Following in this section will be a series of brief articles about different facets of Commercial and Investment Real Estate Brokerage. Click on and learn!

14 Jan 2012    Welcome to 2012 the Year of Real Estate Opportunity   No one has a crystal ball but I consider the planets, stars, whatever in perfect alignment for a very good “brokerage” year. Why am I so optimistic?  I think the pricing bottom for commercial properties was reached in 2011. Prices are stabilized and by the end of 2012 we will see a gradual increase in values. Since 2007, throughout most of the Northeast, we have seen a decline in property values of 25% to 30%. Buildings are at their lowest prices in five years! Who can resist a bargain? Many investors have been sitting on the sidelines (with plenty of money) just waiting for these conditions.  Owners are now realistic about values; they are ready to sell. Some may have lost value in the last few years. But many bought their properties 15 or 20 years ago, and even at today’s prices they are still making a considerable profit.  The Capital Gains Taxes are currently at 15% on appreciation for most taxpayers and at 25% for the depreciation recapture tax. What is important is these rates are scheduled to expire on December 31, 2012. There is a strong possibility they will be higher in future years. (Remember to talk to all sellers about the possibility of doing a 1031 Exchange and deferring their Capital Gains Taxes.) This may also influence some sellers to sell this year.  Buyers are ready to take advantage of “bargain” prices. Money is now available again, regional banks are lending and credit unions have become serious commercial lenders. For those buying buildings to house their own business the Small Business Administration (SBA) loan program is available with typically only 10% down required.  High CAP Rates are attracting investors back to the market now. Owner occupiers, if they occupy at lease 51% of their building, can lease out the rest and qualify for the SBA loans. Financing is again available to investors too!  In the recent years of difficult financing many companies renewed their leases or moved to new rental spaces. The leasing market has been strong and will continue to be so as we come out of this economic cycle. Here too landlords are now realistic about current rents and know they must be competitive to keep their building filled. Representing tenants is fun again, because they have many choices and as agents we can truly assist them in getting very good deals.  Washington, D.C.  So many things pending… What is congress going to do about taxes; the “Super Committee” what actions will they take to reduce the national debt and balance the budget. The Dodd-Frank Commission, creating regulations to regulate the regulators! Where will we end up with the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) proposed lease accounting issues? Although I have concerns for all of these things that could affect our livelihood, I think when the smoke clears we will see positive steps to stabilize our economy and get our real estate industry back on track.  The good news is, it is an election year? The President and much of Congress are up for re-election. One would think the politicians would act carefully and do positive things for business and the public. Let us optimistically hope so.  Historically, real estate has cycles, values rise, then fall, and then the cycle starts all over again. We are at the start of the next cycle; 2012 will create many opportunities for those of us in real estate brokerage!    14 Jan 2012    Time to Review 2011 and rev up for 2012   It was certainly not business as usual, but we have seen plenty of deals being done in 2011. The regional banks are lending as are the credit unions. Underwriting is still tough with typically a 30% down payment required and a debt service ratio buffer of at least 25%. 2011 did see an increase in the loan amounts for SBA loans, which are readily available for owner operators or investors provided they will occupy at least 51% of the building themselves.  How did you do in 2011? Some of my agents have had their best year ever; others are singing the blues, blaming the economy for their lack of production. At this time of year be critical of yourself, what did you do well, and what can you do better?   Analyze your 2011 business, where did it come from: referral fees, listing sides, and sale or lease sides? Track your success rate. How many listing presentations did you make, how many became exclusives, of those how many of the properties were sold or leased? If you’re not happy with your success percentage maybe you need to rework or update your listing presentations.  How many new customers did you service in 2011, how many showings did you go on, how many of your customers actually bought or leased from you? If this is a challenging statistic to you, consider, do I always interview my new customer at their existing location so I can see, touch and feel their operation and real needs. Do you show them everything that is available in your market area and let the customer decide?  Of all of ways you build your business what worked best this year: target mailings, referrals, networking, trade shows, cold calls, leads groups, advertising, or website marketing? Albert Einstein defined Insanity as “Doing the same thing over and over again and expecting a different result.” You must track your business to see what is working and what is not.  