Bad Omens No Matter What You Call Them

Closures, Lay-offs, Bankruptcies, Notices of Default… Bad Omens no matter what you call them

In the world of investment and office real estate there are many factors that influence the supply and demand for commercial space. A major factor that stimulates demand is job growth – we have never been quite sure what to politely call “job decline”. What to call it is not a new problem. Back in 1848, John Russell Bartlett, wrote a book titled the “Dictionary of Americanisms”. It is reported in Scott Sandage’s Book ; Born Losers A History of Failure in America; that Bartlett was great at listening for the slogans or slang that became those day’s expressions known as “the mouthful’s about failure”. Here are a few of them from 1848.
Busted, Flat broke, Dead Broke, Up a Tree, Hand to Mouth, Hard up, Hard Pushed, or Hard Run. And the results were often; Face the Music, Go through the Mill, Wind up, Wipe Out, Peter Out, Flunk Out, Flat Out, Fizzle Out…

In 2008 many of those expressions are still in use. Today a new group of more modern expressions – but with much the same meaning; Closures, Lay-offs, Bankruptcies and the like result in less demand for commercial real estate.

Here are a few headlines we want to bring to your attention from June 2008.

Sacramento’s Own ; McClatchy Newspaper Company, publisher of newspapers in Miami, Sacramento, Fort Worth, Kansas City, Charlotte and Raleigh, plans to reduce its workforce by about 10%. "The effects of the current national economic downturn -- particularly in real estate, auto and employment advertising -- make it essential that we move faster now to realign our workforce and make our operations more efficient," said McClatchy CEO Gary Pruitt. McClatchy is reducing workforce through both voluntary and involuntary separations, as well as managed attrition, involving about 1,400 full-time equivalent employees. http://www.costar.com/News/Article.aspx?id=E9FB572BF5C23C36D165C0E2216E2C7E#num2

DR Horton, Greater Sacramento's biggest homebuilder just two years ago, this week abruptly scaled back staffing in its Rancho Cordova office that serves as the Sacramento division headquarters. A three-person crew will run the office that once housed dozens of workers, according to several industry sources. http://sacramento.bizjournals.com/sacramento/stories/2008/05/19/story6.html?q=layoffs%20in%20Sacramento


UOP: State's in mild recession
Thursday, June 26, 2008 Story appeared in BUSINESS section, Page D1
California is in a mild recession and has been since the last few months of 2007, according to the latest report from the University of the Pacific.The UOP quarterly forecast, to be released today, is perhaps the boldest pronouncement by an economist to date that California's sluggish economy has crossed the line into recession.Jeff Michael, director of the university's Business Forecasting Center, said the recession figures to be fairly long-lived but not severe. http://www.sacbee.com/103/story/1040362.html

Sacramento Red Cross Cuts Over Half of Paid Staff
SACRAMENTO, CA - It's been four years since Courtney Miller began working for the Red Cross, and she still talks about it like it's the best thing that ever happened to her."I love giving back to the community," said Miller, "and this organization is just amazing. You really do learn life's lessons here at the Red Cross."If she wasn't so positive, it might be understandable. The same organization that she loves just handed her a pink slip."It's definitely not something that you plan for," said Miller.She is not alone. In her building, several workers were laid off in March."It wasn't enough," said Sacramento-Sierra Red Cross CEO Cindy Jackson of the job cuts. "Unfortunately, we also had to layoff some additional staff in May." Written for the web by Will Frampton, Reporter/Multimedia Journalist http://www.news10.net/tools/printfullstory.aspx?storyid=43788

Elk Grove Ford dealership shuts down
By Mark Glover and Darrell Smith - mglover@sacbee.com
Elk Grove Ford, arguably the automaker's anchor dealership south of Sacramento, closed down operations early Friday evening in the Elk Grove Auto Mall.In the surreal final hour before the 6 p.m. closing, customers were still trying to close deals on vehicles as sales staff patrolled the store boundaries, trying to keep the media out of the showroom."I'm looking at driving off the lot today," said DeLorean Dixon, an Elk Grove shipping and receiving manager who was shopping for a fuel-efficient Ford Focus. Exactly why Elk Grove Ford shut is unclear. Its owners, Sacramento-based Keil Enterprises, did not return calls seeking comment. http://www.sacbee.com/103/story/1046012.html

