“Top 5 Reasons for Dedicated Tenant Representation” by Bo Barron, CCIM

The guy that came up with Supply and Demand was either incredibly smart or incredibly lucky. Adam Smith was definitely smart. Supply and Demand drives everything in real estate, and the same holds true for leasing space. How much space is available? How many active tenants are in the market competing for the space? Does it matter?

It absolutely matters. What tenants need to understand in this market is that competition for their tenancy is fierce. Nationally, there is more office space vacant than any time since 2006 and transactional activity is down 40%. Translation: tenants aren’t moving or expanding. This means that tenants who do need to expand or relocate should have landlords salivating over them.

But is this happening?  No.  Tenants tend to negotiate in silos - meaning they will deal with one landlord at a time eliminating competition that will work in their favor.  So hear are 5 reasons why dedicated tenant representation is in a tenant’s best interests.

1.  Strategy - You do not win a leasing battle without a strategy. An advisor specializing in tenant representation will seek to understand the tenant’s objectives, relationships, and expectations.

2.  Analyze - After understanding the strategy, a tenant rep advisor will conduct a detailed needs analysis to comprehend space needs, growth plans, budget, and location and building requirements.

3.  Market - This is where the fun begins! A tenant rep will then create a market for the tenant’s business by conducting a market study, conducting property tours, developing an RFP, and inviting the identified landlords to bid for the tenant. This step ensures competition is working for the tenant keeping costs low and incentivizing landlords to give their best deals.

4.  Occupancy - Now the tenant rep will conduct a comparative lease analysis from the RFP responses, negotiate the lease, and walk the tenant through the final steps to occupancy.

5.  Cost - Tenant representation is virtually free for the tenant.

So should you consider dedicated tenant representation? Why would you not?

The law of supply and demand is changing, more inventory, lower prices right, not exactly! The commercial real estate market has plenty of inventories, but just not yet priced right for bargain hunters. The combination of more commercial real estate inventory on the market coupled with improved financing terms and fewer buyers will create the perfect buying storm!

Why? Although there are plenty of commercial inventories on the market, there are fewer investors buying and seller’s motivations are short of buyer’s expectations.

FACT:  Fast forward to present from 18 months ago, property valuations have decreased due to number of factors; increase in property taxes, loss of tenants/income, increased operating expenses, short term notes coming due or refinancing not available; all leading to holding power dwindling for some property owners and yes the buying cycle is swinging in favor of buyers!

How many times have we heard “seller is highly motivated” to only find pricing is not really in line with an investors expectations?

THEORY: 2010 is bringing motivated buyers and lenders ready to pursue real motivated sellers! A number of factors are in play such as FDIC releasing more properties to the market place in 2010, increased positive lending environment, combined with real motivated sellers, the perfect buying storm is on the horizon!

The best way to find deals in today’s turbulent market place will be to team up with a real estate advisor who specializes as a “Buyer Representative”.  A buyer representative has strong relationships and networks with listing brokers, along with knowledge of “off market offerings” and expertise in the market to find the right property to meet your investment criteria.

A buyer representative can help identify the right property meeting your investment criteria saving you time and just as important assure that you will be in line to hear about the best buys first!

For more information on the benefits of buyer representation and advice on emerging 2010 market trends:

Contact Sperry Van Ness/The Pastrano Group, San Antonio, Texas

Gerard R.C. Pastrano, CCIM at gpastrano@svn.com or call me 210.354.0400 Ext. 1

Sentinel Realty and Sperry Van Ness would like to ask you just a few questions about your 2010 plans.   Also, see what others are thinking about their investment portfolios and plans for the coming year.

Click HERE to share your feedback!

Wednesday morning at 7am I posted a tweet on Twitter that a Sperry Van Ness Florida advisor had a “buyer that was frustrated with being unable to get an FDIC commercial real estate contractor to present an offer on a property now in receivership with the FDIC.” I wrote the tweet without a tone of criticism but simply one of frustration and I did not name the contractor, bank involved, location or property .

Four hours later I received a personal phone call from the Senior Asset Manager at CBRE asking if it was one of their FDIC distressed assets and how could he be of help.  CBRE is one of two contractors hired by the FDIC to manage and market properties when the FDIC takes over a bank. The Senior Asset Manager could not have been more helpful and said he had received an email “from the FDIC about the tweet”.  From there I suspect he Googled me or went direct to Twitter to find my email and phone contact information.

