Git-R-Done; Time To Move Those Deals Forward

By Ken Ashley

ATLANTA (July 5th, 2011)

Disney’s acclaimed Pixar unit recently released Cars 2 with “co-stars” race-car Lightning McQueen (voiced by Owen Wilson) and tow-truck Mater (voiced by Larry the Cable Guy). In the movie, the characters head to Europe and Japan to compete in the World Grand Prix, but of course get side tracked with all manner of problems, including international espionage.

While the new movie is a hit, we like the original Cars movie better as it’s seemingly innocent humor is classic and truly funny. Our favorite character, Mater, resembles an International Harvester mining “boom-truck” from the 1950’s. The vehicle that is the inspiration for his appearance sits at a diner in the former lead mining town of Galena, Kansas – population of 3,287, which is down from nearly 80,000 in the late 1800’s. The town, appropriately for the original Cars movie setting,  is on the eastern end of the famous Route 66 (You can also take a spin in the 1951 vehicle, the owners proclaim; it still runs!). Back at the diner, you can purchase sandwiches, clay models of Mater, and learn about the plans for a bed and breakfast (we’ll see about that).

Shoot! You're in Radiator Springs, the cutest little town in Carburetor County

Part of Mater’s charm is the personality of comedian Larry the Cable Guy (aka Daniel Whitney),  who speaks with a thick Redneck Southern accent. Larry’s character brings an often hilarious spin, explaining that his name is like “tuh-mater without the tuh,” telling the audience he’s “happier ‘n a tornado in a trailer park,” and proclaiming that

Shucks, you can call me Larry

he’s  the “world’s best backwards driver.” He attributes this skill to his rear-view mirrors and his own”guiding” philosophy: “Don’t need to know where I’m going, just need to know where I’ve been.”

“I knew it! I knowed I made a good choice!”

Mater’s philosophical musings may go a long way to describing the plight of those on the user side of commercial real estate these days. We certainly know where we have been – in one of the best markets for tenants in a generation. But if we keep our focus on the past, we too could end up being the world’s best backwards driver in terms of real estate deals.

As a very insightful article in the latest Real Estate Forum (@RealEstateForum)
entitled a Rebound By Chapters explains, the real estate recovery is happening at different paces in major metros. The piece, by John Jordan, quotes Cushman & Wakefield’s Ken McCarthy, stating that office leasing reached a six year high in the first quarter of 2011. CBRE Econometric Advisor’s Arthur Jones characterizes the current national office market as “weak but stabilized.” Dennis Friedrich of Brookfield, a publicly traded developer and owner with a portfolio of 78 million square feet, believes that the recovery is “sustainable and will lead to single and double digit rent growth in some US cities in the near future.”

Perhaps the biggest indicator of coming office recovery is the appetite that many major investors have. They are putting their money where their mouth is and now have an interest for office product once again. For example, Joe Oglesby of Wells Real Estate says in the article that his company is “planning to have a very active second half of 2011 in terms of buying buildings.” Pay attention when experts in a market start to acquire new assets.

“I tell you what, buddy; it just don’t get better than this.”

For nearly three years now, tenants have experienced a market in which they could take their time in decision making, and have their every demand met by landlords who were very desperate for their business. It’s been a very good time to be on the user side of things and many have deals have made corporate heros of executives who capitalized on depressed conditions.

We are certainly not suggesting that this environment will change immediately, but in certain cities and submarkets we are beginning to see the market tighten. Many make the mistake of thinking that markets have to actually be in recovery for real estate to cost to rise. What actually occurs is that an asset manager feels a sense of optimism (or feels less fearful as it were) based on what he or she perceives is happening. Then the order is issued to  the leasing brokers to be more conservative on the economics and offer lesser concession packages.

Our advice is to move ahead on projects on the board, and in the vernacular of the wise one, Mater, “Git-R-Done.” Lease early, lease often and with flexibility, and be prepared to accelerate the speed of decision making. If you decide to engage in a real estate project, a best practice is to get senior management or your board to approve a set of parameters and let you go get the deal teed up. If they want to look at it one more time before you sign the lease, so be it, but speed is your ally in a recovering real estate market.

The deal is more than the face rate, of course. Keep in mind that many real estate stats quote growth of “asking rental rates.” This is like suggesting a change in the automobile industry based on the sticker price on new vehicles. Clearly there are many factors to consider in a transaction as complicated as a major real estate deal. So while the rental rate may change upward, a good credit tenant that knows what it wants and is prepared to move ahead with reasonable speed can still make a very good deal in most every major market in the United States.

So, unlike our friendly character Mater, look forward not backwards and be aware of the perception as well as the reality of the real estate markets. It’ll make you look like a real estate hot rod!

Lightning McQueen: Will you stop that?
Mater: Stop what?
Lightning McQueen: That driving backwards. It’s creeping me out. You’re gonna wreck or something.
Mater: Wreck? Shoot! I’m the world’s best backwards driver! Just watch this right here, lover boy.

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