Read The Headlines... There is good news there too!

Signs of Hope. Yes, if you look closely enough, right there in the headlines, there are glimpses of good news and maybe, just maybe, indications that a recovery is “around the corner”. It is pretty easy to get focused on all of the bad news but there is good news out there! You can see signs of hope and progress in the headlines. These indicators might not be “on top of the fold” but they are there, and they provide us with indications of our resilience and that things will get better. Here are a few recent examples worth noting.

California unsold home inventory down by half. This article sets forth the statistics showing that the housing market has improved in some regards. It was reported in the Sacramento Business Journal on February 26, 2009 that
· California had a 6.7-month supply of existing, single-family detached homes in January of 2009, less than half the 16.6-month supply it had in January of 2008 -- if homes were sold at the current rate -- according to a report released Thursday.
· The California Association of Realtors reported that the median number of days it took to sell a single-family home dropped to 49.9 days in January of 2009, compared with 70.8 days for the same period a year ago.
· Home sales increased 100.8 percent in January of 2009 in California compared with the same period a year ago, while the median price of an existing home fell 40.5 percent=
· Closed escrow sales of existing, single-family detached homes in California totaled 624,940 in January of 2009 at a seasonally adjusted annualized rate and statewide home resale activity increased 100.8 percent from the revised 311,160 sales pace recorded in January of 2008.

Sacramento is No. 21 in the U.S. in energy efficient buildings. We firmly believe that “you won’t change it if you don’t measure it and report it”. An important phenomenon to watch is that green buildings will reduce our carbon footprint while at the same time lowering expenses to tenants and raising returns for landlords. . It was reported in the Sacramento Business Journal on March 3, 2009 that
· According to the U.S. Environmental Protection Agency, Sacramento has the 21st-highest number of energy efficient buildings in the country with 45.
· Los Angeles has the most buildings with the EPA “Energy Star” rating, with 262, followed by San Francisco with 194 and Houston with 145. Those cities are followed by Washington, D.C., Dallas-Fort Worth, Chicago, Denver, Minneapolis-St. Paul, Atlanta and Seattle.
· “Energy Star buildings typically use 35 percent less energy and emit 35 percent less greenhouse gases than average buildings,” said EPA administrator Lisa Jackson, in a statement.

Community Banks Growing Amid Recession. Unfortunately we have been too focused on the “big banks”, and the creation of or the need for a “bad bank”. Here are excerpts from an article on the growth of regional and small community banks from the Sacramento Business Journal on March 10, 2009. The Independent Community Banker Association of America released a survey of their members.
· It shows that the majority of the banks have seen an increase in deposits as a result of getting new customers, while only 17 percent have seen customers draw down deposit accounts.
· “While the financial crisis has affected banks of all sizes and in all regions, community banks continue to lend and are typically faring much better than the larger banks because they didn’t participate in the high-risk activities that led to problems we are experiencing,” said Camden Fine, president of the ICBA. “This survey clearly shows that the vast majority of community banks are well-positioned to survive the economic downturn and, perhaps, even reclaim some of the customers from larger banks.”
· The survey found that 55 percent of banks increased deposits as a result of new customer acquisition.
· Community banks are getting new customers at a faster rate than in the past, the survey found, with 57 percent of respondents getting an increase in new retail customers during the second half of 2008, compared to the first half of the year. The survey found 47 percent of independent banks saw an increase in new business customers.
· And the survey found that community banks are making new loans, with 40 percent of respondents experiencing an increase in loan origination compared to the year earlier

California will get $51 Billion in stimulus funds. The Sacramento Business Journal of March 10th Reports “The Keynesian relief package will soon arrive and be put to use in the Golden State.”
· California and its residents will receive an estimated $50.7 billion from the American Recovery and Reinvestment Act signed by President Obama February 17th 2009, including $18 billion in federal dollars that can be used to offset General Fund expenses.
· Funding in the stimulus package is intended for various purposes.
· Funding designated for California in the stimulus package includes $11.2 billion additional funding for Medi-Cal, the state health care program for the poor. There is also about $5 billion in educational block grants.

Construction costs continue to drop. This is really good news for any investor or business person willing and able to pursue construction or development activities at the present time. The Sacramento Business Journal reported on March 10, 2009 that
· Commercial building construction costs decreased 5.77 percent in the first quarter, compared with the fourth quarter, according to Turner Construction.
· Construction costs have dropped 2.59 percent since first-quarter 2008, according to the index.
· “The cost of construction has come down as construction spending has decreased and competition in the industry has increased,” said representatives of Turner.
· However, construction activity in the education, health care and public sectors have continued to show strength.
· Investments are also up in "green" building across all segments. Green building projects could potentially benefit from the federal $787 billion stimulus package signed into law last month.
· The index is determined by several nationwide factors, including labor rates, productivity, material prices and the competitive condition of the marketplace.

Public transit use jumps 4 percent in 2008. This is good for the environment and good for the budget and shows signs that will sustain public transportation. This article was reported in the Sacramento Business Journal on March 10, 2009 that
· Although gas prices plummeted in the second half of the year, a report by the American Transportation Association shows that Americans took 10.7 billion trips on public transportation in 2008, a modern record.
· Those trips represented a 4 percent increase over the number of trips taken in 2007 on public transportation, while at the same time, vehicle miles traveled declined by 3.6 percent in 2008, according to the U.S. Department of Transportation.
· The ridership record continues a long-term trend of ridership growth. Public transportation use is up 38 percent since 1995, a figure that is almost triple the growth rate of the population -- 14 percent.

Keep your eyes open and notice the good with the bad. The business cycle is back and the best opportunities emerge from tough times. We believe that it is important to be realists and to not get paralyzed with fear. If you would like to discuss this blog post with us or if we can help you with a commercial or investment real estate transactions, please call or email us at Jim Gray (916) 617-4255 jgray@naibt.com or Nahz Anvary (916) 617-4257 nanvary@naibt.com. “Build on the power of our network” visit our website at http://www.naibtcommercial.com/

California Green Building Code Enacted...!

Attention developers!! Green—no longer just an ideal but now a reality. California Green Building Code enacted…

We like to think of ourselves as progressive, helping our clients better understand the ins and outs of what it takes to develop buildings for the upcoming century. It is clear that we need to get up to speed with the new building code for California. We will add that to our studies already underway for LEEDS AP. Thank goodness we are believers in lifelong learning.

This past Thursday, the California Building Standards Commission adopted the first statewide “green” building code in the nation, moving all of these “green talk” from just an ideal to a forthcoming reality. The code will be phased in between 2009 to 2011 and encompasses Commercial buildings, health care facilities, and homes. Some impacts include lowering water use, improving air quality, and increasing energy efficiency. Some advice to developers of commercial buildings and homes--use this as the impetus to get familiar with what it takes to re-conceptualize your plans and projects to incorporate these standard and other ideals rather than being forced to change by a new law.

For the reference, go to the California Department of Housing and Community Development’s press release at http://www.hcd.ca.gov/news/release/07182008PressRelease.pdf

Or to the Sac Bee article at http://www.sacbee.com/103/story/1091557.html

To learn more about green, to to the US Green building council web site at: http://www.usgbc.org/

Also view our previous blog article on intelligent buildings at: http://scorebrokers.blogspot.com/2008/06/intelligent-buildings-from-executives.html


If we can help you with strategies to help you prepare for this upcoming change in the building code 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

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.

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