RV dealer to close; furniture chain files for bankruptcy
By Mark Glover - mglover@sacbee.com
Published 2:35 pm PDT Friday, June 27, 2008
Rough economic conditions have swamped two Northern California retail chains.
Dan Gamel, the 57-year-old, Fresno-based recreational vehicle dealer, said Friday he is selling off his $40 million RV inventory and plans to close all six of his California stores, including the Rocklin RV Center at 4429 Granite Drive.The other Gamel dealerships are in Salida, Anderson, Bakersfield and two in Fresno. The RV chain employs more than 200.
The RoomSource Furniture & Accessories, a six-store chain based in Sacramento, filed for Chapter 11 bankruptcy protection on Wednesday, according to records at U.S. Bankruptcy Court in Sacramento.The 11-year-old retailer operates a showroom at 1821 Exposition Blvd. and has a distribution center at 849 N. 10th St., in Sacramento. Other RoomSource outlets are in Rancho Cordova, Rocklin, Modesto and Stockton. http://www.sacbee.com/103/story/1045519.html

Sacramento area restaurants struggle as gas, food costs rise
By Jon Ortiz - jortiz@sacbee.com
Published 12:00 am PDT Friday, June 27, 2008Story appeared in BUSINESS section, Page D1
It would have been easier for Rick Zibull to take it if his restaurant was closing because the competition beat him.But Z's Wine Bar and Bistro in El Dorado Hills is shutting down Saturday night for reasons beyond its owner's control: Gas at $4.50 a gallon. Soaring food costs. And that rotten housing market.
"People having to make a choice: 'Do I spend a hundred bucks to put gas in my tank, or do I spend a hundred bucks on a night out?'" Zibull said. "You can guess which way that decision goes." Sacramento's eating and drinking establishments are entering a shake-out phase. Summer, already a traditionally slow season for restaurants, will severely test who can stand up to higher costs for everything from eggs to employees as sales wobble.The sluggish economy has already forced some out of business. http://www.sacbee.com/103/story/1043291.html




Sacramento Builder Owes $973 million
Sacramento Builder and Developer John Reynen Hopes Personal Sacrifice Spares Company
According the latest filings in the Chapter 11 bankruptcy reorganization case of Sacramento builder and developer John Reynen, co-owner of Reynen & Bardis Communities, Inc., owes $973 million in various personally guaranteed loans taken out during the housing boom, the Sacramento Business Journal reported recently . Reynen filed for Chapter 11 bankruptcy in April. It was a move intended to give Reynen & Bardis, which Reynen founded with Christo Bardis in 1969, its best chance for survival, company spokeswoman Michele McCormick told Builder. http://www.builderonline.com/business/sacramento-builder-owes-973-million.aspx

Housing bust takes toll on contractors, economy
Jun 2, 2008
LOS ANGELES — Robert Lindsey was not surprised by new data last week that showed new home sales in the United States have fallen more than 40 per cent from their peak almost three years ago. He can tell from his company's bank account."We're literally losing money every month," said Lindsey, general manager of Signature Drywall Inc., in Sacramento, which installs drywall in new homes and apartments in the Sacramento and San Francisco areas.In 2005, the firm raked in some US$30 million in sales. Last year, sales were less than half that, and this year Lindsey hopes he can make $8 million."It's kind of like bleeding to death," he said.http://canadianpress.google.com/article/ALeqM5idGvltUr8_3X3Pq5etGhTPPLEitQ


In a future posting we will do our best to find an equal – although we suspect it will be less- number of positive indicators on factors that are stimulating the regional economy and increasing the demand for commercial and investment real estate.

