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RCAReport
R E A LT O R S ® C o m m e r c i a l A l l i a n c e
Published by the National Association of REALTORS®
VOL. 9, ISSUE 2 ● SPRING 2008
IN THIS ISSUE
If you have the cash to cover a
Financial fallout:
higher loan to value, there’s still
permanent financing out there.
CHAIR REPORT p. 2
A tale of two markets
Whatever their specialty, more While Wall Street reels from the news for commercial property Since conduits accounted for
unites commercial practitioners credit crisis and big-name devel- owners and commercial practi- approximately two-thirds of all real
than separates them. opers are forced to sell assets they tioners who focus on smaller estate loans, when they become “a
can’t refinance, many Main Street properties. In the world of trophy nonfactor,” you’re bound to see
RCA UPDATE p. 3
CIE ARRIVES lenders remain ready and willing buildings and megadeals, it’s a problems, says John Doan, manag-
NAR acquires ePropertyData to make loans on commercial grimmer story. ing director for Babson Capital
and moves forward toward property. The reason behind this Management Ltd., a member of
launching a truly national com- dichotomy can be summarized in Wall Street woes the MassMutual Financial Group.
mercial real estate listing site.
three words—commercial mort- “The financing world has turned Although a few conduit deals are
A F F I L I AT E S S P O T L I G H T gage-backed securities (CMBS). upside down from a year ago,” says still being done, Doan expects total
IREM celebrates 75 years of For the 28 percent of commercial Kevin Phelen, CRE, president of Col- loans in this category to reach only
serving real estate managers; real estate mortgages that are liers Meredith & Grew in Boston about $100 billion in 2008, com-
CCIM Institute launches a new securitized (according to Goldman and director of CMG’s Capital Mar- pared to $230 billion in 2007. And
series of courses.
Sachs), the credit freeze that began kets Group. In the first half of 2007, with spreads as high as 400 basis
LEGISLATIVE UPDATE p. 4
with failing subprime home mort- conduit loans—which are points over 10-year Treasuries,
TA X E S gages brought lending to a near designed to be syndicated—were conduits have become the lender of
Businesses get a write off and standstill in the second half of up 70 percent over 2006 levels, last resort, says Eric Tupler, vice
bonus depreciation of leasehold 2007. But for the second- and according to Jamie Woodwell, sen- chairman of CBRE Capital Markets.
improvements. third-tier market lenders who sel- ior director of commercial/multi- Another part of the financing
REMICS
dom securitize their commercial family research for the Mortgage problem is that, despite demand,
The IRS is closer to expanding real estate loans, the impact of Bankers Association. In the second other traditional commercial real
operational flexibility for owners CMBS declines—at least thus half of the year, conduit loans were estate lenders aren’t stepping up to
of properties financed through a far—has been minor. That’s good down 30 percent over ’06 levels. See Financial on page 8
conduit.
C O M M E R C I A L L E A D I N G I N D I C AT O R
ENERGY
House extends credit for improv- 125
ing energy efficiency.
CLI slips again as markets slow
Commercial real estate activity will decline moderately
SCORECARD in the months ahead, according to The Commercial
Basel II takes effect; federal Leading Indicator for Brokerage Activity. NAR’s commer-
115
wetlands control expands. cial index slipped 0.4 percent in the fourth quarter of
2007, its second straight quarter of decline. However,
T&I BRIEFING CD p. 5 the index still remains 0.1 point above the results from
Expert insights on Middle East CLI Index fourth quarter 2006. Rising unemployment insurance
105 Activity claims and falling durable goods shipments were the
development, NAR’s new com-
mercial listing platform, and key factors in lowering the CLI. A weaker rate of return
using social media. on investment as measured by the National Association
of Real Estate Investment Trusts Price Index was also a
INDUSTRY UPDATE p. 6 95 factor. The only positive contributors to the index were
Social networking is the next 1990 2007 growth in trade and rising personal income.
new thing, but only a few in The CLI, in red, is a leading indicator. The Activity line, in blue, represents The latest index suggests reduced business opportuni-
actual commercial activity. Decreases in the CLI Index imply upcoming ties for commercial real estate practitioners over the next
commercial real estate are ready decreases in commercial net absorption and commercial construction.
to embrace it, our survey finds. six to nine months.
