Enjoy the latest issue of NAR’s Commercial Connections magazine, free and online. This issue, the editorial team tackles the phenomenon of crowdfunding in the commercial space with an in-depth report by Mariwyn Evans showing the landscape of this new deregulatory market development and the financing impact it brings to bear. Plus more – a technology report on 3D printing in the commercial real estate space, a handy timeline from your team on Capitol Hill on the issue of lease accounting, and a tutorial from RPR Commercial on pinpointing target audiences.
New CCIM Leadership For 2015
The CCIM Institute welcomed 2015 President Mark Macek, CCIM, with an inaugural celebration during the organization’s annual business meetings in Los Angeles on Sunday, Oct. 19. A 25-year commercial real estate industry veteran, Macek has served on the CCIM Board of Directors and several key national committees. He is also a graduate of the CCIM Institute’s Jay W. Levine Leadership Development Academy. Other 2015 leadership team members include President-Elect Steven Moreira, CCIM, First Vice President Robin Webb, CCIM, and Treasurer Charles C. (Chuck) Connely IV, CCIM.
Congratulations to CCIM’s 152 Newest Designees
CCIMs who were in Los Angeles for the organization’s fall business meetings celebrated the success of 152 new designees during a pinning ceremony on Oct. 20. To earn the CCIM designation, commercial real estate professionals must complete more than 160 hours of case-study driven education covering topics such as interest-based negotiation, financial analysis, market analysis, user decision analysis, investment analysis, and ethics for commercial investment real estate. Candidates must also compile a portfolio demonstrating the depth of their commercial real estate experience and pass a comprehensive examination. Learn more about CCIM’s designation program and educational courses.
Bay Area commercial realtor Davide Pio, CCIM takes us through the eternal question – lease or buy? To answer this question, you have to know what questions to ask and answer, what parameters and what hypotheticals to think through. Davide does an excellent job doing just that in this terrific video.
FundWell Founder and The Source guest blogger Chinwe Onyeagoro, was recently featured on the Real Estate 360 Radio Show on Silicon Valley’s KDOW AM 1220. Chinwe joins host, Joe Cucchiara, and his wonderful team to share more about the FundWell platform and to offer critical insights about financing for commercial real estate investors, developers, and small business tenants. The engaging hour long radio show covered the following topics and more:
- What are the main loan product options for commercial real estate developers & investors?
- What are the pros and cons of the lending options available?
- What should a commercial real estate tenant consider when deciding to buy or lease?
- Who should pay for tenant improvements in various situations?
- What are some creative financing structures used to close that deal?
To listen to the September 4, 2014, RE360 podcast with special guest, Chinwe Onyeagoro, CEO, of FundWell, please click here. (Note: the RE360 Radio show begins about seven minutes into the above link’s stream). Many thanks to Joe Cucchiara and his dedicated team.
About RE360 Show Host – Joe Cucchiara, as a Mortgage Planner with W.J. Bradley Mortgage Capital, LLC & Founder of RE360Radio, Joe is dedicated to providing exceptional informational value in anything and everything real estate. With a firm commitment to borrowers, referral partners, and the banking and brokerage community, Joe believes that knowledge is power. In furthering his passion to share trusted real estate information, Joe developed and launched his own radio program on the Wall Street Business Network. As host of Real Estate 360 Radio for over 3 years, Joe’s program now airs Monday thru Friday from 3-4pm Pacific Time on KDOW AM 1220. With regular experts, market updates, guest hosts, and community segments, listeners are encouraged to join in the engaging discussion.
(Above: Dr. Lawrence Yun, Chief Economist, NAR)
Network with Industry peers from Meadowlands, Bergen and Passaic Counties as you discuss the future of the local commercial market at this business-after-hours cocktail reception. Chief Economist Dr. Lawrence Yun of the National Association of REALTORS, will present the economic forecast, outlook and trends for commercial real estate in 2015. Immediately following Dr. Yun will be a local expert panel of commercial real estate professionals to provide local market insight.
Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them Blue Chip and the Harvard University Industrial Economist Council. He oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report.
USA Today in 2008 listed him among the top 10 economic forecasters in the country and he has been named among the Most Influential Real Estate Leaders by INMAN News over the past several years.
Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.
Sears creditors get nervous, Nashville plays a new corporate relocation tune, and suds rise in Portland (pictured above) – it’s all here in the Commercial Real Estate News Roundup for October 8, 2014.
Downtown L.A. real estate is drawing N.Y. investors’ interest, LA Times, Oct. 5, 2014 - Hollywood may get the glamour, but downtown LA property values are where the county’s hottest performance is found.
Foreign investors said to eye Portland commercial real estate, The Oregonian, Oct. 2, 2014 – International capital patterns tend to reach east-west, but recent deals in Portland, OR have run north-south.
