For the past 13 years, the fine folks at REALTOR® Magazine have been recognizing REALTORS® whose volunteer work makes  difference in their communities.  This year being no exception, the 14th Annual Good Neighbor Awards are kicking off today.

REALTOR® Magazine is seeking nominees for the 14th annual Good Neighbor Awards, which recognize REALTORS® who impact their communities through volunteer work. Five winners will be recognized at the 2013 REALTORS® Conference & Expo in San Francisco and will receive travel expenses to attend the show and a $10,000 grant for their community cause.

What Constitutes Volunteer Work?

Volunteer work might include affordable housing initiatives, youth mentoring, homelessness prevention, or anything else that makes a community a better place to live. Entries must be received by May 20, 2013.

For more information and an entry form, go to REALTOR.org/gna, see our ad in REALTOR® Magazine, or contact Sara Geimer at sgeimer@realtors.org.   Check out this video featuring some of 2012′s winners:

When’s That Entry Deadline Again?

May 20, 2103.

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With five years of job numbers trouble and economic sluggishness, it’s no surprise that in markets everywhere  - primary, secondary, and tertiary –  plenty of office properties find themselves in the “wrong hands”.   Yet the bargain-hunter market in office properties has been characterized as a lot of money chasing a little product.  Which national trend actually prevails — a wave of distressed sales or a pick-your-shots character to most markets in troubled office property?

The case for more opportunity

Office properties have the greatest national volume of distressed loans.   According to Real Capital Analytics, one fourth of the current volume of distressed properties are office, coming to about $42 billion in troubled lending.  Sorting markets by total volume, some of the highest levels of distress include loans in default or held as REO, in Las Vegas, Manhattan, Phoenix, Chicago and Los Angeles.

Of course, primary markets aren’t the only source of distressed office space.  And in a general trend, property values have risen in the past year, meaning more sell-side pressure than would exist at a bottom.  As institutional sellers cautiously poke their heads up into the weather, REO departments and capital sources such as private equity firms are finding each other in ever-growing numbers:

Although pricing rose during the last two years, there is still a lot of opportunity out there, notes Joshua Zegen, managing member and co-founder of Madison Realty Capital in Manhattan. The private equity firm has been a large acquirer of distressed debt in recent years, and the company is continuing to pursue that strategy. Since 2010, Madison Realty Capital has closed on about $300 million of distressed debt transactions, mainly from banks and special servicers.

“The regulatory pressures are creating more momentum for loan sales,” says Zegen. Changes, such as the proposed Basel III, which will require banks to post more equity against sub and non-performing loans, is forcing banks to make strategic decisions to sell versus hold non-performing debt.

In addition, property values have moved off the bottom, which has created more flexibility to sell non-performing loans for those institutions that didn’t want to sell at the low point in the cycle, he adds.

For example, Madison Realty has been very active buying busted condo deals in the New York area. The investment firm has been able to buy the distressed assets and use its real estate expertise to complete the conversions and reposition the properties as rental units. “When the markets rebounded a bit, that was a great strategy, because the banks did not have to take the steep losses that they would have expected to take in 2009 and 2010,” notes Zegen.

The case for less

On the flipside, there’s an institutional bias to this market.  Unlike with the multifamily sector, investors tend to be more institutional and as such  have managed their portfolios more conservatively, allowing for more downside risk.   The presence of a “story” building or a “one-off” owner is far less common in this marketplace, and the chances are great that a distressed office property is being held off the market until values or cap rates move exactly where a master formula wants them.

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MAR President Bill Milliken, CCIM

At the CCIM Institute, Bill Milliken, President of the Michigan Association of REALTORS®  works with the CCIM Legislative Affairs Department on legislative and policy issues.  Bill sat down to talk about legislative advocacy in the CCIM Podcast ahead of the CCIM’s April 10th Capitol Hill Visit.  The highlights:

What are some of the issues CCIM members plan to bring to up to Capitol Hill?

Bill: With the benefit of CCIM and IREM staff, we’ve got tremendous research that comes along with us on Hill visit. A lot of data is at our  disposal. We’ve got  a handful of issues.

Credit Union lending Cap — Credit Unions have been restricted to lennding 12% of their total assets. We’d like to see that double to help fill some of the the lending shortage in the market place.

There’s another [issues] called the Marketplace Equity Act.  That goes to internet sales tax losses that are experienced around the country by states and the federal government. When an internet sale takes place and there is no sales tax collected on it, the consequence of that here in Michigan alone is about $225 million a year in lost revenue from internet sales. There are a lot of units of government that are looking at that and were interested in talking to legislators about it.