NATIONAL ASSOCIATION OF REALTORS®
The Voice for Real Estate®
22811_RCA.qxd:RCA08_Issue2_Spring 4/14/08 3:46 PM Page 2
CHAIRReport
Shared goals yield a
stronger commercial voice To contact NAR Commercial Real Estate staff:
888/648-8321. To find an online version of this
newsletter go to REALTOR.org/RCA. For a com-
plete listing of NAR legislative and regulatory ini-
Whatever their specialty, commercial real estate practitioners share many common tiatives, go to REALTOR.org.
goals. We all want to promote and protect the interests and concerns of the com-
NAR President
mercial property industry against incursions by federal, state, and local governments; Richard F. Gaylord, CRS®, CRB, CIPS
to safeguard property rights and the environment while preserving the highest and
NAR Commercial Liaison
best use of land; and to foster education and innovative thinking that will ensure the Cindy Chandler, CCIM, CRE
present and future prosperity of the business. The Chandler Group
The REALTORS® Commercial Alliance provides a unique forum at which commer-
RCA Committee Chair
Patricia Nooney, cial specialists and the NAR affiliates to which they belong can come together. RCA Patricia Nooney, CCIM, CPM®, SIOR
CCIM, CPM®, SIOR can help all commercial practitioners recognize their common interests, find syner- CB Richard Ellis
2008 RCA Chair gies between goals, and pool resources to achieve ever-higher accomplishments. The NAR Vice President,
long-term cooperation between NAR’s Government Affairs division and legislative Commercial Real Estate
Ms. Nooney is a manag- Jan Hope
specialists at NAR’s affiliates is a prime example of how combining forces produces
ing director with the St. a stronger voice for commercial real estate in Washington.
Louis office of CB Richard
Research initiatives such as the Alien Land Ownership Guide, developed in coop-
Ellis, where she is respon-
sible for global outsourc-
eration with the REALTORS® Land Institute, and the coordination between the NAR’s
ing activities. She was CLI statistical index and the Society of Industrial and Office REALTORS®’ diffusion-
2003 president of the based Commercial Real Estate Index have helped all practitioners gain a greater
Institute of Real Estate understanding of the future prospects for commercial real estate. RCA’s support of CCIM Institute (CCIM)
Management. such existing initiatives as the CCIM & IREM Success Series has enabled these organ- 312/321-4460; www.ccim.com
izations to grow and expand an already stellar program.
These shared undertakings are only the beginning. RCA is now actively soliciting
affiliates’ participation in developing a new Tenants in Common (TIC) “tool kit” for
all practitioners working in this active sector. Conversations are also underway
Counselors of Real Estate (CRE)
between RCA and affiliates to develop complementary educational offerings that would 312/329-8427; www.cre.org
expand the knowledge of commercial practitioners at every level of experience.
By recognizing the power and knowledge of the many, we can unite into a more
powerful and successful organization. We have already taken the initial steps toward
a new level of coordination. Moving forward, we can work together to build one
strong voice that speaks loud and clear about a bright future for all the commercial
real estate professionals. Institute of Real Estate Management (CPM)
312/329-6000; www.irem.org
REGISTER TODAY for RCA’s Virtual REALTORS® Land Institute (ALC)
800/441-5263; www.rliland.com
Convention & Tradeshow - June 17 & 18
Network with commercial real estate professionals; listen to presentations from top industry
thought leaders. Visit exhibitor booths offering the latest technology and learning tools ALL from
your desktop when it’s convenient to you! Registration is free and participation enters you into
drawings for prizes like $100 gasoline cards! REGISTER today at www.commercialsource.com Society of Industrial and Office REALTORS® (SIOR)
202/449-8200; www.sior.com
2 R E A LT O R S ® C O M M E R C I A L A L L I A N C E R E P O R T
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RCAUpdate
RECENT HIGHLIGHTS
CommercialSource.com hosts national property listings
RCA’s long-held goal to provide its members with a national, broker-cen- progressive and sophisticated groups in terms of technology,” said NAR
tric commercial property listing service is almost a reality, thanks to NAR’s Senior Vice President Bob Goldberg. “After they introduced us to ePD, it
recent acquisition of ePropertyData, a major provider of commercial became clear that this company had the skills to become the exclusive
information exchange services for the commercial real estate industry. The operator of NAR’s national commercial platform.”