If you have questions about this Post of if you would like to discuss commercial and investment real estate services with you please call Jim Gray at (916) 617-4255 or Nahz Anvary at (916) 617-4257.

Tough or Bear Markets --Some Advice to Consider and Opportunites to Consider

In tough or bear markets—important advice and opportunities to watch for.…

We are sales people and consider ourselves “honest brokers.” One of the challenges that we must confront is to coach and counsel parties to be realistic, and in tough time like these, that often means sharing bad news, and yet we still need to be positive and even optimistic. We don’t want our clients to say; “ Damn , here come Jim and Nahz with more bad news…” We enjoy our clients and we want to be welcomed by prospects and not be “shunned as downers or contributing to our depression”.

First, in this particular post we would like to do a little philosophizing and acknowledge up front that it is really tough in the commercial real estate industry right now. Conditions in northern California for many properties and for many sectors of the economy have taken a hit. Some people are taking real losses-- financially, in their relationships and even to their own sense of self worth.

Our goal is to share with clients and prospects market information as we gather, sift, compare, analyze, understand and hazard a guess and formulate a recommendation. Our goal is to appreciate the prospect’s or the client’s perspective and objectives – but sometimes the client’s goals and the market realities are not in sync. Unfortunately, there are properties that are worth less than someone paid for them, or leasing projections weren’t achieved and the cash flow and yield aren’t being obtained, or vacancy has risen and rents have actually declined, and increasingly operating expenses are rising faster than income. And unfortunately, businesses fail, tenants quit paying rent, and loans come due and can’t be refinanced at the old favorable rates and terms. It just isn’t fair --but sometimes you invest and you lose income and even occasionally equity or principal.

If you are well capitalized and a seasoned professional and the current underperforming asset isn’t going to increasingly deteriorate, the usual reaction is to “hold on – take it off the market”. You merely wait for the market to turn around and recover and don’t lose any sleep because it is merely a part of your diversified portfolio and you can subsidize the underperformance and it doesn’t adversely affect your life of lifestyle.

In this market we are seeing more and more people who are in denial and who aren’t fully equipped to hold on and to wait for the recovery…“But I can’t.!” “How will I tell my investors, my partners, my family my banker and etc ?” We have heard them all and we understand and it is tough and painful. We have sympathy and empathy and sometimes the best advice and the best help we can give is to present the facts and the strategies and help people get realistic, help them become decisive and cut their losses before their problems get worse with deteriorating relationships, bad credit, foreclosure and the like. If you get proactive and you get the problem behind you, manage your way through it the best you can, we have seen many people express relief and thanks. We share the advice and perspective that this too will pass. Hopefully there have been important and beneficial lessons learned, and with this behind you tomorrow will be a better day. With this behind you it won’t be dragging you down any further and that you can go on with other activities that bring you pleasure and make you money. You aren’t a failure. This investment might have been a lousy one. We firmly believe, from firsthand knowledge and experience, that we are all able to recover from the downturn or from an adversity or loss and if we learn from it and go on with optimism seeking opportunities that it will make us better and stronger. Life is about resilience and finding the silver lining and being able to make a new start a bit wiser.

Here are a few waves of opportunity in these tough seas and currents:

There are some opportunities that are emerging out there. Here are a few product types that are worth watching:

1. A number of small owner user office buildings and condominiums are available either from the developer, from a struggling company, or even from lenders as REO, that are beginning to be sold at below replacement costs. These properties often qualify for special SBA financing for business users with as little as 10% down. Make sure you do the math and the costs of ownership are equal to or less than you could rent a similar property for.

2. As a result of the number of housing foreclosures combined with high gas prices – it seems certain that apartment complexes and land for high density apartments in the urban centers and near transit will see considerable demand and likely increased rents and values. As fewer can own, due to the tightened lending standards, more must rent. This is likely to be a huge advantage for high density rental housing as we slowly de-suburbanize and re-urbanize in response to increasingly tight fuel supplies. Human habitation will gradually become more concentrated, benefiting purveyors of urban rentals.

