He told the landlord that his company made its decision a week earlier and that its lawyers were already deep into lease document negotiations.  The CEO was a candid guy, so the landlord took him at face value and correctly assumed this was not a negotiating ploy.

Disappointed for having worked so hard to land the tenant, the landlord knew he couldn’t win them all.  The landlord confirmed for the CEO that he had truly offered all he could, and wished the tenant well.  The CEO stated that even if the landlord had offered more, he did not expect the central New Jersey building to be able to match the lower rents at the selected building.  So, they parted, saying they each hoped to do business together again some.

That weekend, the CEO was driving through central New Jersey with his wife on his way to a social function.  Since his wife had heard so much from him about the intense building negotiations, the CEO decided to drive her past the two buildings, both the one to which the company planned to relocate and the central New Jersey building he’d decided not to lease.

After driving around the central New Jersey building and sitting in front for a few moments, the wife, who rarely involved herself in her husband’s business affairs, told her CEO husband that he was nuts for passing-up the central New Jersey building.  She told him that she thought he’d made a mistake, and that the building offered an image that was far more impressive than anything else she’d seen.  From what the CEO told her, the central New Jersey building offered a giant leap in functional design, in comparison to the company’s current facility and the one the CEO selected.  She said that the building he had chosen could not compare, that his company would have benefited considerably more by moving its employees and operations to the central New Jersey building, and that the company would likely have become more profitable and able to significantly elevate its own image had it chosen the central New Jersey building.  Wow!

The CEO’s wife was right, and he was convinced!  First thing Monday morning, the CEO called the central New Jersey landlord and agreed to close the deal, despite the additional rental cost for the central New Jersey building.  The CEO realized that given the terms offered by the landlord, he would basically get a BMW quality building for the price of a Chevy.  He knew that, despite the continued economic doom and gloom heralded by the media, a good deal would still be a good deal.  Moreover, the CEO, obviously an intelligent business man, recognized that the lowest cost deal, even if it is less than the cost of a Chevy, while often attractive, is not always the best deal.  He understood that value could be derived, and success could be achieved, in multiple ways, other than through mere cost reduction.

When companies begin to return to rational thought, as in the case above, a circumstance that has lately been repeated again and again, you can be assured that such activities are the true signs that the recovery is gaining traction.  And, when your wife tells you that your company would be better off by taking a particular action, you may want to listen closely.

What unusual circumstances have surrounded your projects?

About Real Estate Strategies Corporation

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com.

Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

Instincts and Communication Win the Day!

A broker friend of mine from the Chicago area recently had a client who was incredibly busy, often too immersed in growing its business to fully focus on its real estate project, even though the client knew that its real estate project was important to its continued success.

Throw in a few everyday business challenges, a horrible economy, and a couple of summer vacations, and you can imagine how tough it might have been for this very attentive and experienced broker to keep his client’s real estate project on track.

As the broker strove to build momentum in the transaction, the client wasn’t making important decisions and milestones weren’t being achieved.  This took place while the project was still in its early stages and even though the client confirmed its desire to complete a deal.

The broker struggled to understand why, after being in the business for over two decades and after advising hundreds of clients, he couldn’t corral this one single client and move this project forward. So many questions entered his mind, including:

  • Was the client still just too busy?
  • Were they having second thoughts about proceeding with the project?
  • Had something drastic happened in their business?
  • Was the client’s company being acquired?
  • Were they being sued?
  • Were they talking to other real estate service providers?
  • Had they succumbed to the landlord’s constant attempts to deal with them directly, in order to disintermediate the broker and increase its own profits?

The broker went over and over all of the various reasons why he couldn’t bring his client’s project forward, struggling to understand why.  He reminded himself of the rock solid representation agreement between he and his client, so he wasn’t concerned about other brokers or even the landlord getting in his way. But, what could it be that was keeping this deal stuck in the mud?

And, then it happened…the “aha!” moment. The broker instincts kicked-in when he realized that the executives with whom he was dealing had little experience in completing real estate transactions.  What if they didn’t understand how something, a deal component perhaps, is supposed to work?  What if they misunderstood some of his guidance?  What if they were concerned about risk, excessive costs, or other terms that, because of their inexperience in commercial real estate, they misinterpreted as becoming their burden?  What if they were unaware about how the broker would deal with some or all of those issues, which obligations they’d have to bear, and which would fall to the landlord?  What if, because their project’s foundational objectives were cost containment and reduction, they thought the project would be too expensive because they misinterpreted the details? What if, like too many seasoned and accomplished executives the broker had dealt with in the past, these executives were too embarrassed to say they didn’t understand or were to egocentric to admit that they didn’t know how a real estate project was supposed to work? What if? What if? What if?

Wow! Could it really be that simple! Could it be that the stalling, the delays, the inactivity, and the complete lack of momentum resulted only from simple miscommunication or misunderstanding?