acquisition was made through NAR’s new for-profit subsidiary, Second The new listings and transaction platform will be located at Commer-
Century Ventures LLC, a strategic private equity fund created to support cialSource.com, which NAR’s commercial real estate division expects to
new technologies that will benefit NAR members. become the primary source for all commercial real estate information on
“This national listings and transactions platform will give our commer- the Internet. Members may elect to have their listings aggregated through
cial members national exposure for all their sale and lease listings and their local CIE. Members who do not currently participate in a CIE may
provide the industry with an excellent and trusted resource to search for choose to post their listings directly through ePD’s Web site.
properties across the country,” said NAR President Dick Gaylord. There is no charge for NAR members to upload listings, although
ePD, based in Gig Harbor, Wash., operates two of the largest CIEs in the members can supplement the listings with additional features for a fee.
country: Commercial MLS.com, which serves the 4,500-member Com- Ultimately, millions of viewers will see the listings. Technical and product-
mercial Brokers Association in Seattle, and CommercialGateway.com, related issues will be managed by ePD.
which serves the 2,000-member commercial division of the Houston Asso- For information on creating a local CIE or aggregating data to NAR’s new
ciation of REALTORS®. commercial listing site, call Jeff Hornberger at 888-648-8321, ext. 5971
“For several years, we’ve seen Seattle and Houston as two of the most or visit www.commercialsource.com. Hear more on the enclosed CD.
AFFILIATES SPOTLIGHT
IREM celebrates 75 years of support Your Story” project, which lets
members create an informal his-
for management professionals tory of the Institute and its mem-
bers by submitting comments at
For 75 years, the Institute of Real the Institute’s 80 U.S. and eight The REALTORS® Commercial the association’s Web site,
Estate Management and its mem- international chapters will hold Alliance, along with Yardi Systems, www.irem.org/75th. The year-
bers have led the way in transform- special activities for members and is a major sponsor of the anniver- long observance will culminate
ing real estate management into a other constituencies, including sary celebration. “RCA has played with the 75th Anniversary Celebra-
highly valued profession. To mark fundraisers for local charities, a key role in identifying and fram- tion and Inaugural Gala at IREM’s
this milestone, the 18,000 individ- banquets recognizing past and ing the challenges facing commer- 2008 Fall Meetings, to be held Oct.
ual and 505 corporate members of present IREM leaders, and joint cial real estate. We are delighted to 14 to 16 at the Hilton Chicago
this NAR affiliate are holding a educational offerings with industry have RCA on board as a sponsor,” hotel. The Hilton’s site was previ-
year-long 75th anniversary party. peer groups. Mayors and gover- said IREM 2008 President Regina ously occupied by the Stevens
Among the highlights of the cele- nors across the nation will also T. Mullins, CPM®. Hotel, where IREM’s founders
bration is “IREM Week,” June 1 issue proclamations that week Ongoing events through the year gathered in 1933 to launch the
to 7, 2008. During IREM Week, praising IREM’s accomplishments. include the association’s “Share organization and sign its charter.
CCIM Institute launches nondesignation courses Robert L. Ward, CCIM, a long-time
CCIM Institute senior instructor
The CCIM Institute, through the Excel. Other class topics include ness knowledge. The courses also and 1978 national president, who
Robert L. Ward Center for Real feasibility analysis for investors and provide CCIM designees as well as played an active role in the devel-
Estate Studies, is now presenting developers and strategic planning all commercial practitioners with opment of the program’s course
specialized, nondesignation courses for commercial brokers. timely and relevant education that content. For registration and more
on subjects ranging from negotia- A driving force behind the launch allows them to keep pace with a information, contact Jim Van Dellen
tions and cost segregation to real is to give CCIM members additional changing industry. at 312-321-4465 or jvandellen@
estate applications using Microsoft’s opportunities to grow their busi- The program was named after cciminstitute.com.
w w w. R E A LT O R . o r g / r c a SPRING 2008 3
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LEGISLATIVEUpdate
TA X E S
Economic stimulus a mixed bag
Commercial real estate scored some victories and took some hits in the tion for the cost of leasehold improvements and certain other equipment.