No ‘stupid money,’ ‘sticker shock’ on office leases, conservative retailers: Tampa Bay commercial real estate update, Tampa Bay Business Journal, Sept. 29, 2014 – NAIOP panel of dealers pronounce an end to the boom-bust cycle…for at least a few years.
Commercial brokers say the state can be a tough customer, Sacramento Business Journal, Oct. 2, 2014 – I always find it odd when a real estate writer suggests that doing business with a huge customer is something best avoided. And who’s a bigger customer than government?
One billion square feet of office space – in the cloud, The Real Deal, Sept. 29, 2014 – A profile of View The Space, a super-tool for office leasing management out of NYC.
Tight office market could mean new tune for Sheet Music, The Tennessean, Oct. 2, 2014 – Nashville Class A office property pitches itself as a corporate relocation destination.
Upscale office space hardest to find in Tempe, Deer Valley, Arizona Republic, Oct. 5, 2014 – Availability in Class A office getting as dry as the surrounding desert in Tempe, AZ.
COPT eyes office development along Canton waterfront, Baltimore Sun, Oct. 3, 2014 – Conditional on finding tenants, a Baltimore area waterfront developer sees four new office towers.
Chicago’s commercial realty gets lift from new builds, Gulf News, Oct. 6, 2014 – Jones Lang manager watching Chicago touts a 2017 featuring single-digit office vacancies for the first time since the late 90s.
Industrial strength: Amazon leads industrial surge in Reno-Sparks real estate, Reno Gazette-Journal, Oct. 1, 2014 – Amaon’s 3PL (third party logistics) are reshaping the industrial market in the “Biggest Little City In The World”.
Ikea, packaging firm lease huge warehouses, Crains Chicago Business, Oct. 2, 2014 – Scandinavian furniture giant puts together major deal as tenant in Chicago. No word if an allen wrench was needed to assemble the lease.
FedEx to distribute from John Young, Orlando Sentinel, Oct. 5, 2014 – FedEx absolutely, positively has to get it there overnight, which means new distribution options in central Florida.
Industrial, commercial leases, rebounding production help Portland’s beer economy overflow, Portland Business Journal, Oct 1, 2014 – Commercial property has a reputation for illiquidity, but some liquids, like beer, go great with commercial leases after all.
City gas stations dwindle in real estate boom, San Francisco Chronicle, Oct. 6, 2014 – SFGate reports a sharp drop in gas stations in San Fran, spurred by residential market recovery.
Rental Rates at Malls Rise; Vacancy Flat, WSJ, Oct. 2, 2014 – Mall space supply steady while prices rise nationally.
Westfield San Francisco Centre pioneers new mall concept: Bespoke, San Francisco Chronicle, Oct. 4, 2014 – Getting personal with retail offerings is a trend that expresses itself in many ways – and now an entire mall concept.
INSIGHT-Sears: Why the troubled chain’s vendors are worried, Reuters, Oct. 5, 2014 – Creditors eye the legendary retail giant nervously.
Is the Sector Overheating?, Globe St., Oct. 3, 2014 -
Bargains getting scarce for investors in multifamily housing, Sacramento Business Journal, Oct. 3, 2014 – Spreads are closing up in apartment markets, Sacramento reports.
At Thursday’s conference in Chicago put on by the Metropolitan Planning Council, I got a chance to learn about NMTC, or New Market Tax Credits. These Treasury Department instruments are a unique set of financing tools for the purpose of kickstarting commercial property development in low-income areas.
Established by Congress in 2000, NMTC was designed by the Clinton administration to spur new and increased investments into real estate projects and operating businesses in low-income communities. The NMTC permits individual and corporate investors in low-income communities to receive a tax credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period.
A subset of the Community Development Financial Institutions program, the NMTC program has made 836 awards allocating a total of $40 billion in tax credit authority to CDEs through a competitive application process. This $40 billion includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
Where Are Eligible Low-Income Areas?
The fastest way to discover the status of an address with regard to NMTC is to use the website operated by the accounting firm Novogradc & Company and head to the NMTC Mapping Tool located therein. It’s a bit tricky, but worth the results:
First, head to this link. Then select the “NMTC Mapping Tool”, by clicking the image.
Waiting a few seconds will produce a pop-up window that looks like this:
It’s inside this window that the search form is usable, based on 2000 census data.
Note that no results in this form are to be used for decisions — all results need to be confirmed with the CDFI Fund website!
Watch for more coverage of NMTC and CDFI funding options here at The Source.
Business owners who are thinking of renting or buying commercial property typically consider making changes to the space, including:
- general renovations
- façade enhancements
- installation of furniture, fixtures, and equipment
- Americans with Disabilities Act (ADA) compliance improvements
The space modifications outlined above are all common types of tenant improvements. And once they are complete, a business can move into the building and begin operating. However, until they are done, a business cannot take occupancy of the space. One of the biggest challenges that impact an entrepreneur’s ability to build out commercial space (i.e., retail, office, industrial, etc.) is – you guessed it — financing.