To be successful in 2012 you need to have the right attitude, understand the numbers have a plan and follow your plan. Attitude is everything; you must meet every client and customer with enthusiasm, confidence, demonstrate your market knowledge and be the winner they want to hire.  How much money do you want to make in 2012? Figure out what you net on a typical sale and lease in your market and determine how many sales and leases you need to close to accomplish your monetary goal. If you need to sell or lease 12 of your listings, recognize that perhaps half your listing will not be sold or leased; so you need 24 listings for 12 to close. Not every listing presentation you go on will end up an exclusive, again maybe half will; so in order to have 24 exclusive listing you may need to go on 48 listing presentations (say one a week). This becomes the basis for your production planning. Plan what you have to do each month, each week and each day to reach your goal.  In most of our area we have reached the pricing bottom in 2011, growth will be slow but positive. Banks are lending, buyers and investors are ready, prices are the lowest in 5 years. 2012 is going to be a great year for commercial real estate brokerage. Get ready! Create a plan for success today.    27 Sep 2011    Understanding Commercial Backed Mortgage Securities   CBMS Basics: A bank makes a $10 Million dollar loan with Commercial Real Estate as collateral. If the loan remains on the banks books they have a risk exposure of $10 million if the loan defaults. To minimize the risk the bank packages this loan with other commercial loans and creates a Commercial Backed Mortgage Security (CBMS) Trust. The Trust then creates bonds, these are rated and then sold to investors. By reducing their loan risk the bank can loan more money.  Commercial Backed Mortgage Securities are historically bought by Insurance Companies and Pension Plans. They have been considered safe, conservative investments. These types of investments began being issued in the late 1990’s. By 2007 over $230 Billion CBMS were being issued annually.  Their counterpart Residential Backed Mortgage Securities led to the “mortgage meltdown” in 2007-2008. In 2008 we saw the issuance of CBMS decline 94% to only $12 Billion issued that year. In 2009 there were virtually no CBMS issued.  In 2010 we saw a slight return to issuance of CBMS with $11.5 Billion being issued. 2011 has, so far, been a very interesting year for these investments. In the spring of 2011, there was $22 Billion of CBMS issued. But as we headed into the summer we had the economic conflicts in Washington, DC coupled with the European Financial Crises; turbulence in the market reigned.  In July, 2011 the delinquencies on CBMS reached a historical high of 9.88%. That same month Standard and Poor refused to rate a $1.5 Billion CBMS being underwritten by Goldman & Sachs and Citibank. In August, this package was rewritten providing less risk and was sold off.  On the optimistic side there was an announcement in late August that Wall Street would be issuing a $5 Billion CBMS in October. Everyone has a different opinion as to how this year will end. We have seen estimates for $25 to $40 Billion CBMS being issued.  A lot has to do with how the economy evolves. This category of investment, CBMS is very important as it directly affects banks ability to make loans.  Today 1,300 banks are having loan problems; 884 banks are on the FDIC watch list. 350 banks have closed since 2008. It is estimated the nationally 50% of the commercial loans are “under water”. Meaning the current value of the property does not justify the outstanding loan balance on it. When the loan becomes due, the reduced value creates a gap between what is due and what can be refinanced under today’s underwriting standards. The borrower must either come up with more cash to fill the gap and refinance, or the bank must decide to foreclose on the loan or extend it. Plus the bank must also consider the bank regulators…difficult times for everyone. Ironically, even in these circumstances the monthly payments of many of these loans are being made; they are performing loans!    Real estate works in cycles, I feel we are bottomed out and now we head up again. It is a great time to buy real estate!        27 Sep 2011    It is a Challanging Market   How do you build your business in a challenging market? It is not much different than in a robust market; it is always a people business. The more people you can meet the more opportunities will present themselves. However, with today’s market competition is fierce. How can you differentiate yourself from your competitors? Know your competition, how do they market properties, what do they do or not do? What unique value do you bring to a transaction? Be different.  Be the expert and tell people you are! Know every listing and real estate event in your market area. When properties are sold or leased find out what was the closing price, create and maintain your own comparables. Read the business and trade newspapers. When you list, sell or lease send out “announcement” cards and press releases. Very often business groups or service clubs have speakers at their meeting. Become the speaker, talk about general market conditions and pricing in your area. Or give a brief talk on investments, financial analysis basics. Write a column for your local paper!  