Economic Stimulus Package passed by Congress this winter. Two tax provi- The provision is effective for improvements placed in service during 2008.
sions will provide benefits to small business owners. The first permits a Improvements placed in service during 2009 will be eligible for the bonus
business to deduct as much as $250,000 of the cost of otherwise depre- deduction, but only if they are made pursuant to a contract entered into in
ciable property as an expense. This expensing provision applies to property 2008. One big tax benefit for commercial property owners that didn’t make
acquired and placed in service during 2008. the cut was the 15-year cost recovery period for leasehold improvements,
A second provision will provide a 50 percent bonus depreciation deduc- which expired at the end of 2007.
REMICS property serving as collateral must be at least 80 percent of the loan
amount. A loan may also be changed from recourse to nonrecourse status
IRS considers REMIC rule change as long as the property remains the principal collateral.
The Internal Revenue Service is assessing whether to change rules that gov- In response to the IRS proposal, NAR and its industry partners sent
ern the administration of loans securitized in real estate mortgage invest- another comment letter on February 7, 2008, outlining their concerns.
ment conduits (REMICs). Under current REMIC rules, property owners are Most of these concerns focused on the administration of REMICs. The
restricted in how they manage and modify their properties. Such limitations coalition seeks further clarification and requests additional exceptions
prevent these borrowers from undertaking changes that would help attract for issues commonly related to loan modification.
tenants and respond to market trends.
NAR has joined an industry coalition that includes the Mortgage Bankers ENERGY
Association, the Real Estate Roundtable, and other industry groups to urge
the IRS to modify the REMIC rules and allow common modifications to Energy credit extension clears House
properties so long as the basic terms of the securitized loan do not change. The Renewable Energy and Energy Conservation Tax Act of 2008 (H.R.
The suggested modifications to the REMIC rules will give property owners 5351), which would extend the tax incentives for improving energy effi-
greater flexibility in managing their properties, provide more opportunities ciency in commercial buildings through 2013, passed the House in late
for commercial real estate practitioners to place tenants in buildings with February. The previous provisions, which gave commercial property own-
securitized mortgages, and strengthen the flow of capital to commercial ers credits of up to $2.25 per square foot for reducing energy consump-
real estate by making securitization more attractive. tion, expired at the end of 2007.
On November 9, 2007, the IRS issued its proposed regulations related to The bill also extends the credit for energy-efficient retrofits to existing res-
REMIC rules. Under these proposed rules, property owners with loans held idential homes through 2014. Lastly, it allows a five-year recovery period
in REMIC could release, substitute, add, or alter the collateral on a loan, for the depreciation of qualified energy management devices. Similar legis-
provided that the loan was “principally secured by an interest in real prop- lation has not been introduced in the Senate. The bill passed largely along
erty.” To meet this “principally secured” test, the fair market value of the party lines, which indicates that passage in the Senate will be difficult.
4 R E A LT O R S ® C O M M E R C I A L A L L I A N C E R E P O R T
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LEGAL
SCORECARD
On zoning, it’s caveat emptor BASEL II ACCORDS
A Massachusetts appellate court has ruled that a brokerage was not liable Creates a standardized approach for banks to estimate risk, but
under the state’s unfair trade practices law for failing to verify the zoning of considers all commercial real estate loans a higher risk.
a property it listed for sale. In the case, a buyer purchased a building, Last action: The regulation, which will affect only the largest
which he planned to convert into three residential units. As he prepared to banks in the U.S., went into effect April 1, 2008, and will be
apply for the necessary zoning permit, he discovered a 20-year-old deci- implemented over a three-year transition period.
