It IS Time to Buy Commercial Real Estate

Found this on a cre-advice.com and it mirrors what I'm starting to hear in the market and what I've been screaming from the roof-tops:

Investors have to do something with their money: You can buy in to the investment grade bond market and earn a whopping 3.75%, or you can buy NNN leased, credit tenant real estate and more than double your return. As Bill Gross of PIMCO points out as a cost of capital sitting on the sidelines: “an effective zero percent interest rate, as a price for hiding in a foxhole, is prohibitive.” In 2010, buyers will exit the payless funds earning close to 0% in search of manageable risk. Quality commercial real estate will receive considerable attention in this context.

Because problems with debt structure will motivate a large number of sales, pricing will remain in flux in the next year. As a result, headline measures of cap rates will fail as indicators of the underlying variation in property trades. Rather, buyers and sellers alike will be depending on their Advisor’s knowledge of the market and of the emerging mechanisms of exchange – such as auctions – to guide their investment strategy. Investors with strong operational capabilities who are seeking to acquire assets over the next year are in an ideal position. This group will be able to purchase assets during a period of dislocation, before asset prices normalize and while long-term yields are at the their peak.

What do you think? Would you rather sit back and 'enjoy' 2-3% returns when you know that inflation will eat up most of your buying power over the next several years, or get into a solid commercial real estate investment where you should be able to crank out at least 7% for the forseeable future?  Sounds like a simple choice to me.

Ready to buy?  Contact me.

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Of Course It's For Sale!

Back in the spring, I did a piece on selling your business and was featured on our local Chamber of Commerce Podcast site as a result. Since I'm taking a bit of a break right now, I thought this might be a good syndicated post to share about getting ready to sell your business.

Syndicated Post

I sent a friend who was interested in owning a business to visit a shop in town. I had told her the owner had just bought the place and had done a really good job of getting more customers into the store.

When I saw my friend the next day she told me she had visited the store and was surprised to hear the new owner say she wanted to sell it. I was surprised to hear that, so when I was in town a couple of days later I made a point of talking to the owner. She remembered my friend and all her questions. "That woman was so interested in the shop I asked her if she wanted to buy it." She went on to explain: "It's a business. It should always be for sale - for the right price."

Many business owners become so emotionally attached to their business that they don't consider selling until it's too late. If someone asked you to name a price for your business what would that price be?

Many entrepreneurs start businesses planning to sell them within a few years. Others just struggle to actually become the owner of the business instead of its only employee - if you thought working for someone else was bad, try working for yourself!

To be the business owner is to think of your business as an asset, something like a car or a house that can be sold on the open market. What gives the business value is its assets and the ability to generate positive cash flow.

No matter how you feel about your business, we can calculate what it's worth. For example, most business brokers will probably tell you that a typical business is worth 1.5 to 3.5 times discretionary cash flow plus the value of the tangible assets. In this case, discretionary cash flow is total cash flow plus the expenses that a new owner would not be obligated to pay - depreciation, owner's salary, auto expenses, loan payments, retirement contribution, travel and entertainment, etc.

Knowing what it's worth now will allow you to make the changes that will increase its value in the future. It will probably require increasing revenue, but if you increase revenue at the expense of margins you will actually be decreasing the value. Pay attention to the cost of that additional revenue. Do you need to do more marketing, increase production capacity, or add employees? Very often these steps can be taken incrementally to lessen the impact on cash flow but achieve the same long term goals. The key is planning and having the patience and persistence to achieve the results.

Do you know what your business is worth? If not, how would you know what to say if someone offers you a million dollars cash for yours? Maybe it's time to find out.

Dave Ferguson is a business coach and the owner of Lake County Business Coaching, Inc., a coaching firm dedicated to helping people in business to improve their performance and their results. More information is available at http://www.LakeCountyBusinessCoaching.com.

Article Source: http://EzineArticles.com/?expert=Dave_Ferguson

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Five Fool Proof Ways to Brighten Up Your Commercial Property

This looked like a great post for the end of the year; great tips on brightening up your commercial building to keep and attract the best quality tenants.

Enjoy!

Syndicated Post

1. On Cleaning Up and Success Team

So far, I have viewed and analyzed no less than 3,000 properties internationally. And I have discovered that most owners tend to overlook this very simple but vital task. Shocking, isn't it?

Irrespective of whether you are planning to rent out or sell your property, clean it up completely. This means the interiors as well as the exterior. Of course, unless you enjoy physical work and don't mind getting your hands dirty, you can always engage others. There are freelancers available through outsourcing website who wants to earn some extra bucks. It is recommended that you work with a "Success Team" to keep your properties in tip-top condition and make your investments more fool-proof and blissful. Ideally, members of your success team should include plumbers, electricians, handymen, painters, cleaners and other professionals like lawyers, valuers, real estate negotiators, property managers and interior designers. There are also professional cleaning companies with the equipment that can make your place shine like brand new.

Humans are very visually oriented. Thus, they are impressed by what they see, making it paramount that you clean up thoroughly. Yes, that means top to bottom, left to right, and inside out. Most buyers and tenants want a property that has been well taken care of.

2. Trim Overgrown Trees and Shrubs

Where applicable e.g. landed industrial and semi-detached commercial shop offices that come with trees and/or bushes at the front, side or back of the building. By trimming overgrown trees and plants, it instantly brightens up your property, makes it more attractive and opens up more space.

3. Repaint with Lighter Colours

This is weird but true. Using a different colour does give a different effect to the same room. To prove a point, the next time when you see an advertisement by companies marketing paint, pay close attention. The paint boys spend thousands to show you how a colour can make a world of difference in life. Using lighter colours like white and beige to paint your property makes a given space look brighter, bigger and wider. (To get more space, you don't always have to break any walls or buy more land. Just paint with a light colour!)

4. Bring in More Natural Light

Use your own creativity, or observe what your neighbors have done. Explore and discuss with interior designers about ways to bring in more natural light. It could be as simple as enlarging existing windows, or putting in more windows; using more glass doors and partitions; replacing roof tiles with transparent tiles or skylights etc. The outcome are astonishing!

- You do yourself a favour, by adding more value to your property;
- You do your tenants a favour, helping them save on electricity;
- You are also helping preserve Mother Earth, by reducing global warming and reducing the depletion of our natural resources.

5. Add More Lighting Points

Where appropriate, add more lighting points. With commercial properties, it is almost universal that tenants prefer bright places - unless they are in the business of "candle light" dinners. By creating a brighter and more spacious look, you can dramatically improve the attractiveness of your property.