3. We believe that intelligent buildings—LEEDs or Green Buildings —incorporating such features as security, technology, communication, and digital signage, will command above market rents as they develop a brand, and offer users better spaces with better services. In addition there will likely be incentives to do this and the investors long term operating expenses will likely be lower. Many of these opportunities just might be in acquisitions and renovations of existing buildings in core areas.


4. Cap rates are starting to rise and once sellers acknowledge that rates of return from net operating income are likely to be in the 7% to 8.5% range for good low or no leverage investments, more opportunities will be created for buyers.

If you would like to discuss this post or if we can be of assistance with a real estate service please feel free to call Nahz Anvary at (916) 617-4257 or Jim Gray at (916) 617-4255.

Sacramento Job Growth Turns Negative...Worst in 15 years

Sacramento’s Negative Job Growth

According to the analytical employment work done by Sacramento Regional Research Institute, SRRI, for the first time in more than 15 years Sacramento’s job growth for a consecutive 12 month period has turned negative! See the steep decline in the green line below. That is the Sacramento Valley Line. Our region’s employment has declined more steeply than the Bay Area’s, more than the US Average, and worse than the California Average. There are 6,500 fewer jobs than there were 12 months ago.

This chart shows it in declining and vivid detail:

Six sectors in the Sacramento Region posted year-over-year losses resulting in a combined decline of 14,200 jobs. The Construction sector showed the largest decrease followed by Trade, Transportation, & Utilities (concentrated in the Retail Trade component).

Six Sectors showed positive job growth , they included; Government; Educational & Health Services; Professional & Business Services; and Other Services all added jobs between May 2007 and 2008, but only created a 7,700 job gain, which helped cushion, but did not completely make up for, the other relatively heavy losses.

These job losses are a clear indication of the economic woes and strain that are confronting the Capitol Region. We are all aware of the sharp declines in construction- primarily residential and new home construction- but financial services, manufacturing, utilities, and retail trade are additional sectors that are now shrinking. If you use a multiplier of 4 jobs per thousand square feet of office demand --- the 14,200 job decline in those six sectors means that more than 3,000,000 feet of office space that would have been the home for these workers now will be surplus and vacant. If you look at the offsets for those sectors that did add jobs this past year we still have a demand for nearly 1.5 million fewer feet than a year ago.

As they say in every economic cycle there are winners and losers. In the Sacramento region we now have 2 losers for every winner. Also it is worth noting that the largest growth has been in the government sector—we lost 3.1 private sector jobs for every government job that was added. Clearly, this situation is neither innovative nor sustainable. Also one must wonder as the reality of a $16+ Billion state budget deficit sets in will government employment continue to mitigate the private sector job losses. The other shoe may fall!

For a complete review of the report see; SRRI Economy Watch, EMPLOYMENT GROWTH IN THE SACRAMENTO REGION, THE BAY AREA, CALIFORNIA, AND THE UNITED STATES, June 2008.
If you have questions about this Post or if you would like to discuss a real estate question or need please contact Jim Gray or Nahz Anvary , of NAIBT Commercial Real Estate. We can be reached at (916) 375-1500.

To Sell or Not to Sell? Capital Gains Considerations is that the Question?

To sell…. or not to sell? That is the question.

If you have been following the presidential race as closely as we have, one question may be at the forefront of your mind—to sell…or not to sell? Borrowing William Shakespeare’s famous line and applying it to the world of commercial and investment real estate has made us wonder about the role capital gains tax and the outcome of the upcoming election may play in our disposition decisions and what the best avenue may be to reinvest our proceeds from investment property sales.

The volume of 1031 tax-deferred exchanges has dropped dramatically, approximately 30-50% in the last year, especially in properties less than $5 million, according to Boulder Net Lease Funds. One explanation may be that investors who once never dreamed of paying Uncle Sam are now deciding to lock in their gains, as no one is really sure when capital gains rates may ever be this low.