sion by the zoning board approving the conversion of the property to three Status: Concerns that Basel II would place large institutions at
separate units. Deciding he didn’t need another zoning variance, he with- a competitive disadvantage and lower the availability of capital
drew his request to the zoning board and converted the property to three for lending have been lessened by the announcement by federal
units. Three years later, the owner listed the now-converted property with banking agencies that a comparable regulation will be issued
a brokerage company. The salesperson inspected the property and for smaller banks later this year.
obtained the tax records, which showed the property was taxed as a four-
unit residence. The brokerage marketed the property as a three-unit resi- WETLANDS DEVELOPMENT
dence. The property was purchased and used for several years as a three- Would give the Environmental Protection Agency and the U.S.
family residence. However, when the second set of buyers listed the Army Corps of Engineers additional regulatory authority to fur-
property, the tentative purchase agreement fell through when the prospec- ther restrict development along the nation’s waterways based
upon draft guidelines issued following Rapanos v. U.S.
tive buyers discovered that the property needed a zoning variance.
Because of their zoning problems, the owners decided to sue the prop- Last actions: NAR issued comments stating the draft guidelines
erty’s previous owners for breach of contract and misrepresentation. They misinterpreted the Court’s decision, would not result in cleaner
water, and would erode economic development in communities
also sued the brokerage involved in their purchase for breach of the
near affected waterways. On the legislative front, the proposed
state’s unfair or deceptive trade practices act. A trial judge ruled that
Clean Water Restoration Act (H.R. 2421) would remove the term
although the brokerage had not willingly misled the buyers, it should have “navigable” from the Clean Water Act, thereby significantly
confirmed the zoning status of the property. On appeal, the court reversed expanding EPA and USACE authority over waterways.
this ruling, stating that a real estate professional has no duty to investigate
Status: Several congressional hearings have been held on wet-
a property’s zoning. lands issues, but neither H.R. 2421 nor a companion Senate
To read more, go to www.realtor.org/letterlw.nsf/pages/0208quinlan. bill, S. 1870, is moving forward legislatively at present.
ADA applies to Web
Failing to make your real estate brokerage Web site accessible to people T&I BRIEFING
with disabilities can land you in hot water. A recent ruling by a federal court A preview of your enclosed T&I Briefing CD.
determined that a lawsuit brought against Target Corp. for failing to make
its site accessible to blind visitors could be classified as a class action suit.
JIM YOUNG is the founder and CEO of Realcomm, an organiza-
In the case, the National Federation of the Blind charged Target with viola-
tion dedicated to expanding the connections between technology
tion of the Americans with Disabilities Act requirement to make places of
and commercial real estate. In addition to a wide variety of semi-
public accommodation, such as retail stores, libraries, and real estate sales
nars, Realcomm sponsors regular tours to explore the cutting edge
offices, accessible to the disabled. By failing to include code on its Web site
use of technology in foreign and domestic real estate markets.
that could be read by screen reader software for the blind, Target allegedly
made it impossible for legally blind individuals to locate and enjoy its retail JAMES MARRELLI is vice president of Second Century Ven-
stores. In its ruling, the court found that legally blind individuals in the U.S. tures, a wholly owned subsidiary of NAR. He is also the COO
who had attempted to access the Web site constituted a class for the pur- of ePropertyData, which will develop NAR’s national commercial
poses of the suit. The court also determined that the NFB had standing to property listing platform, part of the CommercialSource Web site.
bring a class action suit since it had sufficiently demonstrated that the Web
ALLAN BENSON is CIO of ePropertyData and one of its
site’s inaccessibility posed a possible level of harm to its members and that
founders. This commercial information exchange provider cur-
protecting the interest of those members was part of the NFB’s mission.
rently operates two of the country’s largest commercial property
Classifying the case as a class action suit is significant because it greatly
listing platforms.
increases the potential fines a plaintiff might face. Although the court has
not yet decided the underlying merit of NFB’s allegations, an earlier ruling BEN MARTIN, CAE, is director of communications and new
in the case on a motion to dismiss had stated that ADA violations could media, Virginia Association of REALTORS®. He teaches execu-
occur on a Web site if the site interfered with a disabled person’s ability to tives about the customs and languages of the virtual world and
enjoy and access facilities of public accommodation. how to deliver value through social media applications, such as
To read more, go to www.realtor.org/letterlw.nsf/pages/1107nfb2. blogs, wikis, and podcasts.
