What does the future of office space look like?

What does the future of office space look like?

Office trends have moved away from having offices for every employee and adopted a more open floorplan that utilizes more modular workstations.
In the last several years, with the boom of mobile technology, we have seen the openness take on a newer form centered around collaboration.
Workstations without walls was the first iteration. Now, the paradigm shift into more mobile technology has sent many employee to work out of the office, but stay connected no matter where they are. See the attached ABC News video about the virtual office trend that is quickly becoming the new way to office.

Now, traditional offices are not going away any time soon, but as a new generation grows up in this virtual world, there will be no need to adapt to this new way of working. It will be a natural method for them. This in turn may drive down demand for “new” office building inventory while stabilizing current inventory to record levels.

All the best,

Miguel

Miguel de Arcos
Sperry Van Ness Florida
Mdearcos@svn.com
Www.facebook.com/SVNParadigm
Twitter.com/mdearcosCRE

Missed It By 5 Seconds – An Online Real Estate Auction Story

Missed It By 5 Seconds – An Online Real Estate Auction Story
By Miguel de Arcos

I am a big fan of the online auction platforms. It gives our cash investors a chance to bid on assets and notes that they otherwise would have no ability to access. Like with anything, there are some great deals and not so great deals being offered. The local bidder always pays more for the small assets and an equity fund/REIT always pays more for the large Class A/B type assets. In between, there are some great opportunities.
Recently I had a client register for the Late October auction.com note sale. We bid on 3 loans and were real aggressive with one in particular. However, We learned a valuable lesson that day related to technology and auction timing.

As the client and I sat in my office at 9:59 awaiting the 10am auction close, we were unpleasantly surprised to find out that the they have rolling closings every 4 minutes starting at 10am… Long story short, the property didn’t actually close until 2pm. Needless to say, the client nor i couldn’t stick around that long, so we designed a plan. The “Thank You Steve Jobs Plan.”

The client had to head to the airport and I was leaving a meeting at the Rescue Outreach Mission homeless shelter(in case you want to donate . Right around 2 pm we got on our iPhones and started strategizing. He would tell me what and when to bid and I would push the big green BID button on my iPad. Now, I’m not proud of the fact that I had a iPhone in my left hand, tapping the iPad with my right hand and driving with my knee, but after our 3rd bid, I finally did pull over.

The counter bidding slowed and we felt confident that we might take it as the clock wound down to 30 seconds, then the man I like to call “Bill Gates” out bid us in the next minimum increment as if he knew we were awkwardly bidding from a cell signal on an iPad from the side of a road in a very rough part of town. We decided to wait until there was 5 seconds left on the clock before taking him. I tapped the big green BID button once last time. The button read SOLD… But it was in red with the words “you were out bid” written underneath!

I hung up with the client and called the auction company in a panic, because I know how much he wanted the asset. The deal was done. They explained that bidding from a wireless cell signal may have caused a delay in our bid order going through. There didn’t seem to be a delay with our other bids, but that did make sense. We lost the deal by 5 seconds!

Moral of the story: if you’re going to risk your life(and others) trying to “win” a real estate deal while driving, make sure you have at least 30 seconds on the clock…

All the best,

Miguel de Arcos
www.facebook.com/svnParadigm
www.creAdvice.wordpress.com

Top 5 Commercial Real Estate Tech Tips

Top 5 Commercial Real Estate Tech Tips
by Miguel de Arcos

“If you don’t like change, you’re going to like irrelevance even less.”—General Eric Shinseki, U. S. Army.

It is an inevitable truth that the CRE client base is getting younger and more tech-savvy. Technology advances are ever changing and have become an integral part of our business. Unfortunately, commercial real estate profesisonals are not typically known for their adaptability to technology changes.

There have been many recent breakthroughs that have made those brokers who are adaptable to technology much more efficient and will ultimately prove to make them more successful as it has always been the building blocks and future of any industry. Yes, relationships are the single most important resource, but technology is making it easier to establish and maintain those meaningful relationships.

Recently, I attended my firm’s regional conference in Chicago. I was asked to lead a basic 101 session on commercial technology tips for the everyday advisor. These are by no means cutting edge technology solutions, but i was suprised by just how many successful agents did not know many of the terms mentioned in the below list. These are simply the Top 5 basic “must-haves” that every commercial real esate professional should be using to stay relevant. Higher level tech apps and software programs are the topic of another blog.