The broker trusted his instincts and called his client. His opening line was: “I’d like to review how the landlord will probably bear most of the financial burden and risk in your proposed transaction.” Was he ever right on target! Despite the detailed written report the broker provided his client that explained how the transaction would be structured, his client incorrectly thought it would have to bear most of the financial burden. And, the senior executive, a bright and intelligent guy, was too embarrassed to ask. Go figure!

Guess what? The project is moving forward now at an appropriate pace. The broker expects to wrap-up a deal shortly that will greatly reduce his client’s costs and improve its operating efficiency, thereby exceeding the client’s original objectives. And, the client will bear few, if any, transaction costs.

It wasn’t the terms or the broker that held-up the deal. It was simply human nature, a missed communication by the client, a a little bit of ego that was getting in the way. Strong instincts, experience, and proactive communications often win the day, and go a long way in successfully advising tenant clients!  In this case, that’s exactly what they did!

About Real Estate Strategies Corporation

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com.

Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

Passive Real Estate Brokers…Striving for Mediocrity

Considering the current challenges in the global economy and the commercial real estate marketplace, it is amazing that a few brokers continue to take a laid-back and nonchalant attitude toward their business, their clients, and their potential customers.  

While this type of attitude may exist across all segments of the commercial real estate industry, and other industries for that matter, I have most recently experienced this confusing approach with a handful of landlord representatives.  Even more disturbing is the adversarial used car salesman-like tactics I continue to see proffered by some low-rent brokers.

These brokers even use terms that support their largess on their path to mediocrity.  They “show” their landlords’ properties.  Showing anything to another person basically says: “Here it is, see for yourself.”  Showing something only permits a view of what’s on the surface. That’s exactly the problem.  Showing property won’t accomplish anyone’s objective in an over-supplied commercial real estate market!  The most successful brokers I’ve met, those who represent either landlords or tenants, understand that not merely showing a property but, presenting it in its best light, and providing insight as to both its attributes and its short-comings is the optimal approach to inspiring a potential tenant to consider it as a possible future corporate home.

Interestingly, I have found more passive brokers representing buildings, than on the buyer or tenant side.  But, these brokers do not represent the majority of the landlord representation segment of the commercial real estate brokerage industry.  Passive brokers can sometimes afford to be more sedate, as they wait for the phone to ring and  look like heroes.  Don’t get me wrong, I’m not knocking landlord and property brokers…not at all!  I’m just fed up with the lazy ones and those who simply don’t do their job!  Some of the most impressive professionals in commercial real estate today are property brokers who understand that their success is directly related to their ability to support the objectives of their clients (landlords), while serving the needs of their customers (tenants and their brokers).

Passive brokers don’t return your calls right away, they take their time opening the emails you send them, let alone responding.  And, when they do respond to your emails, it is often in only a few words, poorly written without punctuation or proper grammar, leaving you to figure out what the heck they mean.  Passive brokers can usually be identified by sloppy and incomplete proposals and offers, and by missed deadlines attached to a long list of excuses and promises never to do it again. 

As competitors, I like passive brokers for one reason; it is pretty darned easy to win against them.  And, most often, they don’t even see successful brokers coming!  So, why do I care?  Because I must deal with them when they represent transactional opponents, and they get in the way.  Moreover, these kind of devil-may-care brokers, most of whom will put in less than an 8 hour day (even in this economy!) perpetuate too many of the negative stereotypes that many of us in the commercial real estate services industry work so hard to quash!

So, in a hard scrabble business like commercial real estate, in the worst economy in decades, do you really want to be one of those laid-back, wait-for-the-phone-to-ring types?  If so, then go sell something else, and get out-of-the-way!  There are some pretty hard-working brokers in commercial real estate who prefer not to have to step over you on their way to serving their clients and customers!

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.   Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit http://www.RealStrat.com.

Acquire new ideas about commercial real estate at RealStrat’s blog at http://www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

Where is Andrew Zezas?

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

###

Soon To Be In Foreclosure!

You’re not going to believe this story…in this economy…in this real estate market!  I almost can’t believe it myself!  This is real time stuff that  happened to me.

To set the stage, my client is a growing company that is led by a very bright CEO.  He’s young, aggressive, extremely accomplished, highly successful, hard-working, respectful, and takes no prisoners.  He’s a straight shooter who respects straight shooters.  