Regardless of whoever takes the White House in November, it seems to be a matter of time until the very favorable capital gains tax rate of 15% is set to increase.

So…if you have been philosophizing about the big question “to sell…or not to sell” you may have just found your answer. Or at least you are asking the right question along with many other investors.

For more, read the article in the Wall Street Journal, June 18th, 2008, Your Tax Bill How McCain and Obama Differ; Capital Gains Rates are likely to Rise, No matter Who Wins.
http://online.wsj.com/article/SB121374794468982701.html

National Real Estate Investor, June 2008, Taking a Direct Hit.
http://nreionline.com/finance/investors/real_estate_taking_direct_hit_0601/index.html

If we can answer questions about this posting or help you with a real estate question or decision please feel free to call Jim Gray or Nahz Anvary at NAIBT Commercial Real Estate at (916) 617-4255 or (916) 617-4257.

A return to fundamentals in commercial loan availability and underwriting…

This afternoon, I had lunch with John DiMichele, the CEO of Community Business Bank, a local bank less than 3 years old with nearly $150,000,000 in assets that focuses on relationships with small and medium sized businesses and non-profits in Sacramento, San Joaquin, Placer, Yolo, and Solano counties. John is a veteran of the banking industry and has more than 30 years in banking and has been the CEO at four financial institutions. (So here is the disclaimer, Jim Gray has been on the board of two different banks that John has led – but none the less John D. is a smart guy who we are proud to say is our friend and banker.)

Over lunch John said; “In my career I have never seen it change so quickly. There are still good customers out there and there are still plenty of good loans to be made—but we need to do a much better job of underwriting and we just have to say ‘no’ to some loans that we would have made just a few months ago. We don’t have to say we won’t make commercial loans or that we won’t make construction loans, but we do need to be more cautious and more thorough as we underwrite those loans. We must make sure that we underwrite not only the asset but also the cash flow and secondary sources of repayment.”

John is not alone in making these kinds of observations … Prudent lenders and the market place have tightened up their underwriting standards. Here are some ways that Commercial Real Estate Investors need to think about the implications of better underwriting. (And I do mean better.)

Six months ago you could get a commercial loan with a 75% to 85% Loan to Value Ratio- LTV. Now maximum LTV ratios are more like 65% to 70%. On a $5,000,000 acquisition 6 months ago you could have borrowed $4,250,000. Today you would be fortunate to borrow $3,250,000. In other words, you would need an additional million dollars in down payment for a total of $1,750,000.

The other underwriting ratio is the one that evaluates cash flow and it is known as Debt Coverage Ratio. DSCR . Six months ago you probably could have gotten a loan with a 1.10 or 1.15 DSCR. Now it is probably more like 1.25 to 1.30 DSCR.

The debt service coverage ratio is the ratio of net operating income to debt payments on a piece of investment real estate. It is a benchmark used in the measurement of an income-producing property's ability to produce enough revenue to cover its monthly mortgage payments. The higher this ratio is, the easier it is to borrow money for the property. In general, it is calculated by: DSCR = Net Operating Income / Total Debt Service

To determine the DSCR one needs to determine the Net Operating Income, NOI. In this $5,000,000 property example, let’s assume it was acquired at a 7% Cap rate, = $350,000 NOI. Then let’s assume that one could find a market interest rate of 7% and a 25 year amortization for the $3,250,000 loan balance, that would mean a monthly debt service of $22,837 or $274,045 per year. The DSCR is the annual Net Operating Income divided by the Debt Service which in this case is 1.28. In other words the cash flow after paying expenses and debt service is $75,955. The banker or the investor in the mortgage debt are now comfortable and feels that their risk of default is “covered”. The bank underwriter has returned to “tried and true” underwriting standards. And they have changed quickly.