At the speed of advancement we have seen in recent years, I will comfortably predict that in the next 5 years, the CRE industry will be dominated by technology driven clients and agents to assist them. Adapt to society’s technology advances or become irrelevant in 5 years or less!

1. Cloud Computing
a. BEST way to back up your important files & have them handy
b. Use DropBox or SugarSync
c. ALL files backed up in the “Cloud” & at fingertips for $9.99 per mo
d. Access your files from ANY computer in the world = More time away from the office
e. Send very large files
f. Creates an intranet with other Advisors for collaboration

2. iPad
a. BEST way to utilize the Cloud
b. Connects to any open wi-fi signal for free
c. Or get a month to month data plan for $14.99 and take it on the road
d. Utilize the Noterize App to redline, notate, execute and resend docs without ever printing
e. Must-Have Apps: DropBox, Noterize, Pages, Evernote, LoopNet, MapQuest, AroundMe & Angry Birds

3. Blog
a. BEST way to generate exposure as an expert in your market.
b. Ideal way to generate SEO around your name and specialty
c. Many free platforms. I use WordPress.

4. LoopNet
a. BEST Premium subscription worthy site
b. Newly upgraded platform as of this week
c. Property Records – 4 months new(loan data, tenant info)
d. Sales Comps – new. Appraisal-like, customizable reports. 60% more pictures.
e. Much more professional reports and information

5. Business Social Media
a. Best way to stay connected with the new socially driven society
b. LinkedIn is a treasure trove of potential buyers and sellers
c. Did you feel that? You were just Googled… What did they learn about you?
d. There are hundreds of business driven facebook, LinkedIn and Twitter pages that offer up-to-the-minute
intel. If you’re reading news in tomorrow’s paper, you too late!

All the best,

Miguel
www.Facebook.com/svnParadigm
www.creAdvice.com
@mdearcosCRE

Where Do You Get Your Commercial Sales Comps?

One of the most time consuming things to get in the commercial real estate business is commercial property sales comps. Yes there are the various “public record” sites, but going through 5 to 6 different sites and combing the sold section of the business journal is not the most efficent way or use of time. There are some online sites that offer this service, but in most cases they are just too expensive and the outputs were spotty at best. What commercial brokers need is a one-stop-shop comp and property records source that is easily accessable and cost effective for repeated quick searches. LoopNet appears to have answered that call with a series of major upgrades to their platform over the last 12 months.

Recently I had the opportunity to get a one-on-one sneak peek into the new Loopnet Sales Comps product that will be rolled out shortly. I must say, Loopnet has really stepped up their game. First with Property Records, and now the expanded Sales Comps features. From the demo I saw, the cost for comps is quite justified.

Let me first say that in years past, Loopnet has been known as one of several good broker-loaded listing databases that also created somewhat average reports. Most commercial real estate professionals did not like sending out reports with Loopnet’s logo attached for fear it would cause their clients to just go to the website next time they needed information. Additionally, brokers would turn to outside software and need to search multiple sources for market data, research and comps. They would then take info from several sources and manually input it all into yet another program for the sake of getting a quality report with company branding. In the area of inventory searches, historical property records and comparables, Loopnet has truly become a one-stop-shop!

Some of the NEW features that I felt were the most impressive and worthwhile:

• 22,000 REO Comps
• 60% More pictures
• 35+ new searchable data points
• Much more professional and fully customizable report templates with a broker’s branding
• NO Loopnet logos on your reports
• Side by side property comparison reports(like an appraisal).
• The ability to edit/customize the final report to fit your purpose. In the past it was very static.
• Loan information from the comp(the Property Records product should have the the current loan info)
• Identifies if the info is “broker loaded” or “researched”
• Ability to preview more data before selecting and paying for a Comp

The jury is still out though on the “broker call sheet”. It is just as it sounds. A listing of all the brokers involved in the comp sale, their contact info and note section. Great for broker to broker networking, but it does seem more like an appraiser’s dream page and may drastically increase the amount of appraiser calls the more active brokers get.

