Monthly Archives: May 2010

Rethinking Disintermediation (Or Fun with iPhones)

By Ken Ashley

ATLANTA (May 26, 2010)

According to this blog post by Tony Wilbert, an Atlanta based real estate observer and PR expert, an iPhone app now exists which will

Negotiating leases?

allow a user to point the device at a building and determine facts such as the name of the leasing agent, available square footage, asking rates and other details. Of course there’s always an “app for that” in today’s world. So, can the iPhone replace the tenant rep?

This app which the developer calls an “Augmented Reality Browser,” is just one of many under development by commercial real estate service providers, software companies and in general anyone who thinks they can get a little exposure or make a buck in the real estate space.

I am transported back to 1999 when “disintermediation” was all the rage and at least a few tenant rep brokers wondered if they would continue to have jobs. Back in the late ‘90s databases became accessible to anyone who would pay for the data and had a modem.  The theory then was that the brokers would no longer be needed because the new owner of a computer with dial-up and access to reams of data could just call the buildings him or her self and negotiate a deal. The dreaded commission could finally be avoided and the tenant could keep all 2-4% for himself!

Well, it just didn’t happen and it won’t happen in 2010, or I bet in 2020 either.

Here’s why:

Tenant representative brokerage today has far more to do with “consulting chops” than raw data. The field has developed to very high level because of the influence of groups like CoreNet Global and frankly fierce competition Ask anyone who has been the recipient of a . major pitch recently about the level of sophistication of the firms chasing their business. In the past 10 years tenant reps have become like management consultants with real estate market knowledge. As part of the war to succeed brokerages are increasing services offered as part of a transaction, including some really innovative technology solutions.

Also, the risks in transactions have gotten significantly higher in the current capital environment. Understanding ownership and the “capital stack” of buildings is important always but certainly critical today. We also have to take a whole new look at leases today to make sure users are protected from so called Zombie Landlords.

Of course, on the smaller, one-off transactions an app can make all the sense in the world. You can have the freedom (and the time) to wander around a City on your drive home self perform a real estate search. And if the real estate deal is relatively simple and you pick a good solid landlord, then thank Steve Jobs as you click your way to real estate freedom.

But for most of corporate America, assigning someone who is a CFO, CAO or a division manager to handle a major real estate transaction with an iPhone is too risky and simply isn’t a good use of their time, risk profile or business resources. Therefore, and happily for my family, tenant reps will continue to play a vital role in America’s real estate transactions for many years to come.

Perhaps I need to write an app for something….can this iPhone cut the grass?

High Carb – Low Protein

By Ken Ashley

ATLANTA (May 24, 2010)

Cushman & Wakefield recently released the US Office Overview from Q1 of 2010 and like many similar reports over the past 30 days it suggest “steadily improving economic conditions.” The report forecasts that leasing activity will build this year but that construction activity will fall due to the lack of speculative projects and the restrained financing environment. It also suggests that rental rates will continue their downward trend and reach a bottom in some market sometime in late 2010.


As we have suggested in this blog since March, things are on the up and up. So what’s to worry about? Well, jobs of course.

Real estate activity is up precipitously by the tenant community but many of the deals are “blend and extends” that have tenants renewing at the same square footage. More likely, tenant’s are renewing or moving and giving back space. For example, Marsh has a large Atlanta lease that moved to a new location going from approximately 200,000 s.f. to 125,000 s.f. which is a nearly 40% reduction in size.

So, we believe in the recovery, and we can feel it coming like a train down the tracks. However, until we have true job growth and a preponderance of growing and expanding tenants, then we are effectively eating a high carb diet. And as any good doctor will tell you, that is not sustainable if you want a healthy life – or a health economic recovery.

Here’s to a protein rich diet – and a job rich economy!

Live Blog from TREP (Part 2)

By Ken Ashley

WASHINGTON, D.C. (May 20, 2010)

Continuation of Live Blog from TREP (Tenant Representative) conference.

Background: This is a conference of some of the highest producing brokers with Cushman & Wakefield in the US. The conference consists of 65 brokers from the Firm and senior C&W Management.

