Monthly Archives: June 2010

What’s Next Mr./Ms. Real Estate Director?

By Ken Ashley

DENVER (June 23, 2010)

You’ve cut cost, you’ve “densified” to the max, you’ve got all the newly renewed leases in that nice new database, so what are you going to put in your goals now?  While it’s still the very hot summer, the fall planning season will descend on us in what feels like 5 minutes.

What can you do to convince the CFO that you are (continuing) to earn your keep? Yes, it all depends on the company, the corporate culture, and especially the personality of the C level executive to whom you report. Some companies are on the precipice of growth, so there is plenty of work ahead. But for many companies this is a strange time. It feels like suspended animation while we collectively wait for recovery.

We would like to start the conversation about the next ideas to demonstrate value internally.  I’ll suggest a few ideas here but would also love your input. You can of course comment here or kick us an email (see below).

Seven Ideas:

Internal Customer Support/Expansion

If you don’t already have a seat at the strategy table, now is a good time to ask to be included. Culture notwithstanding, many executives still treat CRE as an internal and reactionary service-provider. Protecting the path the expansion is a solid way to convince the team that you need to be included. The more time the business or the operating unit gives CRE to react the better, of course. Plus you can serve as an early warning system to other tenants growing in the potential path of growth if you are placed on alert and aware of needs.

Accounting Issues

Much has been written about proposed changes in Federal Accounting Standards Board rules. If the changes are implemented will they impact your portfolio? Will they change how the company evaluates real estate transactions in the future? While certainly telling a CFO about accounting rule changes can be dangerous, asking intelligent questions and being aware of the issues can’t hurt. Offering to provide data on existing and new  real estate obligations will show that you are being proactive.

Debt Stack

Asking your major landlords to provide assurances that they are current and in good standing on their debt is a good thing. I hear people all the time say, “it’s no problem, we have an SNDA.” This is like a police officer saying I’m wearing a bullet proof vest so I don’t have to worry about that gun. There are lots of issues that can arise from “zombie landlords’ who can’t service their debt load.

Talk to your regular real estate counsel, your real estate service provider and others to get a handle on your landlords. Set up Google alerts or something similar and be poactive about monitoring your relationship with landlords in the midst of the worst commercial ownership crisis in 80 years.

Then tell the CFO of your efforts.

Emergency Preparedness

This is certainly top of mind after a crisis, and most everyone has the “go bags” distributed, but we can all get lulled to sleep. There are a number of new tools coming and now available that are gaining lots of traction. One of them is created by a company called Preparis that has a really cool iPhone app for crisis situations. Check them and their competitors out and stay sharp.

Support for Gen Y/Workplace Branding

In the coming hiring wave (yes, that’s what I said) we will be bringing aboard those 20 somethings that work in caffeine infused state of chaos. There are whole posts, magazine articles and even whole architectural practices dedicated to this subject. Making sure that you are supporting HR with the latest and greatest in workplace strategy is a good thing. We’d suggest you check out CoreNet Leader magazine (free on their website) as a starting point to determine options.

M&A

We are clearly coming into a season where acquisitions are occurring at a rapid pace. Could you offer up a strike team including both internal and external resources to assist in evaluating acquisition candidates? For example, are the leases in the target company over market or is the landlord teetering? Perhaps the acquisition team can convert this information into a purchase price reductions. Watch CFO, watch CFO smile.

Service Provider

Lastly, ask your current real estate service provider to talk about the relationship they have with you. Do they have any new tools or resources? What are they seeing that might be of help to you?  Is there a way to positively restructure the relationship in a win/win fashion? Perhaps you can ask to meet with senior management to get their view of the world and trends.

In summary, there are likely plenty of things you can be doing, but thinking strategically now and being intentional about creating value for your company  will make you a critical piece of the companies success. And I can’t think of a better place to be.

(Note: You can email comments to ken.ashley@cushwake.com. If you want us to keep your name and or company “off the record” just let us know and we will certainly respect your wishes).