Mike has been writing articles online for nearly 2 years now. Not only does this author specialize in personal investment, productivity, you can also check out his latest website on ftd flower delivery which reviews on FTD Flowers Delivery

Article Source: http://EzineArticles.com/?expert=Mike_Milanez 

 

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You Can Become a Multi Millionaire Through Commercial Property Investment

Syndicated Post

It is estimated that 98 percent of the world's millionaires have either made or parked their money in property. This is clear indication that there is a huge amount of wealth waiting to be harvested through property investment.

And yet, only about 5 percent of the population of any given country are active property investors. Why? Perhaps, the reasons are inexperience about what real estate investment has to offer, or simply the lack of motivation to get started because of limited information and guidance.

There are tried-and-tested ideas, strategies and recommendations which are general in application, giving you the flexibility to invest in any part of the world. In addition, the tools and advice provided will certainly ensure that you invest in the safest and smartest way possible to gain maximum returns on your investments.

They are facts of life in the world of property investment. Facts that have been verified. As Bernard Baruch put it, "Every man has the right to be wrong in his opinions. But no man has the right to be wrong in his facts." With better insight, are you ready to jump on the red-hot commercial property market bandwagon? Never mind if you're in the minority group, the crucial factors are:

1. Get serious
2. Get committed
3. Get started, and
4. Get off your butt, now!

Commercial property investment is an amazing avenue to great wealth. A few right investment can absolutely change your life and lives of your love ones.

Believe that nothing is impossible in a willing heart. All possibilities lie in you being willing to take the first step in the right direction towards financial freedom.

Mike has been writing articles online for nearly 2 years now. Not only does this author specialize in personal investment, productivity, you can also check out his latest website on ftd flower delivery which reviews on FTD Flowers Delivery

Article Source: http://EzineArticles.com/?expert=Mike_Milanez 

 

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Have We Learned Anything From The Meltdown?

TORONTO, Dec. 15 /CNW/ - A new Ernst & Young report reveals that a shifting and vastly different post-recession real estate landscape has executives grappling with lingering challenges.

Top 10 lessons learned in real estate: Ernst & Young

Below are 10 lessons from change that have emerged for the sector, which are also quickly becoming trends for 2010. According to the report, those who take heed of this advice are more likely to continue to adapt and grow in an increasingly global and competitive real estate market:

1. Focus on capital preservation - Most real estate executives are and will continue to be concerned with stabilizing their organizations and enhancing their ability to access capital and improve the flexibility of their balance sheets. Maintaining liquidity is paramount to capitalizing on future opportunities.

2. Form strategic alliances and/or partnerships with foreign investors - Partnerships will be formed to acquire assets on a scale never seen before. Expect Canadian companies with strong balance sheets to venture into foreign markets.

3. Provide more effective risk management and protection of asset values - Real estate companies are revamping their framework to more effectively manage risk. Pricing risk appropriately will define future growth.

4. Provide an increased focus on tenants - Property owners are becoming more diligent in evaluating the creditworthiness of tenants to determine who might present a risk. In light of this, underwriting will become even more stringent.

5. Evaluate supply chain and contractors - Corporations who hire developers and construction contractors are evaluating the risks of having financially troubled contractors/suppliers who could file for bankruptcy and stop work on a project.

6. Prepare for increased taxes and government regulation - Companies are preparing for regulatory framework - around private equity investment funds in particular, as well as arranging for fuller disclosure of investment plans, asset verification and other information of interest to shareholders.

7. Control costs and streamline operations - Companies are improving their overall performance, with issues such as tying executive compensation to performance resurfacing.

8. Look at Canada's relationship with the US - While there are noticeable differences between Canada and the US in terms of macro-economic structure and real estate fundamentals, don't overlook the influence and effect of our largest trading partner.

9. Accelerate decision-making - Decisions are being made more quickly to take advantage of shorter windows of opportunity and to respond more quickly to adverse developments.

10. Concentrate on long-term growth - Real estate executives are thinking about the future. They're looking at extending their company's market reach, building relationships, thinking creatively and strengthening their management capabilities.

From my perspective one of the most important lessons on this list is number nine, accelerate decision-making. Why? As more and more opportunities come back onto the market it'll become even more important than in the past to be able to make quicker acquisition decisions because there WILL be more competition for those assets. Slow decisions were a problem in the last boom when even well heeled tenants, investors and developers seemed hamstrung by indecision and this will continue to be a challenge going forward.

How do you see your company reacting to new opportunities as they become available? Have you got a plan to be able to streamline your acquisition process when deals are put on your table?

Source: Top 10 lessons learned in real estate: Ernst & Young

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Commercial Real Estate Blues - A Christmas Tune

Via TrafficCourt on RetailTraffic blog.

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He Who Hesitates Is Lost or "If You Wait for the Robins, Spring Will Be Over"

Thanks to TrafficCourt and David Bodamer who picked up William Ackman's ICSC Report in New York:
ICSC Mall REIT Presentation 12-7-2009


Some of the relevant highlights from the above report:

• The U.S. economy has recovered
• The U.S. consumer is beginning to bounce back
• The credit markets have improved
• Mall REIT balance sheets have strengthened
• Cap rates have declined substantially
• Store closure fears were overblown
• Tenants are much better capitalized
• Rent relief has been minimal
• Tenant sales are down, but inventories are down even more while retailer cash flows have improved materially

Which would you rather own?

1) A 10-yr Treasury at a 3.4% yield
2) A 10-yr TIP at a 1.3% yield, or
3) Shares in a mall REIT at a 7.5%, 7.0%, or even 6.0% cap rate

Conclusions:

• During one of the worst recessions in over 50 years, mall REITs and their tenants have proven to be highly resilient
• Consumer spending does not need to return to 2007 levels for mall REITs and their tenants to outperform
• Store closures of underperforming tenants is a long-term positive for the mall industry
• Tenant cash flows and balance sheets have massively improved over the last twelve months
• Many opportunistic retailers have substantial growth plans. Retailers on the sidelines are just like those investors who didn’t buy stocks in the spring

Looks like I'm not the only one who thinks that the market is turning for the better! Tell me what you think of this report - are Mr. Ackman and I out to lunch?

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Top 3 Expenses Most Often Missed by New Investors

When calculating return on an investment (ROI) or internal rate of return (IRR) there are a number of expenses to take into account and surprisingly, there are a few that get overlooked entirely. I've noticed that, particularly new investors (and often brokers who should really know better!), miss a few essential expenses far more often than I would have expected.

When working on calculating an ROI or IRR, you always need to start with a reconstruction of the net operating income (NOI). A basic worksheet should look something like this but may be more or less sophisticated based on the asset class:


In researching properties for buyer clients, I always ask for a copy of the income and expenses from the owner or from the broker as reported by the owner if the property is listed. A complete picture of the income and expenses, along with all other pertinent physical, demographic, and economic information about the property and the market, is the only way to properly analyze a property on behalf of my client. Omissions or errors here have a direct impact on the valuation of the property and are therefore essential.