I asked if all these new features were a result of the new CoStar merger. They assured me that these radical improvements were a year long Loopnet initiative to make their product even more user friendly. The CoStar deal has not even taken place yet and is still being vetted by the regulators right now.

Loopnet has definitely upped their game with the recent additions and upgrades to its existing platform and functionality. There are a lot of good platforms out there, but as far as I can see, they are the only MUST HAVE premium membership on the market today!

All the best,

Miguel de Arcos
Managing Director
Sperry Van Ness Florida
Mdearcos@Svn.com
Blog: www.CREadvice.wordpress.com
www.Facebook.com/svnParadigm

Land Banking As An Investment Strategy

Land Banking As An Investment Strategy
by Miguel de Arcos

“The major fortune in America has been made in land.” John D. Rockefeller.

I happen to strongly agree with Mr. Rockefeller and have seen many people make a lot of money with a land bank strategy when executed properly. In fact, a decendent real estate development company that still bears the Rockefeller name is currently a very well positioned client of mine. Conversely, I have also seen several investors lose money, so caution is always warranted. The trick is to use a qualified Advisor, find the right deal, project your timelines and expenses and pay cash. Most that failed were developers or land flippers that had over-leveraged the asset in an attempt to generate a quick buck. When the market stalled, they could no longer afford the annual carry costs. Let’s be clear; land banking is not flipping. It is an investment diversification strategy that if executed properly, can generate significant returns.

Land Banking is a term used by both individual investors and corporate land developers. It is the strategy of purchasing a parcel of land and holding (or banking it) it for typically five or more years for future sale or development. But remember, not all land parcels are created equally. Successful land banking requires planning and patience.

The process of Land Banking is divided into three equally important components: Planning Phase, Accumulation/Carry Phase and Disposition Phase.

The Planning Phase is based on the premise that the more time you have to wait, the better land banking will work for you. The reason is simple: the sooner you start implementing your strategy, the more time the “miracle of compound returns” has to work in your favor. Time is the most important component of any retirement strategy. You cannot buy or trade for more time. That means after careful thought and calculation of your goals, you need document the strategy to get there.

The next step in the Planning Phase is to answer the following questions in order to maximize your return:
• How many parcels should you buy?
• How frequently should I add new parcels to my portfolio?
• When do I plan to start selling the properties?
• What areas should be purchased and what areas avoided?
• Should I by raw land, zoned and entitled land or finished lots?

The answers depend on your personal time limitations, current cash reserves, and leverage capabilities.

The Accumulation/Carry Phase is exciting as you begin the search for your first parcel of land and then purchase it with available cash. You continue this same process over a pre-determined number of times then wait. Based on the property location and price, it may make sense to add a parcel to your portfolio every year, every two to three years, or still whenever you find the right bargain or opportunity. Remember to project your annual carry costs associated with the land. Costs such as real estate taxes, utilities, liability insurance, fencing and even possible association fees if you are buying lots in a subdivision. Make sure you have the reserve capital to pay for these items during your projected hold period.

Patient land bankers will consistently find good properties at good solid values. There is no need to overpay. Again time is on your side when you plan ahead. The Disposition Phase starts at the time you feel you have acheived your projected return on investment. This phase isn’t as simple as accumulating properties, but it definitely is more enjoyable as you start to reap the rewards of your strategic planning. If you don’t want to delay your payout, then put all of your properties on the market at once. Another option would be to start selling smaller chunks of your properties little by little to keep a small cash flow and pay for the assets overhead. The possible benefit of selling one property at a time is that market values could potentially go up. Your optimal goal would be to sell your property to an end user, such as a residential or commercial developer. If this happens, you will usually experience substantial appreciation in your property or individual finished lot prices.

Things which can happen to your property, over the years, to increase its value, could be, but are not limited to:
• Rezoned to a more valuable zoning (i.e. from agricultural to industrial).
• The zone density gets increased (i.e. your property goes from one house per acre to a zoning for three to four houses per acre).
• Paved roads and or utilities start moving closer to your property.
• New and major projects get announced near your property.
• Population growth which increases demand for land and increases land values.

The most important component in an area like Central Florida that determines future land values, lies in the answers to questions such as:
• Will the area continue to grow?
• Is it possible, beyond the year 2016, that Central Florida’s growth could explode?