Lease accounting [Meaning FASB's proposed rules -- see The Source on NAR's recent advocacy on this issue --Editor]

You’re a  longtime supporter of the REALTORS® PAC (RPAC). What role does RPAC play in advocating for CCIM members?

Bill: Boy, RPAC has become increasingly important,  especially over the past couple of years. There was a Supreme Court decision called Citizens United that opened the floodgates for [campaign] funding, coming not from corporations but from wealthy individuals and other independent groups. Our group, RPAC, is a way that REALTORS® can get some footing and have some parity with the money thats flooding into the political process. In Michigan,our RPAC arm interviews each state candidate and makes endorsements based on how those candidates represent REALTOR® interests. The importance of donating to RPAC through CCIM or our state associations have never been more important.  No matter what you think of money in the political process, it’s part of it, and this is how we get our voices heard.

What advice would u give to someone who wants to get involved in legislative advocasy at the state or federal level?

Bill: One is to respond to the NAR’s calls for action.  Those are responding to issues in Congress in Washington, where voices need to heard.  We’re all linked up electronically to those calls of action. When you see those, its time to respond and sign in and make your voice heard.

Another way to do it is an investment in RPAC, the REALTORS® Political Action Committee. We had a goal in Michigan last year to raise $425,000 statewide. We exceeded that, raising $450,000 and we put that to very good use. CCIM’s Hill Day is on April 10th. That’s what we’re going to be doing this spring. Last year we had 265 CICMs and IREM representatives that were on the Hill for meetings for the day and its a great way to network and learn the political process.

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In 1990, President George H.W. Bush signed into law the 1990 Immigration Act, which included a novel provision to attract foreign investment and create jobs in areas that most need them.  The EB-5 Visa program is a way for foreign investors to earn a green card if they invest in the economic development of a “targeted employment area” (TEA), defined by the program administrators, the US Dept. Of Citizenship and Immigration Services (USCIS) as:

“…an area which, at the time of investment, is a rural area (not within either a metropolitan statistical area (MSA) (as designated by the Office of Management and Budget) or the outer boundary of any city or town having a population of 20,000 or more), OR an area within an MSA or the outer boundary of a city or town having a population of 20,000 or more which has experienced unemployment of at least 150% of the national average rate.”

EB-5 rules include stipulations that the non-resident investors must show that jobs have been created, are being worked by the legally employable, and that those jobs are not held by the investors nor the investor’s family members.

Green For Green

As a way of drumming up new sources of capital for commercial projects in targeted areas, the EB-5 program has been a qualified success with room to grow.  While Congress’s ideas about program adoption in 1990 turned out to be optimistic, the program has been the source of $1.5 billion in foreign investment over its life thus far. The USCIS says that as many as 10,000 such visas can be issued in a year, but the most issued in a year thus far has been 4,000.

While the program’s rules and regulations are currently being reviewed for simplifications, the basics will likely endure: investors under EB-5 must invest at least $500,000 in a high-unemployment area to qualify.

What And Where Are Regional Centers?

NAR’s Commercial Real Estate Advocacy Timeline mentions in August of last year that the Senate passed S. 3245, sponsored by Senators Leahy (D-VT) and Grassley (R-IA), reauthorizing the EB-5 regional center program for three years. EB-5 regional centers allow foreign investors channel investment funds into American businesses and developments.

Regional Centers, approved by the U.S. Citizenship and Immigration Service, identify  businesses and development opportunities that meet the community’s needs. In return for  investing and creating American jobs, these investors earn visas to live in the United States.
Regional Centers were created in 1992, but have existed as a pilot program since then. The  program was set to expire on September 30, 2012. NAR’s advocacy efforts will now turn to the  House, which still must consider the measure.

A full description of Regional Centers from USCIS can be found here.

A list of such projects nationally is of special interest to any commercial practitioner in management, development, brokerage or finance.  Since being of interest to such folks is what we’re here to do, enjoy the following table containing the names and locations of all 261 Regional Centers across the US.

EB-5 Regional Centers

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Because commercial real estate practice needs its own support system, NAR Commercial Division encourages and supports existing associations to create of Commercial Overlay Boards devoted to such support. In 1992, The Board of Directors of NAR authorized the establishment of Commercial Overlay Boards of REALTORS®. A Commercial Overlay Board co-exists and shares (overlays) geographic jurisdiction with one or more  REALTOR® associations, in order to better serve members in a commercial market area.  At the same time, the territory currently assigned to existing associations remains intact as well as their right  and obligation to provide services to their members. COB jurisdictions may be local, multi-market, state-wide and inter-state.