I almost always receive a list of the monthly rents or an annual summary of the gross income - though not everybody seems to grasp the concept of total gross income and often it takes a couple of calls to get all of these figures. I usually get a summary of the expenses as well, though often there are a number of glaring omissions. Either by design, because the numbers are too large and the person providing the information is hesitant to be open with me, or by mistake because they don't actively track their expenses or have a poor record keeping system, or simple ignorance.

The top 3 most often missed expenses are basic to the operating expenses of any property, but they are sometimes the most difficult to obtain. They are:

1. Property and liability insurance.
2. Repairs and maintenance.
3. Vacancy and credit losses.

Why are these left out so often? As I said, these are real numbers that have a direct impact on value, so if there is a particular expense or expenses that would negatively affect value, some sellers will intentionally make it difficult to discover them. Most often though, they are missed through simple ignorance.

Property and liability insurance.
While not necessarily a large expense in itself, if you are looking at a smaller investment where every penny counts, missing an expense of this nature can have a very serious impact on future profitability - even if such an omission is innocent.

Repairs and maintenance.
Usually this one is omitted intentionally. Why? "Because the roof is only 4 years old, and the paving is only 2 years old...what else do you think needs to be done?!" From the inexperienced buyer's perspective, it often is left out for the very same reason - there is sometimes a mistaken belief that just because repairs have recently been made that there won't be any further repairs needed for the foreseeable future. Maintenance items like, snow removal and grass cutting are often ignored by first time investors because they intend to do the work themselves and therefore don't feel it's necessary to account for those expenses. But isn't your time worth anything to you? Even if you plan on doing the work yourself, you should be compensated for your time!

Vacancy and credit losses.
This is the most often missed expense in my experience. If the building is full, why should you account for vacancy? There are a couple of reasons: 1) Your tenants are not invincible - one of your tenants could step in front of a bus tomorrow and you'd be looking for a new tenant. If the property is a small one, and one of your tenants just decides to leave or goes out of business, you could be looking at significant carrying costs while you re-lease the space. 2) In the long term, some credit losses are unavoidable. Even with the best of tenants with the best of intentions, occasionally things don't work out the way everyone hopes and there's just too much month left at the end of the money. 3) The last, and maybe the most important, is that when you apply for financing on any investment property, the bank or lender you use WILL include a vacancy allowance to account for lost income that could affect their ability to collect your payments. Go into the financing application process well informed or you could be in for a rude awakening.

So there you have them, my top 3 most missed expenses by new investors. Tell me what you've experienced as a buyer or as an advisor; ever run into these or other items that have put the brakes on a deal you were hoping to close?

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How to Use Internal Rate of Return as a Measure of Real Performance in Commercial Real Estate

Ever wonder which metric is the best way to analyze a piece of real estate? Me too! There are so many to choose from. Cap rates, ROI, gross rent multipliers, net rent multipliers, leveraged rates of return, yields, etc., etc. ad nauseum. The problem I see with most of these is that they look at a snapshot in time for a given asset and don't take into account increases or decreases in income over time.

Enter the realm of IRR or 'internal rate of return'. The internal rate of return shows the rate of return over a period of time and takes into account variables in income over that period. Rather than looking at just one point in time, you get a picture of the return you should expect during your entire anticipated holding period.

Let's look at a very simple example:

123 Any Street, Peterborough, Ontario is a hypothetical office building of 21,000 square feet with a projected first year net operating income of $105,000. Prevailing market cap rates indicate you should be looking at 8.5% as your 'going-in' rate. This puts a hypothetical value of $1,235,000 on the property (give or take a few dollars). Pretty simple, income divided by cap rate equals value.

What if you did some digging into the rent roll and discovered that one of the tenants, who occupies about 4,000 square feet of the building and therefore generates 19% of the net operating income, had a lease that was coming due in two years, and further that you found that they did indeed plan to move out at the expiry of their lease and have purchased land for construction of a new building two blocks away? That's a significant drop in future income and therefore will have a direct impact on the value of the real estate today. A future event will have direct impact in the present.

As the new owner of the building there would be some period of time when the space might be vacant, and there would be some cost associated with releasing the 4,000 feet including: leasing commissions, build-out for a new tenant, advertising, etc. The series of cash flows over the first five years of ownership (assuming a sale at the end of the fifth year at a similar cap rate) might now look like this:



You can see that there is a substantial difference in the IRR of the two scenarios. This doesn't mean that the property is a bad purchase, it just gives the investor a better picture of the real performance of the property and provides a more realistic idea of actual return over time. Other factors that would change this picture include things like: the effect of financing, rent escalations, economic factors, changes in future cap rates, and competition in the form of new buildings coming onto the market to name just a few.

If the IRR is within range of your expected rate of return then you can move onto doing more due diligence for the property. If it is well below what you expect, then you need to either negotiate a lower price, or keep looking for another property that does meet your investment criteria.

Have you ever used this method of comparison before? Did you find it useful? Let me know, I'd be interested to hear some real world examples.

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28 Qualities, Skills and Traits That Commercial Real Estate Brokerage Clients Watch For: The Good, The Bad, and The Ugly

Today, a review of the 28 things that commercial brokerage clients look for when choosing, working with, and firing(!) agents. Over the last week or so you've seen these lists in several posts, but I thought it would be a good idea to gather all of these ideas into one resource page that can be accessed easily.

The Lists:

Top 7 Skills and Qualities Investors Look For in a Broker:

1. Direct solicitation of potential buyers.
2. Quality communications and follow through.
3. Accuracy and quality of financial analysis.
4. Negotiation skills.
5. Quality of investment package.
6. Quality of research.
7. Team assigned to their transaction.

The Top 7 Things Tenants Look for in a Commercial Real Estate Broker:

1. Understanding of their business.
2. Open communications and accessibility.
3. A relationship built on trust and concern.
4. Financial/analytical skills and structuring advice.
5. Collaboration and a team approach to their needs.
6. Understanding of the market and opportunities.
7. Accompaniment on building tours.

The Top 7 Things Clients Look for When Selecting a Commercial Real Estate Broker:

1. Relationship with Broker.
2. Prior experience/performance.
3. Reputation of firm/brand identity.
4. Understanding of their business/objectives.
5. Personalized approach/solutions.
6. Fee structure.
7. Knowledge and advice.

The Top 7 Things That Frustrate Brokerage Clients:

1. Lack and poor quality of communications.
2. Lack of accessiblility to their broker.
3. Sloppy work, inaccuracies and poor research.
4. Feeling that they are just a commission source.
5. Brokers not knowing when they are "over their heads".
6. Lack of interest in their business needs and goals.
7. Lone Rangers and "listing-only" solutions.

So, you say, what's the point? Well, looking at each of these in turn and thinking about what they mean to existing and potential clients, we can see that there a number of solutions and, more importantly, opportunities presented in them.