The tenant occupies office space in a suburban New Jersey building, which is owned by an out-of-state landlord.  This particular landlord promotes the stereotype of the mean and nasty commercial landlord, that dwindling minority of the industry that tries all they can to dominate every tenant and every deal.  This landlord, a cheap suit wearing an open collar, gold chain, and way too much cologne,  demonstrated himself to be arrogant, condescending, self-absorbed, not too bright, somewhat successful despite himself, probably a front man for other people with real money, and based on his antics, someone who still thinks he’s in a landlord’s market where tenants should pay homage to him and be grateful to be occupying his building.  Based on how this landlord handled himself, he is a very strong candidate for president of the local bread line.
Here’s the abridged version of what happened.  You’ll get a kick out of it!
  • Our client, the tenant, sought to renegotiate its existing lease based on current market conditions, or to relocate to another building
  • Our client had uncomfortable dealings with the landlord in the past
  • We submitted an RFP to the landlord’s agent and provided specific guidance as to our tenant’s requirements
  • The landlord’s agent called us with a precise message from the landlord, one that I have never received before:  “The landlord said if you play ball with him, he’ll pay you a commission.  If you make it tough for him, he’ll only pay you half!”  Wow!  How to win friends and influence people!  Was the landlord trying to intimidate us, create a conflict-of-interest, or just bring us over to the dark side?  We advised our client of the conversation.
  • Despite our guidance, the landlord submitted a proposal that was extremely one-sided and did not address our client’s requirements
  • The landlord attempted to circumvent us and meet with our client directly
  • Our client authorized us to arrange a meeting with the landlord, which we did
  • The landlord rescheduled the meeting twice and then swaggered-in 45 minutes late
  • During the meeting, the landlord was disrespectful to our client, speaking down to both the CEO and the President, as well as, to his own agent
  • The landlord arrogantly spoke to me, and after realizing that he was not the most important person in the room and wouldn’t get his way, waved his arms, got up and stormed out
  • Despite our email and voicemail requests for a revised landlord proposal, weeks passed without a reply
  • I finally go the landlord’s agent on the phone one evening, when he sheepishly told me he was not authorized to respond, but didn’t want me to tell that to the tenant…Huh?
  • We received an email directly from the landlord saying we were an impediment (To what…his ability to take advantage of our client?), and telling us that he instructed his agent not to deal with us ever again (Really?  So, I should not bring my next 100,000 sq ft tenant to your building?)
  • Our client said good riddance and instructed us to make a deal elsewhere
  • Our client will be moving into their new facility shortly
  • Oh, and did I mention that the landlord’s building is a 60% vacant class B building that sits way out beyond the western fringe of the central New Jersey market, where very little demand exists even in good times?

Anybody want to buy an office building…cheap?

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.   Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com.

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

Where is Andrew Zezas?

 

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

###

Will Recovering Capital Markets Catch the Other Commercial Real Estate Shoe Before It Drops?

In previous blogs, I’ve written about the potential perils of lending, credit, and capital markets, and have asked the question:  As the Economy Stabilizes, Will Commercial Real Estate Markets Worsen?  I also discussed how investors and corporate occupants have recently been successful in buying office buildings for One Year’s Rent!

With $1.4 trillion in commercial debt expiring and in need of replacement over the next three to four years, many of us in the commercial real estate industry are asking ourselves:  “If the next shoe drops in commercial real estate, will the bottom fall out of the economic recovery?”

Let’s consider some of what’s going on:

  • Securities markets remain volatile
  • Credit markets appear to be moving slightly, but are doing so cautiously
  • Europe?  Don’t get me started!
  • The BP oil spill debacle in the Gulf of Mexico?  Too many bad things to say here about too many people!
  • Banks are still not aggressively lending for commercial real estate (Loans-to-value, recourse, and other important metrics are loosening, but are still rather challenging)
  • Despite a large portion of the nation’s commercial  real estate being owned by institutional investors, the majority of commercial properties are owned by private entities

One of the challenges in jump starting commercial real estate markets, that differs from the last declining real estate cycle, is that a majority of previously placed commercial real estate debt was securitized.  Replacing such debt now, often requires arduous negotiations and decision-making on broad and deep levels.  Challenges associated with time and cost of restructuring securitized debt has proven overwhelming to some borrowers, forcing foreclosure and deeds-in-lieu of foreclosure actions.

Some banks, becoming saturated with delinquent loans, non-performing properties, pending foreclosures, forbearance, and foreclosure avoidance procedures, simply will not or cannot return to lending in the near term.  They have become, in essence, property disposition servicers.  We’ve seen that before…can anyone say “Resolution Trust Corporation”?

In the current environment, banks and other lenders are more likely to lend on fully leased commercial properties.   Such properties represent the minority of those seeking funding.  Other lenders are focused primarily on residential properties, and are offering loan terms that are considerably more favorable than those available for commercial properties.  As a result, many commercial investors have moved into residential real estate investing.

How will the economy work its way through these challenges?  What must occur in order for commercial real estate markets to truly stabilize?  Can banks simply lend their way out of this?  Will recovering capital markets catch that other shoe?  What are your thoughts?

Follow me at http://www.Twitter.com/RealStrat

Visit Real Estate Strategies Corporation at www.RealStrat.com

Check out the Executive’s Guide to Understanding Corporate Real Estate Transactions at www.TheExecutivesGuides.com

Where is Andrew Zezas?

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.


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