How Do You Research The Market To Create A COB?

• Identify Leadership: Identify a core group of respected, dedicated and committed commercial members to lead the effort to propose and create the COB.
• Define the COB Jurisdiction Area: The market area in which the COB commercial members’ practice defines the targeted jurisdiction.
• Founding Members (15) And Firms (10): List the founding members and firms of the COB.
• Identify Potential Members And Firms: Identify the potential number of COB members and firms within the proposed jurisdiction.
• Assess Market Conditions, Member Needs, Services And Allied Organizations:  Appraise the local market conditions and list the ways a  COB can assist commercial practitioners to increase their transactions. Only promise what the COB can deliver.
• Develop A Strategic Plan:  Summarize the information gathered during the assessment stage and give the COB direction
• Develop A Startup Action Plan:

Full details on the steps for COB creation are available here to NAR members with an NRDS login.

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The week ending February 9th saw a drop in jobless claims of 27,000, continuing a general trend in new jobless claims that  is approaching pre-2007 recession levels.

NAR Research Economist Scholastica (Gay) Coroaton published the latest US Dept. of Labor statistics at NAR’s Economist’s Outlook Blog.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses initial jobless claims.

• Good news for the job market this week: initial unemployment insurance claims for the week ending February 9 dropped to 341,000, which is 27,000 claims lower than the previous week’s level.  Although the data is preliminary and gets revised higher nearly every week for prior week’s data, the drop in initial claims is larger than the usual weekly variation since January of about 18,000 claims.  This indicates that fewer people are starting a period of unemployment.
• The level of weekly claims looks headed towards 350,000 from last year’s average level of about 375,000 claims. It is also a far cry from the peak level in 2009. Still, the pace of job creation has to accelerate to absorb those already unemployed into the market. As of February 2, about 3.2 million continue to receive unemployment insurance benefits.
• The bottom line for REALTORS® is that the job market continues to make steady, if modest, gains. NAR projects 1.4 million non-farm net new jobs in 2013, one factor that can support 5.08 million existing homes sales.

Of course the commercial real estate sectors rely more directly on employment in both leading and trailing indicator relationships to job numbers.  Unemployment and office vacancies are usually closely tied, and with vacancy rates go absorption rates and other metrics. There’s room to suggest that the 2007 recession was a correction, as  Michael Campbell’s recent piece in the Tennesseean  does when he writes

The typical complementary relationship between unemployment and office vacancies was re-established in late 2005. That is, they began moving together again, but vacancies were still much higher relative to unemployment than they had historically been.

The Great Recession, which officially began in December 2007, shocked the unemployment/vacancy relationship back to normal, where it has remained ever since.

[...]

When the Great Recession hit, the “normal” relationship between unemployment and office vacancies was re-established. And, as can be seen on the graph, the normal state is for office vacancies to mirror the economy, but lag behind it. These timing differences are due to the long cycle of commercial real estate transactions. In other words, a company may lay off several workers and vacate its office space, but still be committed on a long-term lease, which may not expire for a number of years.

[...]

After the recession’s peak in June 2009, this timing lag continued until approximately December 2009, when the numbers began tracking as you would expect, with vacancies decreasing as unemployment drops.

One thing’s for sure: offices are here for workers.  The rest is more complicated: occupancy follows jobs on one side of the cycle, and jobs follow the economic activity of occupied offices on the other.

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Technology’s power to reshape commercial property operations has been at work for decades.  We observe the waves of change in e-commerce as if nothing similar had ever happened before, but the fact is that the electronic era has constantly produced new realities for the commercial property industry to adopt,  adapt or ignore at its peril.

The idea that background music of a certain tone adds value to retail and office spaces is an old and proven one.   When I saw that Muzak, the company most identified with providing that element is changing its tune, ditching its 79 year-old name, I looked into the company’s history and found a mix of commercial psychology, marketing and music that we take for granted in any store or office walkthrough today.

Technological Upheaval, 1920s-Style

In the 1930s, Muzak grew from a 1922  patent on delivering music into buildings across electrical power lines.  The company was a cutting-edge technological marvel in its heyday, and property owners lined up to order the service, at first out of novelty then later in a bid to understand and affect the psychological states of the shopper, the worker, the visitor.  The commercial property industry terminology for this is “performance”, a measure of economic productivity value generated per square foot, value needed to offset (at least) or dwarf (at best) all the costs  that space presents.

Muzak Becomes Mood

As reported by New York Times Ben Sisario, the psychology of mood and the economics of retail grew into a huge business.  And that Muzak, the iconic brand of that ambient, pleasant hey-stick-around-it’s-nice-in-here audio programming was taking on a new more direct name:  Mood.