Finally, let’s now look at the return that the buyer/ property investor receives in a $5 million dollar property with these more conservative underwriting standards. The Investor increases their down payment—investment -- to $1,750,000 and receives $75,955 in annual cash flow after paying expenses and servicing the mortgage debt, that equates to a 4.34% cash on cash return. In addition, after paying 12 monthly payments- interest and principal - there would be $48,069 in principal reduction which is 2.75% additional return on the initial investment.
In this new, more normal, lender /borrower relationship, the bank is “covered” and receives a 7% return on their mortgage debt and the buyer receives a cash flow of 4.34% and a total return including principal reduction of 7.1%.

Clearly what this means to a community banker is there remains a willingness to take a risk so long as it is coupled with a reasonable return for the risk and a requirement that the investor has a sound investment. How can one argue with these fundamentals? A borrower is going to have to have more cash, stronger collateral, and outstanding credit to achieve approval in this return to underwriting fundamentals.

The Denominator Effect

The Denominator Effect…

No, it is not just a test of your recollection of long division, fractions, or high school algebra. The denominator effect is is a term that describes a phenomenon that is finding its way –unfortunately--into the commercial and investment real estate communities right now, and might lead to more pressure to sell and less capital to buy.

So here is how it works and what the implications are. An Institutional investor, pension plan, investment fund, or insurance company manages a portion of their risk by diversifying their portfolio. In broad terms they set guidelines for themselves on how much money to put into various asset classes and then they either quarterly or annually check their investment percentages against their guidelines. They do this not only amongst individual stocks, bonds and other individual assets but also amongst all asset classes. Commercial Real Estate and Commercial Mortgages are usually a small percentage of many investors’ portfolio diversification strategies. (5% to 15%)

As institutional investors have taken recent losses and declines in the Stock and Bond Markets, combined with the fact that much of their real estate investments had double digit growth over the past 5 years, some now find themselves “over-weighted” with commercial real estate. Now, many of them need to “rebalance” their portfolio by reducing their commitment to commercial real estate. Here is an example of how this works. Let’s say the investor has a $10,000,000 portfolio comprised of 60% stocks, 30% bonds, 10% Real Estate. Let’s say that the stocks perform like my IRA and lose 15% of their value in the last quarter. Let’s also say that long term interest rates rise by 1% or credit quality comes into question and you lose 10% of your bond’s value. (You have a good investment advisor and he didn’t let you buy any mortgage backed securities or auction rate notes so you have only lost 10%) The portfolio is now “marked to market” at a value of $8,800,000. The Plan should now allocate only $880,000 to real estate not $1,000,000. Funds available for real estate just went down by 12%. Investors either reduce their appetite for buying or they need to sell to reduce the size of their actual real estate holdings.

So what does this mean in the near term? First, several quarters of poor performance in the equities and, to a lesser extent, the bond market have had an impact on the denominator of plan assets and have increased the relative weighting of real estate. Secondly, strong performance over the past five +- years in the real estate sector has led to imbalances in sector weightings within the real estate portfolio. And thirdly, many experts have “expectations of moderating performance” including slower rent growth, potentially higher expenses, and likely rising cap rates and these factors are leading investors to reduce exposure to real estate as they consider new strategies in their real estate portfolios. It means less money for purchasing real estate and some pressure to sell commercial real estate so that funds can be reallocated.

This phenomenon is really happening and it is happening right here in northern California. Recently the City and County of San Francisco Employees’ Retirement System (SFER) reduced its target allocation to real estate by 73%, from $750 million to only $200 million in its next fiscal year beginning in July. Here is a link to that article from May 27, 2008. http://www.globest.com/news/1166_1166/sanfrancisco/171096-1.html

Keep your eye on the impact of this denominator effect and its implications for your particular portfolio or any purchase opportunities that may arise because of it.

If we can answer questions about this posting or help you with a real estate question or decision please feel free to call Jim Gray or Nahz Anvary at NAIBT Commercial Real Estate at (916) 617-4255 or (916) 617-4257.