Oil Slick Hits CRE Too

By Ken Ashley

ATLANTA (June 19, 2010)

As if the good people of the Gulf Coast didn’t already have enough to worry about; now some longer term financial implications of our Nation’s worst environmental crisis are starting to become apparent. According to a sobering Wall Street Journal article (republished below) “From Louisiana to Florida, fear about the oil spill’s impact is stalling real estate deals, causing owners of languishing hotels to worry that they will be unable to keep up with mortgage payments and giving local bankers nightmares about a new surge in loan defaults by businesses and consumers.” WSJ goes on to say “In recent months, commercial real-estate values have stabilized, with some bargain-hunting investors returning to the market. But the oil spill could push suffering properties over the edge—and scare opportunistic investors from the market.”

And the impact doesn’t stop at the Louisiana to Florida coast. In conversations with local brokers, Houston is worried about not only the fishing issues, but also by the ban on oil drilling which potentially affects employment in the region and even office and industrial occupancy rates. As if to sum up the feeling of the City, a restaurant owner told Click2Houston: “A catastrophe like this just goes on and on and on” (Buddy Treybig, owner of Matagorda-based Arnold’s Seafood Oyster House).

So, for some time to come the Gulf region of the United States will be impacted in many ways and on many levels: from wildlife, to fishermen and the tourist sector and, of course, all manner of commercial real estate. The disaster is man-made and absolutely should not have happened.

I thought it would be interesting to look back at the Exxon Valdez spill for an indicator of what form and how long recovery takes.

This article in The Encyclopedia of the Earth discusses, among other things, the economic impacts of the March 24, 1989 spill. The article notes that a “Severe labor shortage in the visitor industry throughout the state (occurred) due to traditional service industry workers seeking high-paying spill clean-up jobs.” I wonder if the Gulf Coast will have the same issue over the next couple of years. Perhaps this is a positive indication with respect to the service sector in the region.

Also, American Progress posted this article on April 30, 2010, comparing what was then known about the BP oil spill to the Exxon Valdez. Among the take-aways: “The key lesson from the Exxon Valdez is that the oil spill continues to have an impact today—more than two decades after the event.” So we know this will impact the local economy for years to come, but I think we already knew this to be the case.

Finally, this info from the same American Progress article: “Pacific Science Director for Oceana Dr. Jeffrey Short testified in a 2009 House Committee on Natural Resources hearing that, ‘Despite heroic efforts involving more than 11,000 people, 2 billion dollars, and aggressive application of the most advanced technology available, only about 8 percent of the oil was ever recovered. This recovery rate is fairly typical rate for a large oil spill. About 20 percent evaporated, 50 percent contaminated beaches, and the rest floated out to the North Pacific Ocean where it formed tarballs that eventually stranded elsewhere or sank to the seafloor.’ I sincerely hope the outcome is different in the Gulf.

But what happens next? Billions of aid and investment from the US Federal Government and BP are bound to have an impact, and actually getting the well capped will have a very positive, emotional impact on the region and our whole nation. Technology has clearly improved since the Exxon Valdez and recovery efforts are massive in scope. The great hope is that we learned from the Exxon Valdez and that the white hot media and political focus will make BP toe the line here, and all other oil companies in the future.

On the real estate front, this event is the 9/11 of the Gulf Coast, but just like New York and the Northeast recovered, The Coast will too. Unlike the Prince William Sound area, this is a very populous region with a diverse economy.

What we do know is that the people of the Gulf region are tough, resilient and creative. The whole nation and indeed the whole world is watching. We will get through this together.

Oil Spill May Hinder Recovery

By ANTON TROIANOVSKI And LINGLING WEI

June 18, 2010

OILRE-orange

Brett/Robinson Real EstateORANGE BEACH, ALA. Completion of this condo tower could be delayed because of slumping sales.

The environmental disaster in the Gulf of Mexico is threatening billions of dollars of commercial real-estate investments, along with developers, lenders and investors who already were struggling to ride out the economic downturn and slow-moving recovery.

From Louisiana to Florida, fear about the oil spill’s impact is stalling real-estate deals, causing owners of languishing hotels to worry that they will be unable to keep up with mortgage payments and giving local bankers nightmares about a new surge in loan defaults by businesses and consumers.

“We really believed we were coming out of it,” says Buzz Ritchie, president of Gulf Coast Community Bank, a Pensacola, Fla., bank with five branches and $266.4 million in assets as of March 31. “Now we’re afraid we’re going back right where we were before, if not worse.”