Mood Media, based in Concord, Ontario, has become a leader in so-called sensory marketing, providing stores and other businesses the sights, sounds and even smells to envelop their customers. In addition to Muzak, which it bought two years ago for $345 million, Mood has divisions for signs, interactive displays and scents, which it says reach 150 million people each day at more than 500,000 locations around the world, from Saks Fifth Avenue to Petco.

On Tuesday, the company will announce that it is consolidating its services under a single brand, Mood, thus eliminating the Muzak name.

“It’s the end of an iconic American brand,” said Lorne Abony, Mood Media’s chairman and chief executive.

The move reflects the growing sophistication of in-store services, as well as the pressures facing physical retailers in the Internet age. At Mood’s interactive kiosks, for example, shoppers can try on clothes virtually, while the company pipes in upbeat songs and scents intended to set a mood or cover up unpleasant odors.

“There’s a huge opportunity and a need for physical retailers to make the experience more interactive as they do battle against online channels,” said Edward S. Williams, a digital entertainment analyst at BMO Capital Markets in New York.

Property managers and tenants will tell you the devil is in the details — small factors such as ambience add up to the performance of a property.  Until the numbers tell the ambient music industry otherwise, expect to keep hearing lite versions of pop tunes in the successful retail and office spaces.

Entire NYT Article.

(Photo credit: jplpagan)

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A major distinction between the residential and commercial real estate business sectors are in the markets and methods of financing.  The use of buildings as collateral to borrow money is what drives both industries, but similarities between the finance of commercial and residential real estate more or less end right there.  Residential practitioners considering commercial deals would do well to educate themselves deeply on the particulars of CRE finance before jumping in.  Naturally, NAR and NAR Affiliate education offerings abound for this.

But just to keep it on a conversational level: what are the biggest differences between the two?

Terminology And Contexts

Residential practitioners use a wide range of financial terms that have no parallel in commercial real estate.  There’s no such thing as a commercial HELOC, nor “stated-income” loans. But a look at terminologies between commercial and residential shows that residential’s particular jargon is very limited in comparison to that in commercial.  This is because residential real estate is very narrowly defined, and commercial spans everything residential doesn’t.

Fannie Mae defines residential properties as single-family homes and multifamily dwellings of four or fewer units.  That leaves literally every other kind of real estate out of the residential classification and by default in the enormous and complex definition of commercial property.   If it’s not residential, it’s commercial.   Land, industrial, income-producing, non-income-producing,  retail, office, you name it. There are hundreds of different types of commercial property.

Lenders For Every Property Type

Commercial presents a far greater degree of specialization in capital sources than residential.  For as many kinds of commercial property that exist, there exist lenders and terms tailored to that type of property.

Take retail. Consider how many significantly different shades of retail spaces exist: there are strip centers (not anchored by a grocery), neighborhood shopping centers, big-box power centers, shadowed anchored centers, high-end specialty, and more.

Capital sources for each type of retail present different financing propositions, because the cash flows that the properties create are all different and all critical to the lender’s profitability on the loan.  Interest rates tend to be lower for anchored properties, higher for strip-type shopping centers.  Compared to residential, commercial property lending goes for depth rather than breadth: hardly a bank is in business that doesn’t do home loans, but many lenders just don’t have the background to do some kinds of commercial loans.

The Landlord

The understanding of cash flow for a business and the building of future expectations against that understanding  is something a lender needs in order to lend to a business.  And it’s also the same reason lenders prefer not to lend to businesses, but to landlords who lease their properties to businesses.  Commercial property is far easier to analyze and is much more predictable to lenders than the business of commercial tenants is.

In residential real estate, where there is no actor comparable to the commercial property landlord, lenders focus on creditworthiness of homeowner-borrowers (and, to disastrous effect a few years ago, sometimes focus on things other than creditworthiness).   While not without its own risks, the residential financing side of the real estate business enjoys a limited set of decision factors compared to the commercial side.

(Photo credit: Tax Credits)

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February 15, 2013 is the deadline for applications to 2013′s NAR Commercial Innovation Grant Program. If you or your local REALTOR Association have dreamed up a great new way to add value to the membership and to the commercial real estate business, NAR Commercial Division wants to hear about your innovation, then support it and shout it from the rooftops if it’s really something special.  The program seeks new CRE products, processes and services or enhancements on existing ones that will make a difference in our industry.