Tenant improvements are big ticket expenses that require significant capital investment. Whether the property owner or the tenant pays for those expenses is often the subject of much debate. There is no right or wrong answer on this issue. In the end, if the lease/purchase contract is structured well, investments in tenant improvements pay for themselves.
The following are two “win-win” strategies for financing commercial tenant improvements:
1) Raise the Rent – Landlords are in a great position to get loans from banks, non-bank SBA lenders, non-bank commercial real estate financing companies, and alternative lenders to fund construction improvements for prospective/existing tenants. For more information on real estate financing options, please see my article “The Five Kinds of Commercial Real Estate Term Loans”, originally published here at the NAR Blog The Source. Assuming a landlord and tenant can come to terms on a reasonable budget for the desired space improvements, typically called a tenant improvement (TI) allowance, the landlord can structure the lease in a way that ensures he/she recovers his/her investment over the term of the agreement. The landlord can choose to do one or more of the following: raise the base rent, accelerate the growth of the lease rate, or extend the lease term.
2) Accept Seller’s Note – A motivated commercial property owner can sell their place a lot faster if they are willing to help buyers get the financing they need. It is typically a lot easier to secure funding for acquisition and renovation if the total loan requested is 80% or less of the total property value, which is called a loan to value (LTV) threshold. Unfortunately, most buyers do not have the cash to pay more than 20% of the total negotiated sales price of a commercial property at closing. So, the seller can either loan the buyer the remaining amount of money needed or reduce the sales price of the property. Given that owners should always aim to get top value for their assets, the seller note option is a better solution. In this case, a seller’s note could effectively be put in place to ensure the buyer qualifies for the loan. A seller’s note is an agreement that requires the seller to accept payment from the buyer on the balance of the sales value of the property at some later date(s). The seller may also require the buyer to pay interest on the monies owed until the balance is fully repaid. The one key requirement is that the seller’s loan must be subordinated to that of an institutional lender. For example, a buyer looking to acquire a 5,000 square foot retail bakery shop in a downtown commercial location for $95 per square foot with a planned renovation budget of $17 per square foot would need to come up with a grand total of $180,000. In this case, the buyer puts $95,000 down (17%) and the seller’s note covers the remaining $85,000 (15%). This combination ensures the buyer will not exceed a lender’s 80% loan to value maximum. By offering a seller’s note, an owner can get a deal done faster without reducing the sales price of the property. In addition, the seller protects him/herself by filing a lien and securing the property as collateral until his/her loan has been repaid. Lastly, the seller receives a fee from the buyer in the form of interest payments (typically 5% to 15%, depending on the risk profile of the deal).
There is no wall that cannot be scaled and no bridge that cannot be crossed when it comes to getting a commercial real estate deal done. The real opportunity is to complete a fair transaction for buyer-seller or landlord-tenant. Tenant improvement negotiations are one area that leaves both parties typically feeling unsatisfied. It’s important to know that there are win-win options to get commercial space modifications done. All you need is the willingness to be creative and flexible on both sides.
ABOUT THE AUTHOR
Chinwe is the CEO & Co-Founder of FundWell. Chinwe has a strong personal interest and a professional track record devoted to helping organizations raise capital. She co-founded, capitalized, and operated a boutique consulting firm that over the last seven years has successfully raised a total of $120 million in grants, competitive loans, tax incentives, government subsidies, and owner equity financing on behalf of clients across the country. Chinwe’s consulting experience includes McKinsey & Company, where she provided financial and strategic business advisory services to Fortune 1000 company executives, and while at Monitor Company (now owned by Deloitte) she provided strategy and financial analysis for public and private sector clients, and managed a $3 billion dollar real estate account. Chinwe has a B.A. in Economics from Harvard College and is a Henry Crown Fellow of the Aspen Institute.
FundWell (www.fundwellre.com) is an online resource that prequalifies and connects commercial real estate investors and small businesses seeking funding with a growing number of bank loans, non-bank debt funding, and other credit related financing options.
FundWell delivers a 75% loan approval rate in a marketplace where they typically face a 30% approval rate. FundWell helps commercial real estate brokers increase deal flow and speeds up closings by referring their clients to prequalified lenders that will fund their real estate needs and business expansion plans. FundWell also helps real estate brokers access financing to grow their businesses.
Since 2012, FundWell’s online financing marketplace and financial health information has reached over 24,000 small businesses, working in partnership with over 300 lending partners across the country that span 13 different types of loan products from conventional bank loans and SBA loans to factoring, equipment loans and commercial real estate loans.
Putting on your pants in San Diego, East coast ports getting hotter, Denver’s plans to get even higher — it’s all here in the Commercial Real Estate News Roundup for September 30, 2014.