Here are more highlights heard during the first day of the conference:

Representing Tenants in the Foreclosure Wave

Surfing Debt?

Patrick Connell, CW Capital discussing the receivers role (receivership 101):

  • A receiver is an  independent fiduciary represents the court not the owner or lender.
  • The receiver has 3 years after foreclosure to position the asset but this can be extended.
  • Agreements for receivership can be challenging and sometimes can take up to 9 months to negotiate.
  • Receivers put in new accounting systems and scrub the financials. They notify the tenants and actively manage the asset. When ready, they get the asset to market.
  • Receivership is an action normally take by the lender and the receiver functions as a powerful asset manager. This role also includes interaction with the court which adds complexity. Receivers spend ALOT of time in Court.
  • It there is a good transaction for the asset there is a way to get it done. Tenants likely will not have direct access to special servicers for liability reasons.
  • Future of the special servicing business: CW Capital 1 year ago 7.5 Billion, today 17.5 Billion. “We are in the third inning of an extra innings ball game.”
  • Know that there is a process here – it simply takes time.

Doug Olson, Monument Realty, discussing the marketing of distressed assets:

  • Monument Realty is a local developer. When Lehman Brothers went belly up, they dragged 27 of Monument’s projects into bankruptcy (“BK”).
  • Doug says he is here because of his real life experience with BK.
  • All of the assets Lehman assets were ground up development and were subject to a construction loan funding TI and commissions. Question to ask: “What is the lenders obligation to fund TI’s and commissions?”
  • Ask to see the leasing guidelines attached to the loan although admittedly hard to get.
  • Building value is torpedoed. Many times the sponsor hangs on for pride and fees.
  • Balance sheet notes are not trading despite the cocktail party chatter.
  • In the end, the lender wants to do the deal so keep pressing. This is an exercise in truthfulness.
  • Go pull the deed of trust on a candidate building and try and determine what the debt is. Make some assumptions based on the market and you can calculate a potential NOI.
  • Mez debt: Determine who the mez lender is because there are lots of companies that aren’t really in the business of lending. Must determine their intent, as they can become predatory and own the real estate.
  • Reputation of sponsors is important to them. If they are in the local market, and they tell you they will do something and don’t then they know they know that tenant reps will talk. Also impacts the building on the same level. Bad rap, no deals.
  • There is so much debt coming due, that you really need to try and find out when debt on a specific building is expiring.

Robert Weinstock, Pillsbury Winthrop, discussing tenants rights and obligations:

  • We’ve always had to worry about landlord instability and while issues are more acute in the current environment, they aren’t new.
  • Key issues: make sure tenant gets concession package and get the broker paid (Ed note: Thanks!)
  • Lease is both a contract and an interest in land. It has priority over some rights, but subordinate to others. The mortgage is most likely in priority to the lease because it was likely recorded before the lease.
  • SNDA is the way to address the subordination of tenant rights.
  • Tenant brokers should ask “where’s the money?” In other words, where is the cash coming from to fund TI and commissions.
  • Ask landlord to escrow it’s portion of the funding, but this is not a perfect remedy. In BK the funds can be swept up. Some tenants try to get a security interest in the escrow, but most lenders wont agree.
  • One can also contract with the landlord to do the work and provide for a termination option if the landlord doesn’t deliver.
  • Very few BK’s by commercial landlords in part because many buildings are single purpose entities and the BK doesn’t accomplish much.
  • A foreclosure is where you have secured debt and the holder of the mortgage or deed of trust has right to take title to the real estate. This is a sale of the asset.
  • In a receivership, the lender is not taking title.
  • A bankruptcy judge and code trumps just about everything, no matter what the lease says.
  • <Comments from Lou Christopher> Offset is not acceptable because our clients are not the bank. We require SNDA (not best efforts but the document with rep that future SNDA’s will be substantially similar). Ask for a  letter from lender saying they have the funds, ask who your principals are, and ask the landlord to confirm who their lender is. The basic premise is that a lender will not commit fraud in a letter representing the cash situation.
  • Consider a lease deal like a building purchase deal. You must complete due diligence.