Get back to back to basics, cold call and canvas. Set a goal to meet every business owner in town. Systematically visit every store, office or industrial building. Introduce yourself and see if you can be of any service to them or anyone they know (ask for a referral before you leave, “Is there anyone else you think I may be of service to?”) Create a “data” file in your computer including whatever information you learn. Lease expiration dates, other properties owned, personal stuff like kids/spouses names, birthdates and hobbies. Add their e-mail address to your mailing lists which should be sorted by business type and size (i.e. retailers 2000-3000SF stores)  Over communicate! When you find a listing for a small retail building for sale, send it to your mailing lists of retailers leasing small stores. If it is another brokers listing, arrange to co-broke and get permission to market it. Create a monthly Newsletter. It can be fancy or just an expanded e-mail with community news and a featured property of the month.  Also create lists by birthdates and hobbies. If your client is a golfer and you see a great article about golf, copy it attach your business card or a brief note, “Thought you might find the attached article interesting”. Or scan and e-mail it. How about sending out Holiday Cards? Not just the usual, be different: Happy Forth of July, Happy Groundhogs Day. Get out there, be seen, be heard, and build your business with personal contacts.    2 Aug 2011    Who to affiliate with? A student of mine asked me how to choose what real estate firm to affiliate with? It is best to interview with a number of different types of companies to see what the best fit is for you.  There are certainly a number of things to consider. Some firms ask each agent to specialize, become an expert in a particular segment of the market, office leasing or industrial sales or perhaps retail site selection. Other firms cross-train the agents to handle whatever opportunities they may encounter. In these offices often the specialization is geographic, becoming an expert in that particular market area.  Do you want to be a full time commercial agent or a dual-practitioner doing both commercial and residential work? Some companies are strictly commercial, some do both disciplines. In some of the firms that do both there may be a “commercial division”. There can be advantages to both situations. In a purely commercial company there may be a mentoring program, perhaps working with an experienced agent for a period of time to gain experience. This could occur in a dual office too, but the other advantage of this type of office is the commercial agents can get referrals from the residential agents in their office.  Should you work with a small firm or large firm? Another key consideration is what kind of training and support will be provided. In a smaller firm the Broker may be very busy and have little time to train new agents. They may also have their own clients and be in competition with their sales agents for new business. Other firms, especially the larger companies may have corporate training programs and educational staff just for this purpose.  Ask about the company’s websites and marketing tools. Who makes your listing flyers you or staff?  Is there staff? How are your listings advertised? Who pays for what?  The compensation issue – how much of the fee do I get?  This varies considerably, some firms start out with a 50-50 split of the commission and as the agents production increases they get a higher percentage of the fee. Other firms offer 70%, 80%, 90% or more of the commission to the agent. But usually in these cases there are monthly costs to the agent for operating expense or marketing funds. These monthly fees can be considerable and must be carefully evaluated.  Your market – where do I have the best opportunity? What Brokerage firm(s) is/are dominating your area? If you join them will you be able to shine or are they loaded with agents now?  When considering joining a firm, interview with the Broker and also speak with some of the other agents there. How are they really doing? Interview with several companies determine their structure, training, splits and your opportunity for success.    2 Aug 2011    What's in (or not in) your listing agreement?  Our listing agreement basically indicates that the building owner has agreed to pay us a fee if we lease space in, or sell their building. In leasing we may be entitled to collect multiple commissions. If, for example there were an option to renew, extend or expand a lease or an option to buy the building.  We may have been paid our fee due on lease signing, but now, five years later, our tenant is extending their lease for another five years. Are we entitled to another commission? What does your listing agreement say? Your agreement should clearly state that if the tenant renews or extends their lease you are due another fee at that time.  