Intelligent Buildings from the Executive's Point of View

At the recent Realcomm Conference in San Diego there were a number of break-out sessions on the whole topic of "Intelligent Buildings". This is an important emerging trend that involves more than just energy management and enhanced security. This is conceptualizing , designing and then constructing buildings that incorporate technology and processes to enhance the work space.

Any discussion of this topic can move quickly to new and often expensive technologies but it also can focus on meeting the needs of tenants and users and creating better workspace -- which are healthier, safer, with enhanced communications, design, and other features. Resulting potentially in a strong branded building with real estate differentiation.

Here is a quick list of some of the areas getting discussed in this whole area of Intelligent Buildings.

1. Power



2. Communications



3. Computing



4. Security



5. Control



6. Digital Signage



7. Much More
   

It is really clear that to develop these Intelligent Buildings you have to work early on to bring a team together to create a "common vision". What do you want to accomplish? What should performance standards be? How much will it cost? How much will it save? Can we calculate a "pay back period"? What features should our building have? Also you should probably develop a checklist to talk about the perceived benefits of:

• Special HVAC Systems, and their controls?



• Security and Access control to the building and to parking?



• Security Camera Systems? Swipe Cards or BioMetric Access.



• Incorporating and Integrating Security System to Time Cards, to turning on or off lights, computers, and etc.



• Digital Signage and Digital Media. inside, in lobby's in elevators and potentially on the external skin of the building?



• What kind of Cabling for Computer and Communications?



• Wireless and WIFI and Cellular Rebroadcast Enhancement?



• Emergency Power?



• Redundant Air?



• Dry Fire Protection?



• Racks and Cages for multiple tenants.



• Integrating these items into a centralized(web based) control room.
  

We know , you think this all costs money, and it does... but you do this because it saves you money and creates enhanced net operating income and long term value. You do this because you can differentiate you product offering, and increase operating performance, save energy, provide better and fuller services to tenants and users, increase health and safety at the building, increase rents, and reduce costs. You do good and you do well as a result. These are the right things to do and they make financial sense.

The CEO of a building and the CEO of the tenant should focus on a few high level questions.

1. What is the value proposition to the tenant?



2. What is the value creation to the owner?



3. Branding and differentiation for owners and users?
   

As we listened to these presentations and participated in the full discussions of these matters it becomes apparent that these are the right things to do -- but in the real estate industry there is a lot more talk about it -- and planning for it -- than actual success stories. That is changing though.

One of the panels was; "Intelligent Buildings from a Real Estate Executives Point of View" ; and it included leaders within this industry , including Tom Shircliff of a firm known as Intelligent Buildings, as well as representatives of GE Asset Management, Tridel Corporation, and Colonial Properties Trust.

Tom LaDow, and executive with this REIT Colonial Properties described a mixed use project with a 170,000 square foot office building which they developed in the "progressive green capitol" of Birmingham Alabama. Here is a list of their amenities:

Attached to Mall anchored by Macy's, Belk & many others
Concierge Service
Covered Parking
Dual power feeds from two separate power substations
First LEED Gold certified multi-tenant building in Alabama
Highly efficient floor plates
Locker Rooms with Showers
Multiple On-Site Restaurants
On-Site Maintenance
Wireless capabilities

And here is a picture of this building that was finished in 2007. It is 100% occupied.

As Tom explained the development and the marketing process it made great sense. But the financial performance really caught our attention. The Building is 100% occupied, and was totally leased up within months of completion. They got a 36% rent premium to the market! Their rents are about $8 per foot higher than market. Their utility costs are 6% less than other buildings. The tenants loved a focus on the "21st Century" features and design. They are proud that they are occupants at such a high quality --environmentally responsible business location.

The other part of the story was how they marketed the property. They created a story and deliverables about the benefits of the building. ( WIFI, Enhanced Cell Phones, Safety and Security,a Webport for the Building and it's tenants, LCD Screens with Digital Signage, Data Recovery, Back-up power, Web based work order system for tenants, etc etc..) They made their presentation based upon benefits and attributes not just to the Real Estate and Facilities decision makers but they also targeted and pitched to the CFO and the Chief Information Officer(s). They shared information that resonated with the IT and financial folks as well. This is a real case example of it working.