Live Blog from TREP (Part 1)

By Ken Ashley

WASHINGTON, D.C. (May 20, 2010)

TREP (Tenant Representative) is a conference of some of the highest producing brokers with Cushman & Wakefield in the US. The conference consists of 65 brokers from the Firm and senior C&W Management including Americas CEO John Santora,  Client Solutions head Bruce Ficke and Mid-Atlantic Region head Jim Underhill.

Here are a few highlights heard during the first day of the conference:

  • Big volume of continued outsourcing to brokerage houses by corporate directors of real estate.  Corporations are increasing the amount of what they outsource and actively reevaluating their service providers.
  • Federal Government expected to lease 12 million square feet in DC and Northern Virginia in the next year. A stunning stat that is indicative of how fast our government is growing.
  • DC is hot, hot, hot. Like it or not, according to local DC brokers, for many reasons corporate America is coming to this City.
  • Tenant leasing activity is way up and concessions are the best in memory.
  • The verticals of technology and biotech are especially hot and seem to be growing.
  • An amazing comp from a large law firm in New York: 400,000 s.f. rates starting out at less than $80 per foot and escalating every 5 years ending up at $102 per foot. 11 months free and $65 million in TI  ($160 PSF) with a $35 million ($87 PSF) payment in lease pick up.  This is in a relatively new building hoping to achieve rates of $130-150 PSF 2 years ago.
  • New York is on fire as well. Hearing about some very large assignments that our brokers have in the City. Corporate America is clearly recognizing the opportunity that is available in the market today.


Jeff DeBoer, President and CEO, Real Estate Roundtable

  • Our industry is at war; we need to get our act together. We need to act as an cohesively as an industry or Congress will pick us apart. Now is the time to up the ante and participate.
  • Call Members of Congress and let them know how you feel.  They are very isolated now, and spend their days huddled with staff or voting. They have very long days. At night, they see lobbyist. Very little engagement with US Citizens; they need to hear about real life and real issues with the real estate industry.
  • Member of Congress DO call Jeff and ask how they can help real estate. Many are very concerned including Bob Menendez from NJ, Kent Conrad from North Dakota, and John Kerry from Massachusetts.
  • Since real estate is everywhere, we are no where. There is no “senator from real estate” like many other industries.
  • The “carried interest” bill will double the takes on certain gains in real estate. Today the rate is 15%. If the bill passes, the rate goes to 32% and then to 38% plus a 3.8% Medicaid tax.
  • We are at war as an industry. There is a continuing battle to increase the taxes on capital gains in real estate. Risk takers and capitalists are being penalized with more and more taxes.
  • Values are down 30-50% from their highs nationwide.
  • In order to get the system going again, we need substantial amounts of equity. We are facing a liquidity crisis. There is a lot of equity ready to “play” but it does not equal the $1.2 Trillion in CRE debt that is in the process of maturing.
  • Security: The Roundtable is assembling a list of all major US Assets and their true owners and managers. This well help with Federal Government make contact with ownership in times of crisis. Also, Roundtable is actively advising owners about security best practices.

That’s it for now. More to come…..

Commerical Real Estate: Getting Better Quicker Than Anyone Thought Possible

By Ken Ashley

ATLANTA (May 17, 2010)

Greg David’s May 16th column in Crain’s New York Business has some good insights as to where the economy is now and the resulting impact on commercial real estate. Parts of his piece are excerpted below. We also offer a link to C&W’s most recent employment report and an excellent analysis of what the positive numbers mean for real estate and its recovery.