What happens if the building is sold before the option becomes due? Is the new owner responsible to pay the Brokers commission? The answer is no, unless the listing agreement or lease addresses the issue. The listing agreement is between the original owner and the Broker. Upon sale of the building that relationship ends. The Broker has no agreement with the new owner. The new owner has no obligation to pay a commission to the Broker. (This may also apply to an Exchange or Assignment of a Lease). Listing agreements should contain a clause to address this contingency. Typically the clause directs the building owner, if they decide to sell the property, to have the buyer sign an “Assumption Agreement” (in recordable form). In so doing the new owner accepts the liability for future Brokers commissions that may become due if a tenant exercises their option to extend the lease. Without such a clause in your listing agreement an option commission could be lost upon the sale of the building. What if the tenant takes more space in the building? Your agreement should also address if the tenant “expands” or leases more space in the building. Are you entitled to a further fee – what does your agreement say? This contingency should be addressed within the lease negotiations. When working with your customer; ask them where they see their business in the next two or three years, are they growing? If that is a possibility, negotiate a “First Opportunity” clause in their lease, whereby if a vacancy occurs in the building in the future, they are given the first opportunity to lease the additional space. Also address the rent for the additional space, “at the rent the tenant will be paying at that time” or a method to determine fair market value. If there is an option to buy the building be sure your agreement specifies your fee if that is exercised. But, what if there is no option to buy in the lease and your tenant decides they want to buy the building. Are you entitled to a fee – what does your agreement say? A “Purchase by Tenant” clause in the listing agreement covers this contingency. It generally states in that event:  the lease ends, any options to renew, extend or expand are cancelled, and an adjustment is made for any “unearned commission”. This is sometimes referred to as the “Fairness Clause”. You were paid on lease signing a fee based upon a ten year lease, it is the end of year six and the tenant is buying the building. The part of the commission you were paid representing years seven through ten is unearned commission; this dollar amount should be credited (deducted) from the sale commission due you. Listing agreements need to cover many contingencies, review your agreements with your Broker and an attorney to be sure you are protected for all possibilities.    2 Aug 2011    Getting Paid - Co-Brokering Listings Listings are controlled by the listing Broker who may choose to share the listing with other Brokers or not. Some firms belong to MLS systems which may require all listings to be shared with the other MLS members. Consumers generally expect their Exclusive Broker to market their property direct to customers and also to circulate the availability to the brokerage community.  Typically the listing Broker will create a Co-Brokerage agreement; this will specify any showing “rules” for the property and indicate the commission splits involved. In commercial, the commission split between the brokers is usually equal, but this, as is the commission rate, is negotiable. It would seem logical to get the co-brokerage agreement signed prior to offering the property, but, some brokers wait until after an offer is made.  Co-broke agreements can take many forms but typically they included a declaration of the property involved, a requirement that all offers be submitted in writing, the listing broker to present all offers and the fee distribution split between the brokers. When the agreement is presented after the offer is made the document will be specific as to the amount of commission dollars and the payment schedule.  Some firms do not use co-broke agreements. To me this is dangerous as misunderstandings or commission disputes between the brokers could arise later. If the listing firm does not have a co-brokerage form a simple letter of understanding can outline the agreed terms. It is important to both firms that whatever co-broke terms are agreed be in writing. What if the listing Broker has an “open” listing? I don’t mind working with someone who has an open listing, provided that their listing agreement is in writing. In such cases the co-broke agreement should indicate that status.  If the listing broker does not have a listing agreement (Exclusive or Open) in writing, co-broke agreement or not, getting paid could be in jeopardy. The key to getting paid is always to establish a paper trail direct to the owner, especially when co-broking!    8 May 2011    Getting Paid - Dealing with open listings Depending upon the market (and the agent’s skills), open listings may have to be taken. I would like to have a “handshake” agreement with every owner; I will sell or lease your property and you will pay me an agreed fee. Unfortunately in a small number of transactions commission disputes arise or an owner tries to renege on an agreed fee. Our “handshake” or oral agreement will not help us win if we have to go to court to collect our commission, a written listing agreement and other evidence will be required.  