I asked Tom, if they were thinking of selling the property and making a quick gain based upon the NOI. He said to me " Why no it is doing just great we are working on developing and building our next one."

Here is a link to Colonial Properties Birmingham Alabama property offering. http://colonialprop.com/property-info/?cid=1326

If we can help you with strategies about an Intelligent Building and the related elements of ; vision, innovation, collaboration, sustainability, and consideration of utilizing technology and targeted marketing please give us a call. For questions about this post or to discuss please contact Jim Gray or Nahz Anvary at (916) 617-4255 or (916) 617-4257

Realcomm --10th Annual Conference San Diego --Some Observations

Realcomm is a name that everybody interested in the juncture between Technology and Real Estate needs to know. This week in San Diego, Nahz, Collette Kyro, and I --as well as Mark Bollozos and Jason Berry, colleagues from our Bay Area offices --attended the 10th Annual Realcomm Conference. The 5 of us were among a crowd of close to a thousand who attended.



It was our third consecutive Realcomm Conference and we want to congratulate Jim Young, the founder and CEO of Realcomm and his colleagues and sponsors for another great event. We left there full of ideas, stories to share, re-connection with old friends, and with the promise of new clients and services.



Sponsors this year included such firms as Cisco, Intuit,Yardi, Argus, REapplications, Johnson Controls, Panduit, Microsoft, Oracle, SAP, real foundations, Siemens, Tridium, just to name the first levels of sponsors. From the real estate industry side the conference was produced in partnership with AIA, the Appraisal Institute, BOMA, CCIM, SIOR, IREM and the like.



The theme for the conference this year was:

• INvestigate-- discover new technology solutions that will benefit you, your company and your clients.


• INititate-- get direction and insights from leaders in the fields or technology and real estate innovation.


• INnovate -- stop thinking about it and take action-- go beyond the "status quo".

The first general assembly topic was a keynote address by 10 different presenters entitled " The Big Ideas" in which they shared ideas and concepts from around the globe that are leading to major changes in the way you design, build, lease, operate, manage, and transact space. The presenters were preceded by an old fashioned marching band who brought the audience to their feet and brought smiles to every one's face. The presenters drove home how global real estate and real estate capital is becoming, and reminded us that a number of innovations as well as busts( dotcom and subprime collapse) have emerged in the past decade. Google Earth, LoopNet, Intelligent Buildings, IP addressed controls to every light and switch, Web Based property Management Orders, tracking and controls, and the boom in smart buildings in Asia, the Middle East, as well as Europe and USA to a lesser extent.

Throughout the conference there was an active and packed Exhibit Hall, with a number of vendors offering their products and services, that enabled attendees to see first hand the next generation of offerings and to discuss the applicability to their particular project, business, or building.

There were four tracks that offered a number of break-out sessions, with industry leaders acting as round tables making presentations and answering questions. The four tracks included:

1. Align-- A focus on Business and Management


2. Automate-- Streamlining Business Processes


3. Connect --A forum and Presentations on Intelligent Buildings


4. Lights Out-- $mart Energy Makes Smart Cents

We took lots of notes, grabbed lots of hand-outs and business cards, and were amazed by the future is now -- time to change quickly in a pretty stodgy and lagging industry. The need for transformation is apparent and the value proposition is becoming clear.

We are going to be preparing some reports and follow-ups on behalf of some clients -- particularly in the areas of marketing and enhancing the value propositions in LEED's buildings and in the areas of adding value by acquiring and retrofitting Existing properties and making them best of class.

Here is a link to Realcomm... Subscribe to their free enewsletter. Get to know these folks and their offerings. http://www.realcomm.com/

If you have questions or comments about this post or if we can be of service to you please call us. Jim Gray or Nahz Anvary at (916) 617-4255 or (916) 617-4257