w w w. R E A LT O R . o r g / r c a SPRING 2008 5
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INDUSTRYUpdate
Client building, Internet style
Commercial real estate and online is that, online, you can “ask ques- doing. It streamlines the whole working platform that will allow all
social media sites such as LinkedIn tions in a natural and unobtrusive contact process,” he says. members of the commercial real
and Facebook seem made for each way, without the awkwardness of NAI Global, a commercial real estate community to share ideas on
other. These sites, which enable calling up someone you may not estate company long known as an broad-based issues such as sus-
users to stay in touch with contacts have spoken with in a year,” says industry technology leader, already tainability.
easily and update them on recent Sardinas, who has used business has a proprietary transaction man- Brian Tapp, a broker with NAI in
business and personal activities networking site LinkedIn for about agement platform that allows bro- Knoxville, Tenn., is part of a new
with one posting, seem perfectly two years. kers and clients to collaborate. Facebook group for industrial bro-
suited to an industry that still relies Online social networking pro- Recently, however, the company kers set up by NAI Global and is
primarily on personal connections vides “an expedient way to build began encouraging its brokers to finding it a great way to share ideas
to find clients, investors, and relationships,” agrees Jason Silfies, use both Facebook and LinkedIn as and deals. Tapp also networks
tenants. vice president, marketing & tech- additional ways to reach out and through LinkedIn, spending about
So far, this seemingly perfect nology, Coldwell Banker Commer- collaborate, says NAI Global Presi- 30 minutes a day updating his pro-
match is getting about as much cial. The franchise launched a new dent and CEO Jeffrey Finn. “Funda- file and responding to questions
enthusiasm as an appointment intranet, dubbed Bluprint, in Janu- mentally our company is already a on the network. He’s recently
with the dentist. A recent RCA sur- ary to encourage just such interac- large social network of 8,000; we added testimonials to his online
vey of members and other com- tion among its 4,000 commercial wanted to take the next step and profile, which he believes will
mercial professionals found that practitioners and staff. put the network on steroids,” he make it seem “more dynamic.”
71 percent had never used any “Our industry is best known as a says. In the future, NAI plans to Blogging on ActiveRain and other
form of electronic social network- relationship business. I see elec- launch a customized social net- sites is a major marketing strategy
ing to build their contacts or stay tronic social media contact
in touch with the ones they have. between peers as a way to boost Who uses what
Are they missing the boat? that networking,” says Silfies. Respondents to the RCA survey who use networking Web sites for
Mark Inman, a broker with Cold- business favored the following.
Do you need it? well Banker Commercial TEC Site Percentage who use
“Yes,” says Ben Sardinas, a broker REALTORS® in New Orleans, is an
LinkedIn 36
with Health Care Real Estate Serv- early Bluprint adopter who’s also
ices in Coral Gables, Fla. “Social used LinkedIn and Facebook. CommercialSource chat room 18
networking is an increasingly pow- “Electronic social networking MySpace 16
erful tool in professional life. It doesn’t replace face to face, but it’s Facebook 14
allows you to put yourself out there another way to stay in touch and to ActiveRain 14
and let people know what projects get a glimpse of what people you
you’re working on.” Another plus haven’t talked to in a while are
6 R E A LT O R S ® C O M M E R C I A L A L L I A N C E R E P O R T
22811_RCA.qxd:RCA08_Issue2_Spring 4/14/08 3:46 PM Page 7
76%
Drop in office investment volume in Q1 ‘08 from Q1 ‘07.
for commercial broker Sheryl venture project to construct a NAR Research
Smith, CCIM, of Smith Real Estate medical village in Broward County,
Services in Sacramento, Calif. Fla., through a social network con- social media space. For example, Sardinas spends some three
“I see blogging and social media tact. Farther north, Sprayberry has while there were some 33,000 hours a week, primarily adding
as a way to establish credibility and already located one retail tenant residential real estate practitioners updates to his LinkedIn profile.