I give you, The Profile of a Customer-Centric Brokerage Company. *Insert cheesy dramatic music here*

Many thanks to CEL&Associates Inc. who actually gathered the data and did the research to come up with all of these lists and the following outline of a customer-centric brokerage company.

A Customer-Centric Brokerage Company should:

1. Possess a real-time 360 degree customer profile.
2. Embrace a continuous feedback process.
3. Hardwire the voice of the customer into all decisions.
4. Invest in talen, training and professional development.
5. Share knowlege of the customer.
6. Commit to service excellence.
7. Possess customer service standards.
8. Build valued and lasting customer relationships.
9. Include customers in company values.
10. Tie commissions to customer satisfaction.
11. Celebrate those who achieve customer satisfaction.
12. Involve customers in solutions.
13. Continuously seek customer feedback.
14. Possess a thorough knowledge of customer needs.
15. Exceed customer expectations.

Some powerful, and some surprising ideas. Stay tuned for more on these topics as I plan on dissecting a number of these ideas in more detail. Have a great weekend, and let me know what you think!

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The Top 7 Things That Frustrate Brokerage Clients Most

So far we've looked at what investors value most in their broker, what tenants value the most in their broker, and what clients value most when selecting a broker. Today, the other side of the coin, the things that really make clients blood boil.

Warning! If you are a commercial real estate broker and you do any of these things, even occasionally, you're sabotaging your business in ways you probably can't even imagine!

The List:

1. Lack and poor quality of communications.
2. Lack of accessiblility to their broker.
   
3. Sloppy work, inaccuracies and poor research.
4. Feeling that they are just a commission source.
5. Brokers not knowing when they are "over their heads".
6. Lack of interest in their business needs and goals.
7. Lone Rangers and "listing-only" solutions.

What really frustrates you when you hire a real estate agent, particularly a commercial broker?

Source: CEL&Associates Inc.

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Top 7 Things Clients Look For When Selecting a Commercial Real Estate Broker

What's the difference between a client and a customer? Well let's take a look at the definitions (from thefreedictionary.com):

Customer:
n. cus·tom·er
1. One that buys goods or services.
2. Informal: An individual with whom one must deal: a tough customer.

Client:
n. cli·ent
1. The party for which professional services are rendered, as by an attorney.
2. A customer or patron: clients of the hotel.
3. A person using the services of a social services agency.
4. One that depends on the protection of another.
5. A client state.
6. Computer Science A computer or program that can download files for manipulation, run applications, or request application-based services from a file server.
[Middle English, from Old French, from Latin clins, client-, dependent, follower; see klei- in Indo-European roots.]

In real estate legal terms, a client is someone with whom a brokerage has entered into an agency relationship wherein they agree to provide certain professional services and owe certain legal obligations to the client. In reality, the client relationship, at least a good one, goes far beyond a mere legal obligation. While a customer is treated fairly and honestly, they don't get the same level of advice or counsel that a client gets, nor do they realize the long-term benefit of a true client relationship; they're just there to buy something and move on.

In my opinion the key really is the relationships. As much as new technology has made the job of finding property and property details easier, and much as it has made the task of marketing and finding real estate quicker, it cannot replace the human connection that face to face relationships build. I don't care how much you Twitter or write in your blog or how much time you spend on Facebook! These are good tools to start the conversation, but the connections, the relationships are the ticket.

Given this, it's no surprise that #1 on the list of things most valued by potential clients is the relationship with the broker. If the client doesn't feel a connection and doesn't feel that they can trust you, nothing else you do will ever turn them into true clients for life.

Without further ado, the Top 7 Things Clients Look For When Selecting a Commercial Real Estate Broker:

1. Relationship with Broker
2. Prior experience/performance
3. Reputation of firm/brand identity
4. Understanding of their business/objectives
5. Personalized approach/solutions
6. Fee structure
7. Knowledge and advice

I'm always interested in varied opinions, so let me know what you think. Do you agree with this list? What would you change or add to it?

Watch for my next post on this topic: What frustrates brokerage clients most!

Source: CEL&Associates Inc.

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The Top 7 Qualities and Skills That Tenants Value Most in Their Commercial Real Estate Broker

As part of an ongoing look at what consumers want from their real estate broker, today I'm looking at what tenants value the most when choosing a broker to represent them.

Tenant representation is a very specialized field and one that doesn't get the respect it deserves, in my opinion. From a brokerage perspective, it just isn't very sexy. The deals aren't as visible, the commissions (generally) aren't as big as investment deals, and the broker is often seen as just another cost in the transaction rather than bringing the real value that they do add to the process.

So what do tenants look for in a commercial real estate broker? Here are the top 7:

1. Understanding of their business.
2. Open communications and accessibility.
3. A relationship built on trust and concern.
4. Financial/analytical skills and structuring advice.
5. Collaboration and a team approach to their needs.
6. Understanding of the market and opportunities.
7. Accompaniment on building tours.

Source: CEL&Associates Inc.

Did I miss anything? What do you look for?

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What Investors Value the Most in Their Commercial Real Estate Broker

I recently found an old paper in my files that I had to have had lying around for the last 3-5 years. It was a summary of survey results put out by a company called CEL&Associates Inc. on behalf of the Canadian Real Estate Association. I'm sure that the results might appear in a different order today, but the underlying themes seem, at least to me, to be timeless.

Over the next couple of weeks, I'll post a few times on this topic and look at what tenants, clients, and investors look for when selecting a commercial real estate broker. I'll also post about what frustrates these same people and report on the profile of a customer-centric brokerage company.

Without further ado, the top 7 skills and qualities investors look for in a broker:

1. Direct solicitation of potential buyers.
2. Quality communications and follow through.
3. Accuracy and quality of financial analysis.
4. Negotiation skills.
5. Quality of investment package.
6. Quality of research.
7. Team assigned to their transaction.

I'd love to hear what you think of this list, and where you agree or disagree.

Thanks for reading!

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HST Has Builders Sprinting

HST has builders sprinting - Yourhome.ca

"We've had a lot of customers sitting on the fence, but because of the tax they're much more willing to seal the deal," says Bazely, owner of Barrie-based Gregor Homes and president of the Ontario Home Builders' Association.

"We've ramped up production so we can close on our homes before the HST takes effect next year."

Bazely says he recently talked to his trades and suppliers to ensure they are ready for winter.

"Every week we lose, we get closer to that July deadline."

The new tax, which combines the PST and the GST, will have an impact on homes worth more than $400,000.

It would add, for example, $6,000 on a $500,000 home – enough money to upgrade to a better kitchen or floors, and a good incentive to close early for many consumers.

A $1 million dollar home gets hit with $36,000 in extra taxes.

