Hello clients and followers:
I've made a career change I would like to make you aware of. Recently I joined Sperry Van Ness Commercial Real Estate Advisors in Cornelius. It has been many years since I've been with a national firm and I'm looking forward to getting back into the group setting. The prospect of being able to leverage a national name into institutional and lender owned projects is exciting. We are at an interesting time in the commercial cycle and I wanted to be able to take full advantage of the situation.
I believe things are turning in earnest!
As many of you know from my previous articles, I've been waiting for the market to turn up and the activity level that brings. As in the mid 90's, once things have turned positive in peoples minds two primary activities occur. First, tenants flood the market in an attempt to lock in advantageous long term leases. The marketplace switches from risk less short term leases to long term deals that offer the long term benefit of low rates. Second, buyers see opportunity to snap up great properties at attractive prices. Investors know CAP rates will begin to go down and properties with large upsides will begin to disappear. We are already seeing institutional buyers assuming some risk and purchasing investment grade properties.
The window on this trend lasted about three years in the mid 90's. The old joke among brokers who understood the cycle in about '92 was "stay alive 'til '95". By '96 most big upside deals were gone and those who took the risk were already starting to unload their investments and taking profits. Of course if you remember then they had tax problems which made 1031 Exchanges all the rage.
While the fundamentals of this recession and others are very different, history repeats itself. I agree we have serious issues on the forefront such as the national debt, the value of the dollar, potential hyper inflation or that 70's favorite "stagflation" and other big problems. Life tends to go on and business moves forward. Overhead will always be a tenants consideration and investors will again look to the inherent safety of real estate. In the words of one of those 19th century tycoons "family fortunes are made in the worst of times". In other words, money is made in the buying not the selling.
I hate to use so many cliche's but they are there for a reason. To remind us to control our fear and focus on our goals. We invest and do business like we fight wars - for the last crises.
Let's talk about what I'm seeing. Fear and uncertainty is waning. I have tenants talking about three year deals. I have people serious about buying buildings for their business. There are non-distressed sellers thinking about entering the market. Creativity is what I'm focusing on. Lending is still tight so I'm discussing purchase money mortgages with sellers. There is no place truly safe now to invest your proceeds so why not take back a note? The traditional rules of lending are back and likely going to be around for awhile. That means careful underwriting and large down payments. If you have a property that won't appraise or not attractive to a bank what will you do? Get creative.
Landlords, how are you going to create value? Once we have tenants back in the market it will still take several years for rates to recover. Competition will still be tough. You have heard me discuss value added deals before. Tenants take deals where something is thrown in to sway them. It can be services, furniture, improvements and particularly free rent. It can also be something unconventional to a landlord's thinking such as complete HVAC maintenance and repair. What will you use to "win the deal"?
Give me a call to tell me your thoughts and what you are seeing. Thanks for reading.
Tadd Holzen
704-458-5552
tadd.holzen@svn.com
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