First we need to define listing agreements. The Exclusive Right Agreements make the owner responsible to pay the  broker a defined commission if the property is sold or leased by the broker, or in cooperation with another broker or by the owner themselves during the term of the agreement. Exclusive Agency is basically the same except if the owner sells or leases the property themselves the broker does not get a fee. Then we have the “open listing”, basically this is a written agreement that states if the broker sells or leases the property the owner will pay them a specified fee, however the owner may also “hire” other brokers to market the property or sell it themselves, in which case the “open listing” broker does not get paid. In the event of a commission dispute does the court care if the listing is Exclusive or Open? No, what the court cares about is: is the agreement in writing and if it contains the basic seven elements of a listing agreement: Property address owner information broker information offering price and terms agreed commission fee and when payable the term (length) of this agreement the legal jurisdiction In the eyes of the court the only thing that counts, is a written agreement,  exclusives only affect the agents ability to market the listing. Most commercial listing services require exclusives for inclusion. When in a situation necessitating an “open” agreement, the easiest way to deal with it is to take your regular Exclusive form  and cross our the words “Exclusive”  and insert the word “open” and have both parties initial the document changes. This preserves all of the important clauses in the agreement. If that does not satisfy the customer I recommend you have your firm develop a “Listing Authorization Form”. This document authorizes the agent to market the property on a non-exclusive basis and should contain the seven key points indicated above. By requiring such an authorization we have a written document indicating our fee if we bring about a sale or lease. Can we co-broke “open listings”? I get nervous when I ask another agent if they have an Exclusive and they “dance around” the question. Probably they did have an exclusive, but it may have expired. Are our fees protected? No! If your exclusive runs out and the owner is not giving the listing to another Broker, at least get a Listing Authorization signed. You must have a written fee agreement to protect your commission if you have to go to court to collect it.       17 Apr 2011    Tenant Representation Today - Request for Proposals  Commonly we think of an RFP (Request for Proposal) coming from a municipality when they want to hire a company for specific services i.e. snow removal, or from a company seeking bids for their purchasing of certain materials or supplies. The purpose of an RFP is to create a competitive situation.  The RFP technique can be successfully used by real estate agents when representing a tenant. Landlords need to keep their buildings fully rented; vacancy affects their cash flow. Given today’s economy landlords have to be aggressive to keep and get new tenants. Properties are shown and the tenant narrows there interest to four or five buildings. They know exactly what each landlord is asking for. The tenant, or the agent for the tenant, can create a Request for Proposal and send it to these owners creating a competitive situation. The landlords then respond with their best “offer” to lease space to this tenant.  Generally we begin by establishing a brief window of opportunity and brief synopsis of the tenant, for example:  On behalf of our client, ABC Corp., we have been authorized to solicit Requests for Proposals for the leasing of space. We invite your firm to submit a proposal to us by April 30, 20__. (within 10 business days of issue)They have inspected your property as well as others and are in the final decision stage. A description of their business, the services needed and other pertinent information follow:   ABC Corp. (background and why moving) ABC Corp. is an Insurance Agency that has been in business for over 5 years. Their annual revenues are between are between $10 million to $12 Million per year and they employ 35 people in one location. Their current lease is expiring in 90 days and they are now seeking larger space for growth. Follows is a very detailed list of what the tenant would like to see in the lease and what the tenant is willing to pay to rent space in a building. Think of it as the tenants “wish list”. It lists key elements in leases; how much space is required, the amount of rent they can pay (the tenants budget); or the price per square foot they are willing to pay, they may also be willing to pay additional rent for items like utilities or common area charges. It addresses all issues: i.e.  security; desired terms of the lease; any options to renew or purchase; concession periods; sign requirements; parking; insurance; build out, construction or tenant improvements required. A complete picture of what the tenant needs, what they expect, and what they are willing to do. The proposal will also have a time line; landlords must respond by a certain date. The tenant‘s credibility must also be shown to the prospective landlords by attaching financial information to the proposal. The landlords who