Demand for S.F. commercial property is through the roof, SF Chronicle, Sept. 27, 2014 – Tech and non-tech uniting across the Bay Area to drive property prices and narrow availability.
Banks Seeing Lower Loss Rates on Commercial Real Estate, Huffington Post, Sept. 23, 2014 – The mop and bucket from the Great Recession still being wielded even as years of desperate unwinding of bad loans declines in the face of something more natural and cyclical.
Commercial comeback, Boston Globe, Sept. 24, 2014 – Meanwhile in New England, industry and office growth in and around Boston pick up steam.
Charleston area buzzing with commercial building projects, Charleston Post & Courier, Sept. 28, 2014 – Buildouts in the southeast’s leading port city are crowding the ground and sky.
The office tower that transformed downtown Houston is for sale — and expected to fetch record price, Houston Culture Map, Sept. 22, 2014 – 36 historical stories are on the market, and the tech and defense citadel called Houston is expected to make pricing history.
San Francisco’s 2014 office leasing breaks dot-com record, San Francisco Business Times, Sept. 25, 2014 – Luckily for the commercial property sector, the high-tech promise of the “paperless office” was always a bunch of hooey.
22-story office tower coming to downtown Denver, Denver Business Journal, Sept. 25, 2014 – Mile-high city aims to get 22 stories taller.
Need for speedier delivery stokes hot industrial market, The Record, Sept. 24, 2014 – 3PL (third party logistics) and warehouse properties are in record demand, especially in New Jersey
Tight industrial market sends semiconductor firm to Sherwood for warehouse space, Portland Business Journal, Sept. 25, 2014 – Meanwhile up in the Cascades, spillover from traditional tech environs is changing the commercial property equation.
This deal shows how blazing hot Baltimore’s industrial market has become, Baltimore Business Journal, Sept. 29, 2014 – Strategic acquisitions of warehousing near Atlantic ports are proceeding at all building classes, says the BBJ.
Microsoft to Open Fifth Avenue Store, WSJ, Sept. 29, 2014 – Software giant left in wake of Apple’s dust considers retail expansion.
Lucescu Realty sells Utah shopping center portfolio for $226 million, CSA, Sept. 29, 2014
Malls fight back against Internet, U-T San Diego, Sept 26, 2014 – What can’t e-tailing deliver that malls can? Food and entertainment. San Diego shopping centers focus on what it means to put on your pants to go shopping.
Apartments slated for big, vacant downtown Syracuse building, Syracuse Post-Standard, Sept. 29, 2014 – Vacancies no more in upstate New York
SunTrust watches for multi-family bubble in Nashville, The Tennessean, Sept. 22, 2014 – Is Nashville over-developing and under absorbing its multifamily space?
Builders Turn Focus to Housing Market, NYT, Sept. 26, 2014 – Gotham and housing: the eternal waltz on an ever-shrinking dancefloor.
Capital from China. It has to go somewhere — and plenty of it comes to the shores of the US. While it’s true that the average yuan making its way across the Pacific to the US ends up invested in US treasuries, an increasing portion of that capital flow is finding its way into commercial property.
Memorable deals marrying Chinese buyers and landmark US commercial properties include last year’s purchase of a 40% interest in General Motors’ midtown Manhattan office tower by Beijing real estate tycoon Zhang Xin for $1.4 billion. Also symbolic was Fosun International putting up $725 million for One Chase Manhattan Plaza.
But offices aren’t the only hot commodity in the eyes of Chinese real estate investors. Retail, too is attracting its share of suitors from across the Pacific.
Chinese equity partners getting into California’s malls is the premise of a recent Globe St. piece by the estimable Carrie Rossenfeld. In it, she interviews CJ Osbrink, a property marketer who has been busy getting pro formas out to an increasing number of interested investors from China lately:
GlobeSt.com: What impact are foreign buyers having on the retail investment market in Southern California?
Osbrink: Southern California has seen a huge pickup in foreign investor activity recently, and it is creating a much more competitive marketing process for well-located deals. For example, we just worked on a deal, the River at Rancho Mirage, that was sold to a local advisor with a mainland Chinese equity partner. This is the second property our team has sold to a foreign equity buyer in the last few months. They are very active and showing up on every one of our deals. A large driver of this activity is the increase of ultra-high-net-worth individuals looking to place their capital into more tangible investments, as well as improving macroeconomic and retail fundamentals in the US.
GlobeSt.com: What types of retail properties are foreign buyers most interested in, particularly in Orange County?
Osbrink: In Orange County, as in other parts of Southern California, they are looking for anything trophy oriented. These are pride-of-ownership assets that show very well and have a trophy appeal to them—something they can put on a brochure and show their investors, whether here or overseas. There is also very strong interest in generational, safe investments that they will hold for the long-term.
Read the entire Globe St. article here.