In conclusion, no one has a crystal ball to look into the future with perfect clarity. What we do know is that Central Florida is one of the most desired place to live in the U.S. The population base is projected to double in the next 25 years and Central Florida is running out of developable area to grow due to physical, environmental and bureaucratic issues. The time to buy(any commodity) is at the bottom of the market when values are at their lowest. We are there. The time to sell is when demand outpaces supply. At our current pace, that will be 5 to 10 years. The first thing homebuilders will snatch up is finished lots, then zoned and entitled land. After that, they will fight over the remaining raw land much like they did back in the early 2000’s. Therefore, I believe select opportunities in Central Florida are perfect for land banking!

And remember, as Mark Twain once said “Buy land! They’re not making it anymore.”

P.S. Check out the new LinkedIn group Florida Finished Lot Exchange

All the best,

Miguel de Arcos
Sperry Van Ness Florida
Managing Director
www.CREAdvice.wordpress.com
www.twitter.com/MdeArcosCRE
www.facebook.com/svnParadigm

A special thanks to Ace Capital for allowing us to repurpose this information and contributing to this blog.

Status Of LEED Certification In Today’s Economy

An Attorney friend of mine is writing an article on the “Status of LEED Certification In Today’s Economic Climate” and asked for my opinion. I thought I would share my raw thoughts with you and open the door for any comments or counter points. His article will be much more in depth, but here is a quick glance from my perspective.

Are you still seeing clients request LEED certified buildings in this current economy?
No. With the uncertain economy there is an apparent flight to efficiency of space and value. By efficiency, I mean doing more with less space thereby saving money. I believe in 5 years or so when the economy is back on a stable growth track, profitable companies will look to “pay for energy efficiency” again.

Is there demand for more efficiencies or is the rent still the primary driver?
Two of our largest recent deals were definitely motivated by discounted rent. They were willing to work around some obvious space inefficiencies in order to take several thousand dollars off their monthly rent costs. We have not seen any requests for energy efficiencies either although they are certainly welcome if included in a deal. There is a perception that while a LEED certified building cuts some costs, the base rental cost increases significantly to pay for such items.

Do you see the lower price points from short sales and foreclosures negating the potential cost savings of a LEED certified building for clients?
All things being equal, owning or renting a LEED certified building would obviously be preferred. That being said, short sales and bank owned properties of all classes are being sold for $.40 and $.50 on the dollar to newer LEED product. Even with another $.10 to $.20 in improvements to bring them to operational condition, they are still priced well below. Unless a client was mandated to be in a LEED building(Fed Gov) then there is no contest as to the desirability of the discounted product. In today’s market Buyers don’t buy hoping that in 10 years their building will be worth more than they paid. They buy only if they think they can sell it for more the next day. The economy is uncertain and most tenants and buyers want a clear exit strategy before entering into any long term commitment.

What trends are you seeing related to LEED?
During the boom, we saw many developers reaching for higher and higher levels of LEED certification in new and remodeled buildings without much concern for the added cost to construction. The market was so tight that there would be someone one willing to pay it. Many features almost seemed forced just to accumulate more LEED points(eg. A 20,000sf build to suit that had to have electric car plug ins and triple bicycle racks even though no employee drove an electric car and they were miles from anywhere bikable). My perception of energy efficiency in the next 10 years is that efficiency will come organically through technological improvements(kind of like land lines to internet phones and PCs to portable wi-fi over the last 5 years). Building products are becoming more green and energy efficient every day and more processes are becoming automated. That will bring construction material cost down significantly. It’s a much slower process, but more affordable.

I would love to hear your thoughts or comments on the state of LEED now and in the next few years.

All the best,

Miguel

Miguel de Arcos

http://www.creadvice.wordpress.com

www.svnParadigm.com

Public Schools and Their Impact On Commercial Real Estate

Public Schools and Their Impact On Commercial Real Estate
By: Miguel de Arcos

Think public schools have nothing to do with commercial real estate; think again. Take Seminole County, FL for example. For years the Seminole County Public Schools(SCPS) has run one of the most efficient programs on one of the smallest budgets(relatively speaking). The outcome has been “A” rated schools and consistent rankings in the Top 3 % of all school boards nationally. That also played a huge role in the ranking of two city’s within the county being ranked in the national “Best Places To Live” by Money Magazine(Lake Mary was #1). The SCPS now faces a $22M budget deficit and is facing massive cuts to jobs, programs and possible school closings. What will the repercussions to everything else be?