U.S. banks have total exposure of $136.4 billion to commercial real-estate owners and developers in Alabama, Florida, Louisiana and Mississippi, according to research firm Foresight Analytics. Regions Financial Corp., based in Birmingham, Ala., has the biggest exposure to the four states along the Gulf of Mexico, totaling $12.4 billion, Foresight estimates.

A Regions spokesman says the analysis overstates the company’s exposure to coastal areas. “We’re closely monitoring our loans along the coast that could have some exposure, but this is a very small subset” of the company’s $85 billion loan portfolio, the spokesman says.

“At this point, we’re monitoring it, watching it, but not yet ready to quantify the impact,” says John C. Hope III, chairman and chief executive of Whitney Holding Corp., with branches stretching from Houston to the Tampa Bay region of Florida. Just a small portion of the New Orleans bank’s overall loan portfolio will be affected, he predicts.

Realpoint LLC, a credit-ratings unit of Morningstar Inc., estimates that about $2.2 billion of commercial mortgages sold as bonds are backed by properties located along Gulf Coast in the four states taking a direct hit from the oil spill. Delinquency rates on loans underlying commercial-mortgage-backed securities in the region already are higher than the 8% U.S. rate—including 12.6% in Florida.

Real-estate developers and lenders on the Gulf of Mexico know that the sugary white beaches and dazzling sunsets that draw money to the region come with major risks. In 2005, hurricanes Katrina and Rita battered more than a dozen banks with a substantial presence in Louisiana, Mississippi or Texas.

“What we’re doing is a similar process to the one we did five years ago,” says Paul Guichet, vice president of investor relations at Hancock Holding Co. The Gulfport, Miss., bank is conducting a “thorough analysis” of its loan portfolio to gauge the potential impact of the oil spill.

But while BP PLC has pledged to reimburse financial victims, it isn’t clear if that will help real-estate-related businesses or other borrowers not directly tied to fishing or tourism. “We have no relevant measurement tool to judge this by,” says Mr. Ritchie, the Pensacola banker.

Julian MacQueen, an owner of hotels from Orange Beach, Ala., to Pensacola, says he has alerted lenders that he might be unable to make his mortgage payments on time, because the oil spill is costing his hotels business.

“We’re walking down this tightrope with no net,” says Mr. MacQueen, who is investing $100 million in two new hotels. “I’m not sleeping at night.”

Mr. MacQueen plans to file claims for lost revenue with BP, but he doesn’t know whether the company will reimburse him for what he insists would have been a much better year than 2009—or just for his lower revenue.

“All claims are being evaluated for compensability under OPA as well as for the amount of the claimed loss,” a BP spokeswoman said in a statement, referring to the Oil Pollution Act of 1990.

In recent months, commercial real-estate values have stabilized, with some bargain-hunting investors returning to the market. But the oil spill could push suffering properties over the edge—and scare opportunistic investors from the market.

On Monday, Sandler O’Neill & Partners LP analysts cited a decline in real-estate values as “the most daunting of the risks” facing lenders with exposure to the oil spill.

John Stone, a Clearwater, Fla., real-estate broker who sells troubled condominium projects, says the spill “has brought a number of deals to a screeching halt.”

One real-estate owner under financial pressure since the Deepwater Horizon rig explosion April 20 is Beach Resort Investment Corp., the owner of Ramada Plaza Beach Resort in Fort Walton Beach, Fla. While no oil has fouled the beach or the contrasting streaks of greens and blues in the Gulf of Mexico, “advanced booking for July is just terrible,” says Joe Guidry, general manager of the hotel.

[OILRE]

Even before the oil spill, the hotel couldn’t cover interest payments on the $26.3 million mortgage backed by the property, according to Realpoint. Gail Cluck, chief financial officer at Beach Resort, declines to comment on the company’s ability to continue meeting debt-service obligations. “We’ll be expecting BP to compensate us for the lost income,” she says.

Tillis Brett, developer of a delayed $250 million condo project in Orange Beach, Ala., says it could be snarled even further by the oil residue already washing up nearby. Sales have slowed even though he reduced prices on some units by 10% to as low as $510,000 after the spill began.

“We have to depend on our sales to finish the building,” he says.