We quickly discovered the property we were chasing was NOT being handled by CBRE for the FDIC. That left the other FDIC Marketing & Management contractor, Prescient, as the vendor handling the effort. Before I could finish another business lunch at 1pm, Prescient had two of their asset managers chasing me down to see if they could be of help. Both received my voicemail and left similar messages. One was friendly and offered assistance plus mentioned they “received an email from the FDIC about a tweet of a frustrated buyer and they wanted to help us get the offer presented”. The other, although professional was a bit muffled, rapid fire, short and curt, but nonetheless, both were proactive and offered assistance.  So, it was an exciting day with a few valuable takeaways.

• The FDIC is serious in their RFP’s when they require contractors to respond quickly to “protect the image of the FDIC to the public”(I’ve been involved in RFP’s for the FDIC and have had to answer that “how” question)
• Both CBRE and Prescient as FDIC contractors are being proactive for their client – at least they were today
• I posted tweets bestowing kudos on both companies for their action– I doubt FDIC will call them on the kudos tweet, though
• We made a valuable contact with the Prescient asset manager handling the asset and will be able to present the offer when appropriate
• Used professionally, social media can help you find business and make contact with others that might never take your cold call –Important to note that I did not slam contractors, individuals or the FDIC
• Pity our poor commercial real estate competitors that “still don’t get social media”
• But the most important lesson today? The FDIC is using and monitoring social media just like much of the business world and for us today  . . . that was a very good tactic.

Visit www.svnflorida.com to learn more about Jerry Anderson,CCIM and the SVN Florida team.  Visit www.svnart.com for troubled asset services.

Last week we discussed the “For Lease” office market as well as my predictions for the Super Bowl. Did 8 years in the NFL and 2 playoff games pay off in my game day forecast? Listen below to find out…

Click HERE to listen to the Real Estate Report for 2.1.10

Bob Clark, News Radio 770 KKOB: Walt, you wanted to talk about the “For Lease” office market.  What do you have for us?

Walt: 2009 was an up and down year for the Metro Office market.  The overall vacancy rate was the highest in recorded history at 18.1%.

On the flip side the office market actually grew by 454,000 sf or 3.8%, thanks to Fidelity Investments 108,000 sf, and the 53,000 sf Aperture building, both in Mesa Del Sol, and HP’s 218,000 sf building in Rio Rancho.

The median asking lease rate in the metro office market is $16/sf/yr.  Asking rates for Class A is $22.50/sf/yr, Class B-$19/sf/yr and Class C is $15/sf/yr.

Bob: The high vacancy rate must be pushing these rates down.  What is going to happen with the actual lease rates this year?

Walt: Our asking lease rates are holding up well but Landlord’s are competitive both to acquire new tenants and retain existing ones.  Blend and extend strategies will continue with Landlords making concessions now and increasing the lease term in order to keep tenants through this downturn.

Bob: What about the employment numbers?  Unemployment is at 10% and at that number it must be impacting the Office Market.

Walt: Yes, many of those layoffs where in employment categories that had office tenants and unemployment has impacted the office market.

One good sign in the office market is that the office space employment outlook is positive in almost all markets. That said, the office market is going to take some time to recover and these vacancy numbers might even increase as sublease space comes back on the market.  But in these times it is interesting how a cessation of bad news is treated like good news.

We have some great locations for office users, if you are looking for new office space or need help renewing, give us a call, we can help.

Bob: Ok now the important stuff, what’s your Super Bowl prediction?

Walt: I based my prediction on 8 years in the NFL and 2 playoff games. So I analyzed it from an insider’s point of view.

I played in the old Memorial stadium in Baltimore, right before they moved to Indy and it was a dump, no wonder they left. I had some good games in the Superdome and it is an awesome facility, so that vote goes to the Saints.

Colors- black and gold versus blue and white, I have to go with black and gold.

My receivers coach at UNM, Gene Huey, has been with the Colts for 16 years but Archie Manning, longtime Saints QB was a teammate of mine at the end of his career in Houston, even though Peyton is his son I am looking at his Saints career. So for those reasons, I am going with the Saints to win 31-24.  If you dispute my totally scientific prediction, call me at (505) 256-1255 or check us out on the web at waltarnold.com.  Who dat dem saints gonna beat. See ya Bob.

To share your feedback or questions, leave a comment below or email me atWalt.Arnold@svn.com!

Click HERE to listen to the Real Estate Report 1.25.10

Bob Clark, News Radio 770 KKOB: Walt, you wanted to talk about Cost Segregation and also about Charter Bank and the FDIC’s closing of the bank.