receive the proposal can now respond item by item to the proposal. They are willing to do this, but not this, or suggest compromises. Based upon the initial responses the tenant can now decide which building they wish to pursue. The stage for the final negotiations is set, using this technique usually results in initial agreement on many of the issues; those remaining may now be negotiated to the successful conclusion of a lease. The competitive situation the landlords are placed in, knowing what is important to and the capabilities of the proposed tenant, allows them to decide if they want this tenant for their building. It also encourages them to present their best deal to the tenant. The RFP says to the landlord that this tenant is serious and will shortly by moving into new space in your building or another owners building. In representing a tenant I can’t think of a better way to get them the best deal possible.    27 Mar 2011    The New Tax Laws 2011   The New Tax Laws 2011 In December of 2010 the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” was passed into law. In this article we will examine the key elements pertaining to Commercial Real Estate and Business  Tax Brackets The 25%, 28%, 33%, and 35% individual income tax brackets were due to expire at the end of 2010, they have been extended for an additional two years, through 2012. If this occurred the rates would have reverted to 28%, 31%, 36%, and 39.6% respectively.  Capital Gains and Dividends The capital gains and dividend rates for taxpayers below the 25% bracket is now zero percent. For those in the 25% bracket and above, the capital gains and dividend rates are currently 15%. These rates were scheduled to expire at the end of 2010, and would have reverted to10% and 20%, respectively, and dividends would be subject to the ordinary income rates. The bill extended the current capital gains and dividends rates for all taxpayers for an additional two years, through 2012.  Cost Recovery The bill extends for two years the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements. Note, the 15-year accelerated depreciation schedule expired on December 31, 2009. This bill made the effective date of this retroactive to January 1, 2010 and is therefore now scheduled to expire on December 31, 2011. Prior to establishing this special 15-year cost recovery for these categories of properties the cost recovery for these items was 39-years. Bonus Depreciation Under current law, businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Congress allowed businesses, beginning January 1, 2008 through December 31, 2009, to take an additional depreciation deduction allowance equal to 50 percent of the cost of the depreciable property placed in service in those years. Under the Small Business Jobs Act of 2010, this temporary increase in the depreciation deduction allowance was extended through December 31, 2010. The bill extends and temporarily increases this bonus depreciation provision for investments in new business equipment. For investments placed in service after September 8, 2010 and through December 31, 2011, the bill provides for 100 percent bonus depreciation. For investments placed in service after December 31, 2011 and through December 31, 2012, the bill provides for 50 percent bonus depreciation. Section 179 DeductionsReduced in 2012 Under current law a taxpayer may elect to deduct the cost of certain property placed in service for the year rather than depreciate those costs over time. Over the years the thresholds and phase-outs amounts for this have been increased and extended several times, including most recently as part of the Small Business Jobs Act which increased the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010 and 2011. This bill reduces these amounts; it reverts to the 2007 maximum amount and phase-out thresholds for taxable years beginning in 2012, of $125,000 and $500,000 respectively. This is effective for taxable years beginning after December 31, 2011.  For specific application of these statutes be sure to consult your accountant or tax advisor.  Issues Ahead Most of the provisions discussed here expire at the end of 2011 or 2012. We must be very aware of the changes that could occur at that time.    22 Dec 2010    Are you ready for the 2011 market?   26 Nov 2010    QR Codes in Commercial Real Estate   26 Nov 2010    Valuing Investment Properties Today   9 Oct 2010    Working with other commercial agents and brokers   30 Sep 2010    Old Customers   15 Aug 2010    Engaging People   22 Jul 2010    Silence   19 Jun 2010    Measuring Space   4 Apr 2010    What will the Capital Gains Tax be in 2011?   6 Mar 2010    Testing   16 Jan 2010    The New Way of Selling   27 Dec 2009    2010 - What's your plan?   22 Nov 2009    Great Time To Buy Commercial Real Estate   1 Nov 2009    Understanding the Commercial Crisis   1 Nov 2009    Retail   19 Sep 2009    Industrial Buildings   19 Jul 2009    Listing Office Space   21 Jun 2009    GREEN   16 May 2009    Capital Gains Update   11 Apr 2009    Focus on Leasing   11 Apr 2009    There are no Comps!   7 Feb 2009    ADA - Americans with Disabilities Act   19 Jan 2009    1031 Exchanges   7 Dec 2008    Capital Gains Taxes   8 Nov 2008    New NYS Licensing Laws   3 Oct 2008    Negotiating Tips   3 Oct 2008    Negotiating Tatics