Commercial Real Estate is not just about brick and sticks, supply and demand, corner offices and cubicles. It is also about quality of life and available workforce. Within the County, the city of Lake Mary, FL alone has 4.5 million square feet of Class A office space. That’s about 25% of the entire Metro Orlando allotment of class “A” space. When asked, corporate decision makers consistently rank the “A” rated public schools in the top 3 reasons for why they relocated their firms to a particular submarket. Job creation is the holy grail of survival and recovery. Not only jobs from a macro perspective, but jobs in your local market. The more of your neighbors working or secure in their job future, the better YOUR quality of life will be. Municipal and private services all get better with a stable economic outlook. Without strong schools, not only will submarkets have a hard time recruiting new job creators, but they may lose existing ones.

Whether you send your children to public or private school, get involved and take an interest in the success of your local public school system. Good schools will create jobs, fill commercial real estate and add to everyones overall quality of life.

All the best,

Miguel
www.Facebook.com/SVNParadigm

Exiting With Class

So many blog topics to write about but so little time. I guess that means that my firm has been busier than anytime in the last 5 years, so I’ll take it!

Exiting With Class:
A lot of us have been on one side or another of a resignation. I know I have been on both sides. Some are done professionally, and some are done burning every bridge along the way as it was to me in the not to distant past. Some employees are too scared to confront you so they use a letter or email, others a phone call and some need to be escorted out of the building. Then there are those that are done so right you leave the meeting rooting for each other’s future success.
This week I had one of my junior associates resign and I felt the need to pause to recognize one of the most well done and classy exits in my 10 year history of managing and employing others. This agent has recently completed his Master’s in accounting and after 3 1/2 years with us as his first employment after college, he has made the decision to move to a salaried position at a development firm. His accounting skills and knowledge of Commercial Real Estate made him well equip for the position.
We had a long talk and both agreed that this was the best for him and his long-term future. I left him with the thought that we were glad to have been just one block in his foundation to a long and successful career some day.
As he was walking out, he gave me a card. I have received “thank you” and “best of luck” letters but they were always a formality. The conversation we had together with what he wrote just felt like it came from the heart and touched me enough that I had to share:
“Miguel, Words cannot express my appreciation for your guidance over the last three years. SVN, but more importantly you, will always be the starting point of my career. I know our paths will cross again and I will always speak well of both SVN and you. Good luck in all you do.” Then I reached into the envelope and pulled out a $50 gift card to Omaha Steaks!(gifts for the boss when you quit should be a rule…)

I remember when I left my last employer years ago. Only wish I had done it with so much class…

Miguel

1,000 Rocket Scientists Walk Into a Bar…

1000 Rocket Scientists Walk Into a Bar…
By Miguel de Arcos
CREadvice.wordpress.com

It sounds like the opening line to a bad joke, but sadly this could be a reality by year’s end in Florida when the NASA space shuttle program ends and thousands of highly skilled workers could be without work. This may not have made regular national headlines, but those in Florida are watching this closely. The shuttle program has already laid off nearly a thousand and many more are planned unless FL can court private aerospace industry companies to come in and set up shop to retain those jobs. The Orlando Business Journal was quoted this week as saying “Thousands of local aerospace employees will lose their jobs after NASA sends up its final three space shuttles.” The economic impact of this issue could be “astro”nomical for the better or for the worse.

When the legislature convenes it will consider House Bill 143 which will establish a state tax credit program designed to create and retain high-wage aerospace jobs. This must happen. It would be a gross miss use of one of Florida’s best resources, one of the highest concentrations of highly skilled rocket scientists in the world. If we can’t bring the industry back to them, they will flee the state in search of those jobs on their own. In my opinion, private industry can find a way to do anything the government can but more efficiently and most likely cheaper, so in the long run, this will be a great move for the state economy. State incentives are needed to lure them to Florida where business can thrive.