Excerpts from Greg David:

  • “Reading the economic tea leaves is never an easy task, and it is exceptionally difficult when the economy is shifting gears. Virtually every piece of economic news recently has been better than expected, but economists and commentators downplay its significance because they believe the recession has been so severe that the recovery will be weak and previous levels of employment and economic activity will take years to reach.
  • The outlook for commercial real estate in New York is a case in point. Recovery is presumed to be problematic, but two recent developments suggest otherwise.
    • First is the news that law firm Proskauer Rose will relocate to 380,000 square feet at now-vacant office building 11 Times Square. It is the biggest new lease since 2008.
    • Second is a….report from brokerage Cushman & Wakefield noting that 2.2 million square feet of office space was leased in April, the same figure as in March. The combined total made these the strongest two months since summer 2007.
  • …the bearish forecasts on this sector are missing one of the verities of the commercial real estate market: It is exceptionally inelastic. Because the city has not built much new office space in recent decades and because its 11% vacancy rate is the lowest of any major cities, it won’t take much of a rebound to send the vacancy sliding and office rates rising. Once that happens, a new psychology will take hold in which companies commit to office space in the expectation that they will need it as they expand.
  • Economic setbacks are possible, and events like the Greek debt crisis show that circumstances beyond anyone’s control could change everything. With that caveat, I think the Proskauer deal and the recent leasing figures show that a commercial office-space rebound is far closer and will be far stronger than anyone expects.”

To summarize, it’s getting better quicker than many pundits thought it would. Go forth and prosper!

Psst. It’s me, inflation.

By Ken Ashley

ATLANTA (May 12, 2010) –

A number of sources and our own experience are indicating that pricing of raw materials may be headed up.

Just Kidding on the Price From Last Week

According to this report in the Journal of Steel and Related Materials:

“Despite relatively low activity levels and poor final demand, flat product steel prices (in the EU in this particular case) are ascending rapidly. This trend is likely to continue into the third quarter as period two is virtually sold out at most European mills. Producers are justifying the increases on the grounds of their escalating raw material costs. However, the hikes are not supported by any substantial improvement in end-user consumption… Customers are forced to pay more because of limited availability”

And this cheery report in the Money Morning Blog related to lumber: ”

“Raw lumber prices have zoomed more than 25% this year, even though the home construction business – its main use – has been scrambling along at record lows. This is a rather stunning development. But there’s a solid explanation: Production has dropped in the face of weak demand – and dropped so much that prices have moved much higher.. there has been so little demand for lumber to build houses, timber companies have cut back on their harvesting and cutting. So now that home production is picking up a little – as was suggested in some earnings and economic reports last week – marginal new demand is pushing up the price of this surprisingly scarce commodity.”

In recent weeks, contractors have been complaining about increases in concrete prices of up to 20% in some cases. We think that the built environment is competing with other manufactures (think cars and cans) for raw materials. Also, 20% upticks are scary increases, but construction cost in the aggregate are down precipitously in the past 24 months. We are not necessarily sounding alarm bells here, but simply pointing out that costs are headed up from their recent lows.

Labor is the bright spot as it has remained fairly steady. There are lots of trades looking for work and lots of construction industry employers who simply want to keep crews busy. They will do what it takes to keep their employees working and paid.

The moral to the story is lock in costs now. And if you are thinking about making upgrades, improvements or facilities expansions, then now is an excellent time to get moving.

The Next Real Estate Bubble? Think Blinking Lights

The data center and so called “co-location” market (sharing space with other companies in an environment controlled by one landlord) has been really hot over the past couple of years as companies seek to move their critical data operations out of their office space. Chief Information Officers (“CIO’s”) have largely been successful in convincing senior management that data integrity is paramount and data centers don’t belong in the headquarters.

Home to our blog?

For a variety of reasons, both regulatory and practical, moving critical facilities off-site makes a lot of sense. However, cash-strapped corporate America seems to be looking for alternatives to construction of traditional data centers. This is not surprising as best-in- class facilities can cost many millions and years to build. As a result, the co-location market has gone bonkers, and of course, developers are racing to meet demand – both real and forecasted. This article in Data Center Journal suggests that the market may be in the early stages of a bubble.

So, when your CIO suggests the next big data center move, we recommend you carefully evaluate the pricing, but as important, check the credit of the landlord. It’s one thing to have an office building get into financial trouble, but the home of your company’s global data center going dark is just hard to grasp.

Ken Ashley

Source: Data Center Journal