An EXTRA $6,0000 on a $500,000 new home! Incredible! How in the world can anyone say that this is good for the economy?

In the GTA a $500,000 new home is not out of the ordinary. The Province will be cashing in on the backs of hardworking Ontarians and our fragile economic recovery is likely to take a serious hit when this ill planned and ill conceived new tax hits the road next year. How can they stick to the story that the average person will only see an increase of $79 per year in spending as a result of this new tax? Do they honestly think we're that stupid?! I hope everyone remembers this when it comes to election time.

McGuinty and his band of *insert expletive here* need to go!

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Getting the Best Possible Commercial Real Estate Advice

Commercial real estate can be tough to get a handle on and making sure you get the best commercial real estate advice can make the difference between making it and losing your shirt. Professionals and "gurus" have devoted years to identifying, financing and making deals happen no matter through all kinds of markets. Do you honestly think you're going to waltz right in and be the next Donald Trump?

Commercial real estate is a terrific way to make money, but you already knew that because you are here! So what's you're next step on the path to financial success as a commercial real estate investor?

First, get a sound knowledge base in real estate and investing principles. This could mean taking some courses at a local college or online, reading some books or attending some seminars. Obviously, a trip to Border's Books or the library is going to be cheaper than other two options, but do whatever you think is best for your unique situation. Any way you do it, you need to learn the basics of the business and know what you're getting into before you sink money into an expensive seminar, course or worse yet an actual piece of property.

The nature of available property investments differs from market to market, so the best piece of commercial real estate advice you can get is to find a mentor you guide you through it all. A good mentor, whether they are directly located in your market or not, can teach you how to spot good deals, avoid bad ones and maximize returns. They can also point you in the right direction as far as education, seminars, what you need and what's a waste of money.

Once you have a good knowledge base a reliable source of information for the type of investments you're considering, you're ready to test the waters. Find the local investors who are making your dream a reality and watch what they do. Do your best to follow their progress on deals and look at the work it takes to make it all happen. Start looking at properties and deals that are comparable to what successful commercial investors are involved in and prepare yourself for your first good deal that comes your way.

Still looking for more commercial real estate advice? TheRealWelathBlog is run by professional commercial real estate investors who know their way around a deal. Make sure to subscribe to their newsletter so you get the most out of their updates and this wonderful blog!

Emily Cressey is a Commercial Real Estate Investor based out of Seattle, WA. She and her partners have invested in over $30 Million in commercial real estate projects. If you are new to investing, or would like help getting started, visit their commercial real estate investing site and subscribe to receive your free 5-video Course On Commercial Real Estate Investing For Beginners.

Additionally, if you would like reasonably priced commercial real estate advice, please feel free to contact The Real Wealth Company for affordable hourly consulting.


Cressey, E. (2009, July 23). Getting the Best Possible Commercial Real Estate Advice. Retrieved November 9, 2009, from http://ezinearticles.com/?Getting-­the-­Best-­Possible-­Commercial-­Real-­Estate-­Advice&id=2651682

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Canadian Real Estate Sentiment Survey Results

“We’re in the third round of a five round boxing match, but in the first two rounds nobody threw a punch. At some point somebody’s gotta throw a punch.”

Source: REALpac / FPL Canadian Real Estate Sentiment Survey, Fourth Quarter 2009, Released November 3, 2009

I'm sensing a recurring theme on this blog about getting into the game. The time is right to get back into the investing game. Money is flowing, and the economy isn't floundering as badly as some had thought it might still be. Granted, the past 12 months haven't been all peaches and cream, especially in the brokerage world, but contrary to popular perception, the sky hasn't fallen on the Canadian commercial real estate market.

In fact, REALpac just released their Q4 Canadian Real Estate Sentiment Survey and found that, overall, investor sentiment is improving in Canada. It shows that overall sentiment about the market has improved, on their index, from 50 to 68 from Q3 to the beginning of Q4 2009. An impressive improvement to say the least.

So why doesn't the overall market reflect this survey? At least in my corner of the world, Peterborough, Ontario, transactions are WAY down relative to 2008. I did a quick bit of research and found some interesting results.

I compared all MLS® sale transactions recorded by the Peterborough and Kawarthas Association of REALTORS® from January 1 to November 4, 2008 vs. the same period in 2009 (it's an odd time frame, I know, but it seemed like a good idea at the time!). I only looked at transactions over $150,000 in order to weed out the business sales that did not include real estate, and leases that sometimes get recorded as sales.

2008 Number of sales: 39
2009 Number of sales: 26
2008 AVerage sale price: $494,437
2009 Average sale price: $357,385
2008 Average sale to list price ratio: 88.46%
2009 AVerage sale to list price ratio: 73.93%

Of note, there were four transactions over $1M in 2008, including one that was over $2M and only one transaction above $1M in 2009. (Remember, this is a small market with a combined city and county population of only about 135,000 people.)

So what do I see in these numbers?

First, there is an obvious trend toward fewer and smaller deals, including a drastic reduction in transactions over $1M. Secondly, and this is my subjective opinion, there isn't really a lack of interested buyers, rather there's been a significant lack of faith in the market in general on the part of would-be buyers. The perception has been that there ought to be more 'good deals' out there, and that by waiting it out, these 'saavy' buyers will be able to cash in on the distressed assets that must surely be just about ready to come onto the market.

But there haven't been that many distressed properties in Canada. I beleive that a lot of the poor sentiment is spill-over from the US media coverage of the severe slide they've seen in their market. In a recent article on globeinvestor.com, Kirk Kuester, managing director of Colliers was quoted as saying,

"There hasn't been that much distress [in the Canadian market], and if companies do find themselves in a bit of a pinch, it's not that difficult to raise equity on the market."

From the same article:

Brookfield Properties Corp. and its partners have an unexpected problem: They have $5-billion to spend on commercial real estate, but markets have recovered so strongly that they can't find the juicy deals they hoped would lead to 20-per-cent returns.

The stock market's resurgence from March lows has allowed many of the world's most challenged real estate companies to issue stock or sell bonds to solve financial issues brought on by lower rents and higher vacancies. Meanwhile, the sector is showing signs of recovery in Canada, further encouraging landlords to hang on to buildings that had caused concern through the recession.

"There really hasn't been that much out there," said chief executive officer Ric Clark. "When we first started thinking about this, we had many companies on the list as potential targets - the public markets have been so efficient that many have been able to solve their problems."

Brookfield set up a $5-billion real estate investment fund in September with Brookfield Asset Management Inc. and dozens of major institutional investors. The plan was to buy malls and office towers from owners that were struggling to keep tenants and pay mortgages.

While the U.S. market is still going through a historic upheaval (7.9 per cent of lease holders are behind on their payments and one in 10 shopping mall stores sit empty), things have stabilized enough that the consortium is rethinking its ability to score its targeted 20-per-cent return on any investment.