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The Old Gray Cube, She Ain’t What She Used to Be

By Ken Ashley

ATLANTA (June 14, 2010)

We’ve run across what appears to be a really innovative idea in the commercial real estate world in the form of a new company called Loosecubes. Their website, which says it is in beta, describes them as  an “Open Market for Workspace.” We think of it as an interesting  combination of Facebook and Craigslist in the real estate arena. Essentially, one can use the site to rent a cube and “cowork” for a month or longer. Companies that have extra cubes in a low security environment can avail themselves of the opportunity to sublease on levels never practical before.

Lease me for a month? We have great coffee too.

Many times in the past we’ve had entrepreneurs or even established businesses that want to open a location in a new city but only needing space for a desk or two. Until now, your only options were to lease space in an executive suite (expensive) or try to get a short-term sublease (expensive with a large hassle factor).

If this idea takes off, it could really help use vacant space on a micro-level and who knows, maybe you could make some new friends in the process too. Comment to this post and let us know if you think the idea has legs.

In any case, we applaud the company (we have never met or spoken with them so this is an unsolicited plug) for being different and taking a chance in an area that has been a real challenge for many years in commercial real estate.

Below is a little information describing the concept from the Loosecubes website:

What is Loosecubes?
Loosecubes is a community of independent people building a global network of shared workspaces. We bring together people who have great space and people who want to work in it. We don’t set the terms, you do. Loosecubes does not own or rent any workspace. We started Loosecubes because we needed a place to work that made us feel more inspired, not less. Where you spend your working hours has a huge impact on your life. Working in a beautiful and functional space can make all the difference.

At Loosecubes, we want to change the way people work. Our members need the flexibility to work at home sometimes and in an office sometimes. We want the freedom to travel anywhere in the world and not have to worry about finding an internet connection and some intelligent people. We don’t think that Loosecubes hosts will participate just to make some extra money. We think they will participate because our members are people they want to get to know. They’ll participate because they believe, like we do, that the only way to be truly independent work-wise is to have great workspace available when you need it – without paying an arm and a leg.

Find a big space and invite your friends and colleagues to work together. Spend a month coworking or a few weeks in another country.

This is a revolution. We hope you’ll join us.

That reminds me of coworking.

Yes! We love the coworking movement. It is so exciting. Coworking, for the uninitiated, is when independent professionals choose to come together to work in a shared space. Coworking is meant to foster collaboration and community, some of the things that are lost when working from home. Coworking locations have popped up all over the world over the last several years. These spaces offer a range of amenities and community building opportunities. We hope Loosecubes can help grow the coworking movement by making finding and booking a coworking space easier.

How do I list a space?

All you need to do is join Loosecubes and populate your free listing. If you have several desk types – an open desk, a closed-door office for three, and a conference room – for example, you will post three different listings. Your address and contact details will not be disclosed to a prospective renter until you agree to terms. You will be contacted via email using our secure anti-spam system. Only Loosecubes members will be able to contact you. At that point, you choose who to follow up with and invite to your office. A simple “we’re booked” email back can let members know your space isn’t available

Uncle Sam, Real Estate Man

I need YOUR building

By Ken Ashley

ATLANTA (June 3, 2010)

At a recent conference in Washington, D.C. I learned more of the United States Government’s intent to lease millions of additional square feet in the near future. As this article from the Washington Post suggests, the “government is taking advantage of the abundance of space in newly constructed buildings for bargain prices.” Hmmm, could the Federal Government be learning from corporate America?

One relatively little known fact is the General Services Administration, which serves as the government’s broker, is a real thought leader in Workplace Innovation. We consistently see them well represented at all the top commercial real estate conferences. At least they are trying to innovate as they spend our money….

But now back to the growth issue. Another interesting point from the Post article: ” The government spent 2009 planning for growth….(which) will materialize in 2010.” It isn’t hard to figure out that with stimulus money and expansion of Federal agencies under the current administration that the government will grow in 2010 and beyond.

The question is where and how this will impact other tenants in the marketplace. New York, Northern Virginia and D.C. proper are slam dunks. Likely candidates for growth also include LA, Chicago, Dallas, Atlanta and other major hub cities for an uptick. New Orleans, and the coast line of Mississippi and Louisiana are both currently experiencing surging demand related to the oil spill.

Most government agencies – outside of D.C. and Northern Virginia – are not going to be in the same building as the typical corporate tenant, though there certainly are exceptions. It is important to keep the goverment in mind because they have obviously have great credit and in certain areas can actually create enough demand to cause rates to moderate.

Put another way, if you are in a company town, watch out for the company.