Innovation Goals

So,  what’s an innovation specifically?  It’s a project that meets the goals and criteria laid out by the program.  Innovations should leave the landscape changed for the better in the following ways:

1. To enhance the membership value and experience of members involved in commercial real estate.
2. To connect and engage members in relationship building programs within the association.
3. To elevate the exposure and expertise of the local commercial real estate professional and REALTOR® association within the market area and community.

Innovation Criteria

Ask these questions of your project – or get started with a new project with these questions in mind:

1. Does the Innovation Grant proposal impact the REALTOR® association with a new or enhanced product, program, process or service to improve the member’s experience?
2. Does the proposal educate the general membership on commercial real estate issues or programs?
3. Does the proposal increase awareness of REALTORS® who are commercial real estate practitioners?
4. Are there clearly demonstrated measurable goals that indicate the potential success of the project?
5. Is there a reasonable understanding of budget and timeline necessary to achieve success?
6. Does the applicant recognize factors that may inhibit the ability of the project to meet its goals?
7. Can the idea be adapted to other REALTOR® associations?
8. Does the REALTOR® association have an active commercial structure (committee, division, alliance, etc.)

Past Grant Recipients

Inform your own application by checking out past successes.  You can review the Executive Summaries of the 2012 NAR Commercial Innovation Grant award winners, and find a range of programs, services and events that create new value to members in neat ways. From Sacramento Association of REALTORS® Commercial Mentor Hotline (highlighted in these pages here) to the Chicago Association of REALTORS® CommercialForum subscription-based service, and every winning project in between, a whole raft of important new thinking is around to inspire your 2013 application.

Apply to the NAR Commercial Innovation Grant program here before February 15, 2013.

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The USDA’s semi-annual survey on the state of farm finances, called the Agricultural Resource and Management Survey (ARMS) is “the only national survey that annually produces observations on field-level farm practices, the economics of the farm operating the field, and the characteristics of farm operators and their households”.  This year’s ARMS look at the economics of farm operations is showing a race between rented and purchased land prices, both rising, but one lagging the other significantly.

Owning Vs. Renting Markets

Ownership means less in the land use picture than in other lease-driven sectors. Typically, rented farmland is worked according to the needs of the renter, not the landlord.  Leases are often informal. According to the most recent survey, 93 percent of producer/respondents say the landlords aren’t involved in the decisions about land use, crop or livestock selection.  That said, the booming market in farmland might suggest that capital is flowing to such deals from distant capital centers.

Not so, says the survey.  75% of landlords live in rural areas within the state where the farm is located.  About 17% of those are within the state, but in “urban” areas (rated as populations over 10,000).  Only 8% of farm landlords live out of the state, according to the USDA study.

The average US farm has approximately three rental agreements in place. These might include fixed or flexible cash rent, crop share and even free rental agreements. As the farm size rises, the number of rental agreements increases.

According to presenters at Farmland  Leases: Tales, Types and  Trends, a conference sponsored in November 2012 by the Chicago Federal Reserve, higher crop prices are forcing changes in rental agreements, requiring renters to make extra payments, often based on crop prices and yields. Even so, cash rental rates are lagging ownership prices in farmland.

Iowa Farmers Warn Of Land Price Bubble

Rental and ownership looking flush as it is, who’s on the bearish side?  Farmers.

Some producers see bad weather coming in ag land prices.  A statewide poll of Iowa farmers returned an alarmingly high percentage of farmers agreeing that farm land price levels are unsustainable.

A majority of the farmers responding to a statewide poll believe Iowa farmland is overvalued and prices are much higher than the land is worth.

Sixty-eight percent of the producers responding to the 2012 Iowa Farm and Rural Life Poll agreed that farmland values are too high and cannot be sustained at current levels. Forty-eight percent agreed that “the farmland market is in a bubble that will eventually burst and lead to major drops in values.”

Other farmers were more optimistic, with 41 percent believing that land values will continue to rise, but at a slower pace. More than 60 percent of the poll participants agreed that quality cropland is still a good investment.

Asked to rate the impact of a number of factors on recent farmland price escalation, 85 percent agreed or strongly agreed that high corn and soybean prices was the most influencial factor driving higher prices. Seventy-two percent believe competition between neighboring farmers who want to expand their land also is a major influence boosting land prices at auctions.

Two-thirds or 66 percent of farmers indicated that low returns on other types of investments was a strong or very strong influence. Seventy-one percent of survey respondents agreed that rising land prices have led to intensification of farming.

Somewhere between the bear and the bull lies the barn.  What will its future hold?  Is a kind of financialization of farmland underway where non-operator owners will ultimately make a killing but leave the operators in a lurch?  Or is the explosion in population and food demand a built-in support for land prices and rents?  Time will tell.

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