In fact, in the hunt for deals, many Canadian REITs have gone out and raised warchests to buy distressed assets that haven't materialized thus creating the real potential of reducing their stock prices. From theglobeandmail.com:

But what if the market isn't all that distressed? Third-quarter statistics from RealNet Canada Inc. hinted that a rebound is taking hold in Canadian commercial real estate markets after 18 months of contraction. If there aren't deals to be found, the REITs may have watered down their shares without giving shareholders any reason to hope for better payouts in the future.

"Most REITs have taken advantage of the open capital markets," said Mark Rothschild, an analyst at Genuity Capital Markets. "Most management teams have expressed confidence this capital will be used to take advantage of distressed opportunities - we believe that there will not be many extremely accretive acquisition opportunities and ultimately many of the recent offerings will prove dilutive."

I know I'm starting to sound like a broken record, but why aren't investors, large and small, private and institutional, looking at the cost of NOT investing? What is the real cost of inaction and hence lost opportunity? Waiting for the market to become more active and therefore more competetive means that there will only be even higher prices and reduced opportunities in the future.

What will you do? Sit on the ropes, waiting for your oponent to wake up and realize you aren't in the game, and be surprised when you get K.O.'d? If you're ready to get started and need some direction, please drop me a line. Get ready, round 4 is coming up!

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Why You Can't Afford to Ignore Vacancy When Buying Commercial Real Estate

Firstly, what is vacancy?

Vacancy is the estimate, usually based on historical data for a given property or property type within a given market, of the amount of space within a building that is typically vacant and is usually expressed as a dollar amount per foot or more commonly as a percentage of gross rent.

Vacancy is one of the most overlooked expenses, in my experience, when dealing with individual investors. For some reason, most people have a hard time believing that their building might not be 100% full 100% of the time.

Is this reasonable? Not even close. Especially in the current economic climate where vacancies are still climbing and businesses aren't expanding at the same rate that we've seen over the last decade.

As part of your due diligence when analysing a property you should always include a vacancy expense in your pro forma - even if the building is full at the time of the analysis. The building won't be full forever!

Don't misunderstand - some vacancy is good for the market. Shocking, but true. What happens when times are good, and growing businesses can't find vacant space to move into? They risk stagnation and missed opportunities. So a little vacancy is a good thing, but rampant vacancy is obviously harmful too.

How much vacancy is healthy? Well that really depends on the property type and the general market. Residential income properties generally use 5% as a normal vacancy rate (at least in my market), but storage properties typically run anywhere from 10-20% vacancy in healthy markets. The key is to do your research and try to find out the prevailing vacancy in your market and use that as a benchmark for comparison purposes.

Failing to factor in a normal vacancy rate in doing your financial forecasts can be deadly to your bottom line, especially when there's little room for error in a tight market.

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Is That Property You're About to Buy Really a Good Investment? Here's How to Tell...

So you've set aside some money or maybe you've inherited a big bag of cash(repleat with dollar signs on the side of course!) from your rich aunt, or even better, you've set up a syndication group and you're ready to start buying commercial real estate.

Great!

The next step is to go out and find some potential investments. Once you've done that (easier said than done!), you need to decide if the investment is a good one or not.

How to do that? Contrary to prevailing belief, there isn't a flood of distressed property flooding the market, nor are prices being affected too drastically in Canada. From a recent Globe and Mail article about the state of the Canadian market:

But what if the market isn't all that distressed? Third-quarter statistics from RealNet Canada Inc. hinted that a rebound is taking hold in Canadian commercial real estate markets after 18 months of contraction.

And this from reportonbusiness.com on the same topic :

Canada's commercial real estate market is on the mend, as an 18-month slump in Toronto has ended and other urban centres are showing signs of renewed activity that suggest the sector has de-coupled from its troubled U.S. counterpart.

After almost two years of flat or declining activity, industry tracker RealNet Canada Inc. said investments in commercial property in the Greater Toronto Area increased by 46 per cent in the third quarter over the second quarter, to $1.31-billion, while the number of transactions increased by 20 per cent.

"This is a statistical sign of a recovery, even if it's not a full-blown recovery," said RealNet president George Carras, adding that sales are still only half of what they were going into the recession. "You can't call a bottom until it's passed, but this data is positive and very factual - it's real, hard evidence, and not anecdotal comments."

So how do you get started?

Do your research and use professionals to find the right kinds of properties. You can do all of the leg work yourself, but why not use the expertise of people who work in the markets where you want to invest? The efforts of several people working toward the same goal will almost always result in a quicker turn-around and hopefully with a higher degree of success.

Once you've found a good investment candidate (or several hopefully), you need to do your homework and analyze the tenant mix, the income and expenses as well as the condition of the property and the general market conditions in your area. Assuming that the market is stable or improving and further assuming that the property is in good condition, and also that the tenants are solid risks, all you really need to do is dissect the income and expenses and consider the cost of carrying a mortgage loan.

Simple, right? Well, the process isn't too complicated, and a competent commercial real estate professional should be able to help you with this.

• Start by looking at the Net Operating Income (NOI). Take a look at all of the income streams from the property and deduct all of the operating expenses, but ignore debt service costs, to derive the NOI.
• Next, calculate the debt service payments required to carry the property. Your lender will give you a clear picture of the required downpayment based on the property and your credit history and will give you an idea of the expected interest rate and loan amortization term. Use this handy calculator to make your calculations (note: this site defaults to a Canadian calculator - if you're in the US, remember to check the button that says US property or the result will be incorrect for your purposes.)
• Now deduct the annual debt service (12 X the monthly payment) from the NOI to arrive at a pre-tax cash flow number. This is the money left over after all expenses save income taxes are paid.

NOI-Annual Debt Service Payments=Pre-tax Cashflow

Is the number you arrive at greater than $0, also called positive cashflow? If not, is it really an 'investment'? Even if it is greater than $0, is there any room for error, or will you be in a negative cash flow position if the property's income drops just a little?

Definition from thefreedictionary.com:
investment - the act of investing; laying out money or capital in an enterprise with the expectation of profit

'The expectation of profit" is the key phrase here. I have seen too many would-be 'investors' either fool themselves or be fooled by others into buying into the philosophy that $0 or negative cashflow is acceptable because 'the market always goes up and you'll realize a profit when you sell'. While this is most certainly the case most of the time, for myself and my clients, that's just not good enough.

If an investment doesn't provide positive cashflow from day one, then it isn't an investment, it's a liability.

The exception to this rule is when rehabbing a building and you go into the project knowing that it will be a set period of time before you can expect a return on your money. In general, however, when considering pure investments where you are simply buying a property based on its existing income stream, if there isn't positive cashflow on the first day of ownership then it probably isn't worth considering.