You are probably asking how this has anything to do with commercial real estate? My answer is that it has everything to do with it. The real estate market tends to trail the direction of any local economy and jobs are the key to any strong market. Corporate relocations and new startups could flock to this area if the incentives are right. It is difficult for an industry specific corporation to find all the highly skilled talent it needs in one particular market; we have it. It is also very costly and difficult to relocate hundreds of employees to an existing facility out of state. The answer is to bring the corporation to the labor pool here and do it fast, before they start to move on their own. The timing is perfect for a corporate move to FL. Warm weather, skilled workforce, tax incentives, no income tax, proposed no corporate income tax, and some of the lowest real estate prices in 20 years.

Unless we want to hear the unfortunate end of that joke tomorrow, Florida can’t blow this opportunity today…

All the best,

Miguel

The Distressed Asset Trifecta

The Distressed Asset Trifecta: The Epitome of a CRE Distressed Asset
By Miguel de Arcos – Managing Director
Sperry Van Ness Florida
Commercial Real Estate Blog
I recently found myself in the middle of the ultimate testament to the phrase “distressed sale” in today’s market. I call this situation the Distressed Asset Trifecta.

I was having a conversation on distressed assets with a bank President friend of mine. The discussion turned to my firm’s ability to engage in every level of the “Distressed Asset Continuum.” During the discussion it hit me that I was working a deal that not only touched these areas, but it involved all them at one time. Without going into complete deal specifics let me explain the situation. While most reading this blog have probably, at one time or another, listed a multi-tenant building where the anchor tenant was in default of their lease, the Landlord was grossly upside down on the mortgage or not servicing the tenant, the seller was in a borrower default with its bank, or even perhaps even marketing a property in which the Landlord/Seller’s bank was the one in default and in danger of being shut down by the FDIC. We’ve all been there in one form or another right? How about all 3 parties defaulting at once? It was like watching a battle unfold between 3 waring nations and everyone asking me how to emerge victorious.

Well, one of my biggest listing opportunities of 2010 turned into one of my biggest headaches when all 3 happened at once. I sold the subject building as a vacant shell to the current owner for $8,000,000 nearly 2 years prior. Leasing was grossly delayed by the landlord after purchase and then the market turned South. The bank has filed the foreclosure notices, but will not likely take it back for the indefinite future. They do not want to carry this on their books as an REO.

In the interest of full disclosure and protecting the innocent, I will say that the tenant has involuntarily defaulted because the landlord has not met its obligations to the tenant under the lease. But non-performance is a default anyway you look at it….

My primary task has been to sell this multi-tenant asset, but we continue encounter hurdles associated with these defaults. On the surface, this asset is highly desirable and I have run the course with several different suitors only to come to the same result. The sellable choices are:

1. Sell the building to a user: Outstanding loan balance is 300% higher than market will pay(based on multiple offers). Additionally, removing the main tenant to accommodate a user will lead to hundreds of thousands of specialty tenant improvement removal and replacement which is not cost effective
2. Sell the building to an investor: The anchor tenant is not currently paying rent and the other 40% of the building is still vacant in shell condition. With such a high sale price, $1M+/- of tenant improvements, carry and leasing expenses, there leaves no upside.
3. Sell the building to a user or investor as a short sale: The bank agreed that the value was 300% less than the outstanding loan balance, but does not have the capital reserves to write it down to that level without being shut down by the FDIC.

Long story short, we we’re stuck in limbo. No matter what the tenant or landlord do at this point, they can not affect the sale. The practical solution is a severe loan write down by the bank, but as previously mentioned, they are unable to do so with their current financial condition. The REAL SOLUTION to sell this asset, is to wait for the bank to fail! Once they get bought or taken over by a new entity, the cost basis will be adjusted to much lower levels and we can get to work. That sounds callous, but the bank is well aware of their situation and did tell me that “a new entity would probably accept a lower price”, so it’s no surprise to them either.

An unconventional way to sell a property, but it is the epitome of the commercial real estate market we are in! Make sure to hire a distressed asset expert who speaks the right language to help you create and successfully implement a plan of action.

All the best,

Miguel

P.S. – Between the time I started this blog post a while back and now, the bank did fail. I guess my marketing strategy worked(tongue in cheek)!

Miguel de Arcos
www.facebook.com/svnParadigm
www.svnart.com
mdearcos@svn.com