Walt: Yes good morning Bob, It is getting close to tax time and cost segregation is a tax strategy to consider for property owners.  If a property is going to be held for several years it is worth having a discussion about cost segregation.  Cost segregation or separating the parts of the property based on their depreciable life can lead to significant tax savings.

Investors buy investment property for numerous reasons, and I had a conversation with a business owner today about the benefits of owning space for his business. Some of those benefits include cash flow produced by the property, future appreciation value, and tax shelters from the IRS. However, property owners are giving too much to the IRS and missing out on real cash flow because they are not taking advantage of Cost Segregation. Substantial tax savings and realized cash flow are hidden beneath their feet, within the walls, and even in the parking lots of their buildings.

A Cost Segregation Study is an IRS approved method to reclassify original costs of construction or the purchase price of Real Property. By properly classifying costs, assets can be depreciated over, 5, 7, and 15 years as opposed to 27.5 or 39 years. These studies can do at least three things. First, it creates immediate tax savings by cutting down on what you pay the IRS this year and in upcoming years. Second, because of the accelerated depreciation deductions and the deferred income tax payments, it instantly increases your cash flow. Third, the IRS now allows you to “catch-up” previously under-reported depreciation without filing amended tax returns. This allows you to “catch-up” during your current year return with the use of a Cost Segregation Study.

Now, I am clearly not a CPA, but I do understand what drives the value of a property, and that is cash flow. In today’s market where values are decreasing and tenants are scarce, now is the perfect time to take advantage of this kind of study to increase the cash in your pocket while increasing the property’s value in the market.

So what are the guidelines, and who can benefit from this? First, the property must have a cost basis of $500,000, and new construction or purchased property can qualify - even some properties purchased as far back as Jan. 1, 1987. For tenants, leasehold improvements can also qualify, and because of the Economic Stimulus Act of last year, improvements that took place for space put into service between Jan. 1, 2008 and Dec. 31, 2009 qualify for a 50% bonus depreciation. That equates to recovering half you improvement cost in year 1. Could that make a huge impact on your bottom line? You better believe it.

Let’s look at a scenario. Mr. Big Investor buys a downtown office building for $3 million (you can now tell that I practice my craft in a small market), and allocates $400,000 to the land value and $2.6 million to the building. An office building is straight-line depreciated over 39 years for a depreciation savings of approximately $67,000 per year. However, if Mr. Big Investor conducts a Cost Segregation Study, he could potentially reallocate as much as $1 million to shorter recovery periods which could equate to $100,000 per year in deprecation as opposed to $67,000. Even though these are round numbers and estimates, it is clear how much savings could be hidden in the carpet and walls of a building. Now think how much this could save if you “catch-up” the last couple of years on this year’s tax returns. How much could this tactic save you over the next 10 years? We are talking about a significant amount of money.

If a light bulb just went off in your mind, then what should you do? You need to call two people. First, your commercial real estate advisor can help you estimate if your property could be a candidate for a cost segregation study. If it is, your next call should be to a qualified CPA who can conduct the study according to the detailed guidelines and methodologies of the IRS Cost Segregation Audit Techniques Guide.

As a business owner, investor, property owner/operator, or a tenant with leasehold improvements, you owe it to yourself to find out if your property or space can qualify. Otherwise, you are leaving money on the table, or more accurately, in the walls.

Click HERE to view, share or download the four-page article.

Over the course of the next few months a formalized advertising program to attract buyers and non-CCIM brokers who may bring buyers to call will be initiated.  Only members of the Virginia CCIM chapter will be allowed to present properties on the calls, but all others will be allowed to participate as buyers or buyers’ brokers.

So, please mark your calendars and join us from the comfort of your desk as CCIM of Virginia will hold our next monthly Virtual Deal Making Call on Tuesday, February 9th - NEXT Monday – from 10:30-11:00 a.m.

This month’s call will feature a special guest speaker, Rod Santomassimo of the Massimo Group, who will share with us some details of how he is helping commercial real estate brokers across the US to stay at the top of their game during the current economy.

This is your opportunity to use this webinar to pitch your deals and to find more of what you are looking for to do more business.

First: Register Here: Tuesday, February 9th from 10:30 am- 11:30 am
(You will receive an INVITATION closer to the event date with call-in information.)

Second: Download Slide Template and submit to jtucker@ccim.net by 5:00 PM Friday before the event (February 5th)

Note: Slides are open to CCIM Virginia Chapter Members ONLY. Others are welcome to participate in viewing and discussion.