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Super Concrete or How to Build a Pyramid

I ran across this story on wired.com today about super concrete and the US Military. Among the story ideas, including bombs bouncing off bunkers and other fantastical applications like mugs that don't shatter, the writer mentioned a French scientist, Joseph Davidovits of the Geopolymer Institute, who claims that the Ejyptian pyramids may have been built with a re-agglomerated stone rather than massive blocks.

An intriguing idea that solves a lot of heretofore baffling logistical challenges.


The applications for construction of major projects, even today, are enormous. Quick runways, immovable and nearly indestructible foundations... other ideas?

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Funny Friday - Awesome Real Estate Ad!

Thanks to Future of Real Estate Marketing for finding this gem and sharing with the world!



The guys over at I Love Local Commercials are really on to something with this plan to market small businesses with creative online ads. Great job and really funny!

Enjoy!

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Tips for Increasing the Cash Flow of Your Business

Need more cash? What business owner doesn’t these days? Even if your revenues have remained stable during this recession, your company may still be short of cash if it’s tied up in accounts receivable, inventory or capital equipment.

Thomas Comollo, a partner with B2B CFO in Ponte Vedra Beach, Fla. says there are several “tricks of the trade” that well-managed companies use to maximize their cash flow. These policies can be used by any sized business. Here are a few that will help maximize the cash in your checking account:

• Shorten your cash conversion cycle. This is the time that it takes a business to convert a sale to cash. The shorter, the better. Dell keeps its cash conversion cycle one of the best in the business by getting paid up front, ordering parts only after the order has been received and paid for, and not carrying excessive inventory.
• Reduce accounts receivable. Consider billing by e-mail so customers get invoices more quickly. Tighten your collection policy, and follow up as soon as invoices become overdue.
• Reduce inventory. Don’t order parts or supplies until you absolutely need them. Limit access to inventory to prevent theft, and get rid of obsolete inventory immediately.
• Stretch out your payments. Don’t pay vendor bills until they are due, and negotiate longer terms. Don’t be afraid to ask for 60 days to pay. Be careful though, don't create a situation where you start paying late - your good credit is too important!
  

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5 Tips for Negotiating a Renewal of Your Commercial Lease

Your lease is nearly up, and it's time to renew. Now is a great time, experts say. The recession and resulting downsizings, bankruptcies and corporate closures have created opportunities for companies looking to stay in place and renew their leases. Vacancies are up nationwide, and subleases are driving down rents. That makes landlords nervous-and anxious to retain their current tenants.

To attract new tenants, landlords often offer concessions such as free rent or buildout allowances. But renewing tenants have received little more than a rent hike-until now.

Here's how to get the best deal on your lease renewal:

1. Hire an expert. Consider engaging a broker who specializes in tenant representation. A qualified broker can help you negotiate your lease--to your financial advantage.
2. Start early. Don't wait until the end of your lease. Allow time to negotiate with your landlord and to research alternative locations should he be unwilling to bend. Experts suggest beginning the process about a year before your lease expires.
3. Keep information to yourself. To optimize your bargaining position, keep key information to yourself. For example, don't let your landlord know that his location is the only one that works for your business.
4. Do your research. Always have several other alternative locations that will work for you. Get proposals from each so you can compare the details of each deal. Then approach your landlord with comps. A landlord is only likely to give you the same type of deal new tenants get if he believes you have alternatives and might leave.
5. Get legal advice. Have a commercial real estate attorney review the lease before you sign it.

Been through the process already? I'd love to hear how you made out and what worked best for you in the comments.

If your lease is up for renewal soon, I'd be happy to assist in any way I can. Just drop me a line and let me know how I can help.

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The Top 9 Blogs I Read - Real Estate and Otherwise

Thought I'd share some of the blogs I read on a regular basis; these are the places I go to keep informed.

Commercial Real Estate Blogs:

Deal Junkie
Billed as "A Peek Inside The Commercial Real Estate Sector", Deal Junkie is a good place for quick and timely commercial real estate stories and editorial. Deal Junkie is a commercial real estate blog with a focus on the debt & equity market in US and Canada.

Real Property Alpha
"Investment Real Estate, Incremental Innovation, and Shameless Self-Promotion"
Run by John Reeder of Mimi Song Realty Group and Sperry Van Ness, Real Property Alpha is a great site with lots of well reasoned and well researched articles on commercial real estate and finance. Worth the time to explore this site.

Retail Traffic
"Where real estate, retail and development meet"
This is the blog page of Retail Traffic Magazine and provides insight on the retail sector with comments on the impact of retail on commercial real estate development.

The Dirt Lawyer's Blog
"Digging the dirt on commercial real estate transactions and law in Chicago and beyond"
This is the blog of David Stejkowski, a lawyer in Illinois that I found early this year. He's always got an opinion about timely events in corporate real estate and the industry in general. Highly recommended.

The Commercial Real Estate HandBlog
Informative site with lots of 'how-to's' for investing in commercial real estate. I just found this site a few weeks ago, and I'm impressed with the amount of information that they give away. Worth stopping by.


General Real Estate Blogs:
Agent Genius
"Our primary goal is to educate readers to improve their business as well as the overall industry with the end goal being improvement of the consumer experience." Fabulous site for REALTORS by REALTORS with lots of great tips and ideas on how to improve the brokerage business. Tips on SEO, branding, attitudes, you name it.

The Real Estate Tomato
"Juicy blogging advice for REALTORS"
Loads of great blogging advice for agents including mountains of information on content creation. They must be pretty busy over there however, new content on the site has been very slow in being released recently. If you're new to real estate blogging, you should definitely check it out.

Non-Real Estate Blogs:

Problogger
"Welcome to ProBlogger.net - a Blog that helps bloggers to add income streams to their blogs."
While I'm not trying to monetize my blog, I find the ideas and strategies presented here to be invaluable. Darren Rowse has really figured out how to make blogging work - and he does with class.


The Blog of Tim Ferris
"Experiments in Lifestyle Design"
Tim Ferris is the author of 'The Four Hour Work Week" a much misunderstood title. He advocates only doing those things that excite you and reducing work to the bare minimum to acheive your goals. Not for everyone, but I find inspiration in the dream!



I could go on for hours with great sites that have fantastic content, but this is a good start. Take a look and tell me what you think. What other sites do you recommend that I'm missing?

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What's the Difference Between Market Value and Market Price?

How are values estimated? How do sellers know what to ask for their property (assuming no bank is knocking on the door)? How do buyers come up with a price that they are willing to pay for a property?

Given the lack of deals in the market place today, there is growing confusion about what constitutes 'market value' vs. 'market price'.

One is an estimate of price and one IS the price.

Where there are no, or very few, transactions taking place it becomes very difficult to estimate values. And, where buyers have an expectation (that may or may not be based in reality) that there should be a lot of 'good deals' out there because of the Great Recession, I'm seeing more people grasping for what real values should be.

Market Value is defined by the Ontario Real Estate Association (OREA) as:
“The highest price in terms of money, which the property will bring to a willing seller if exposed for sale on the open market; allowing a reasonable time to find a willing purchaser, buying with the knowledge of all the uses to which it is adapted and for which it can be legally used, and with neither party acting under necessity, compulsion or peculiar and special circumstances.”

A couple of provisos, also from the OREA:
“Market Value is not to be confused with market price: the amount paid, or to be paid, for a property in a particular transaction. Market price is an accomplished or historic fact. Market price tends to closely align with market value in an efficient marketing system involving willing, informed buyers and sellers, given reasonable periods of time with no undue influences. However, successive market prices, in comparable properties form the basis of estimating the market value of a particular property.

Market Value is not to be confused with cost. Expending $2,000,000 in constructing a new development plus $500,000 for the purchase of the land in no way ensures a market value of $2,500,000. However, assuming a reasonably efficient market, the difference between actual cost and market value may be negligible unless obsolescence was built into the property or intervening factors affect the market place: e.g., lack of housing, supply, dynamic growth in a particular market, extremely depressed market conditions etc.”

A lack of 'successive market prices' is the problem facing sellers and buyers today. And, as time goes by, it gets harder and harder to nail down values because more and more time is slipping away. As time goes by, historical data becomes less valuable and therefore the process is exacerbated.

So what is a buyer or seller to do? Let common sense prevail. Where an investment property has solid tenancies and shows promise of long term returns along with cash flow today, why wait to sell or invest? Now is the time to make smart investments. The cost of inaction is just too high.

Source: OREA Real Estate Encyclopedia, Premier Edition, 1997

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Further Indicators That it's Time to Buy?

The Analysis and Opinion

The evidence is compelling and the research is strong. This great article from the National Real Estate Investor, gives some really good background on the spread between US 10 year Treasury yields and historic cap rates.

As of the second quarter of 2009, the cap rate spread ... has widened to more than 400 basis points. We believe this trend reflects increased risk-aversion among investors, who are pricing in a negative outlook for real estate.

During the recession of the early 2000s, cap rate spreads also rose to more than 400 basis points, making real estate appear undervalued relative to Treasuries. We believe that entering the real estate market during such periods of above-average spreads may be advantageous to long-term investors.

When most investors are taking a wait and see approach to investing, it's often the right time for those with the vision to start investing. And there is evidence that you should start soon:

These periods of high cap rates and spreads often do not last long. From 2003 to 2007, spreads narrowed significantly as the economy recovered and property values appreciated.

As the economy begins to rebound and real estate fundamentals improve, investors will likely become less risk-averse. We believe it is likely that more capital will flow into the sector in 2010. Consequently, we expect cap rate spreads to eventually narrow gradually, reverting toward the mean, and repeating the cycle.

My thanks to the Dirt Lawyer, David Stejkowski at The Dirt Lawyer's Blog for finding and sharing this. You should consider following David on Twitter: @DirtLawyer for insightful and timely posts on commercial real estate topics.

Other Indicators

via Retail Traffic today:

Bill Rudin, Rudin Management, and Steven Roth, Vornado Realty Trust, talk about their views on the real estate market - where we are and where we're going.

Steven Roth, "We're optimistic that there things, you know, moving in the right direction."

Bill Rudin talks about wanting tenants to sign short term leases, 2 years or so, so that they can play the market as it goes back up i.e. increasing rents along with strengthening markets vs. the tenants who want to lock in now for longer term leases, 10-20 years, now because there is growing sentiment that this is the bottom and they want to take advantage of that.

Really good take on the US commercial real estate market. Thanks to Retail Traffic for finding and posting this video.

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Why Commercial Real Estate is NOT the Next Bubble

For the last several months, I've been saying that commercial real estate is not collapsing.

John Levy, president of the John B. Levy & Company, shares some really good insights on why he believes this too. First and foremost is that the reduction in values in commercial real estate and the necessity of refinancing undervalued assets are not a surprise. This is something that we've been watching for some time and is not a 'bubble about to burst'. It's already happening and, in fact, institutional investors are preparing for it by readying their funds to take advantage of the situation. Really informative video that's worth every second to watch and does an excellent job of putting the current real estate market in perspective.

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Why Peterborough Retail Rents Are Cheap!

via MSN Money: The world's most expensive shopping districts.

According to real estate advisor Cushman & Wakefield, it costs an average of $300 USD per square foot to set up shop along Bloor, the street that stretches through the heart of the city.

Often, when asked about retail rents in Peterborough, we're surprised when the reaction we get is one of disbelief, "You get how much?" As if $16-22 per foot for new retail space in Peterborough, Ontario is some kind of out of this world number that can't possibly be correct.

You haven't seen anything yet!

Check out some of these statistics as gathered by Cushman & Wakefield in their Main Streets Across the World Report (registration required, but free):

$300 - Bloor Street West, Toronto
$110 - Queen Street West, Toronto
$200 - St. Catherine West, Montreal
$50 - Sussex Drive, Ottawa
$50 - 17th Avenue SW, Calgary
$210 - Robson Street, Vancouver

Still think $16 is expensive?

Now, I know that the naysayers among you will cry, "But there's a heckuva lot more money passing through the doors along Bloor West, than Peterborough!" And to a point, I'd agree. There is more money passing through the tills on Bloor Street - but enough to justify a rental rate increase of 1,838%?! Are the retailers selling 1,838% more per foot? I think not. (Note: If anyone can find some research on sales per foot in Toronto vs. Peterborough, I'd love to see it.)

Retail spending in Peterborough, on a per capita basis, has averaged over 16% higher than the provincial average for the last 6 years according to the most recent GPAEDC Community Profile.

Construction costs are lower in Peterborough, but only slightly. Using rsmeans.com Quick Cost Estimator, I found that a 10,000 foot retail store would cost about $132 per foot to build in Peterborough versus $139 per foot in Toronto - only a 5% difference that doesn't come close to making up the difference in lease rates.

Land is far cheaper in Peterborough though, and this does go a long way to making retail space much more cost effective both for tenants and landlords. But that's not my point...

My point...

Peterborough, like a lot of other mid sized towns around Ontario, is a bargain!

Regardless of what it costs to buy land and build in a given community, from the retailers perspective, the sales forecast for each store on a 'dollars per square foot' scale should be the true measure of a retailers success in a given marketplace. All other expenses, including rent, come out of this top line revenue number. If a retailer can sell $500 worth of product in Peterborough and it only cost $210 to do so vs. $490 in Toronto - which is the better location?

Let me know if you need a little help with the math... :)

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