to educate new investors and resi- that took 2,500 square feet on a with profiles on ActiveRain in Feb- Once a month, he also works on
dential real estate practitioners five-year lease thanks to his profile ruary 2007, there were only some growing his contacts, which now
about commercial real estate,” she on ActiveRain. 500 practitioners who listed them- encompass some 135 people
says. “After people have read the “I believe that electronic media selves under the commercial head- directly and perhaps 125,000
blog for a while, they feel as if they are a great way for a boutique com- ing. The biggest hurdle, at least through contacts of contacts
know me even before they make pany like ours to reach smaller based on the interviews for this (called degrees of separation on
contact.” Smith’s latest strategy is space users and investors, a niche article, is time. To really post three the site). Besides inviting contacts
blogging about communities near often underserved by larger bro- or so thoughtful blog pieces a week he makes in other ways to join the
her properties to better acquaint kerages,” says James Iodice, vice as well as respond to questions on network, he regularly watches for
buyers with the area. president, brokerage, at Skyline other blogs can take six to ten LinkedIn members with lots of
A big benefit for finding clients is Property Group in Troy, Mich. hours a week and require months contact activity and invites them to
that a listing in ActiveRain or While closing deals remains the before you see a concrete result, link up with him.
another social networking site main reason most commercial real says Jim Cronin, a blogging con- One strategy he finds effective is
often pushes your contact informa- estate practitioners use social sultant and author who heads up not limiting his contacts to those in
tion high up in search engine media, it isn’t the only benefit. the Real Estate Tomato. real estate. “I include people I
results, says Jay Sprayberry of Cold- used to work with in technology
well Banker Commercial Trade- consulting, bankers, and hospital
mark Properties in Raleigh, N.C. Tips for successful social networking administrators.” Having people
And because most commercial Jim Cronin, president of Real Estate Tomato, shares his with different backgrounds gives
brokers don’t take the time do suggestions for social media success. him access to a broader spectrum
social networking, “It’s a great way ■ Pick an audience and write for it. Don’t try to spread yourself of people and a greater chance of
for a new person to get started,” too thin or you’ll serve no one well. touching someone interested in a
says the 27-year-old broker. particular project, he says.
■ Keep it conversational. You can be businesslike, but still
“Social media are a wonderful Lau, whose LinkedIn contacts
keep your tone friendly and informal.
way to cultivate contacts, but ulti- number some 700, encourages all
mately success still depends on ■ Be consistent. Keep it up for at least a year. business associates he meets to join
moving potential clients to a face- ■ Keep paragraphs short and snappy. You’re not writing a LinkedIn, even if they aren’t inter-
to-face meeting,” says Stephen B. novel—or a grammar book. ested in using the site themselves. “I
Lau, a commercial associate with ■ Add pictures if you can. Show new properties in your tell them that LinkedIn can serve as
Barclay Street Commercial Real community to illustrate a post. a portable Rolodex; two years from
Estate in Edmonton, Alb., Canada. now, if you want to find me or want
In addition to LinkedIn, Lau partic- to search for a commercial real
ipates almost daily in several busi- Gabriel Silverstein, SIOR, e-Pro®, “It’s really, really hard work, estate broker, you can do it using
ness networking sites, including who posts sporadically on Active- which is why most people don’t LinkedIn’s database,” he says. Lau
Plaxo and Naymz.com. He finds Rain, found an employee through stick with it.” Even updating your also uses a creative strategy to
that he gets his best search engine the site after launching his own profile on LinkedIn, adding new expand his LinkedIn network. He
results from Naymz, a business- company, Angelic Real Estate, in contacts, and policing your profile hosts a live networking event each
oriented site that not only allows 2006. He’s also made contact with for inappropriate links can take a month exclusively for LinkedIn par-
users to post profiles, but gives “several interesting brokers who couple of hours a week, he says. ticipants. Bringing a new contact is
each user a “RepScore” based in found me and may offer opportu- Iodice, who considers electronic the price of admission.
part on references from other site nities in the future,” he says. networking central to his market- Ultimately, the key to success in
registrations. ing plan, spends about 30 minutes social networking, like any other
How to make it work every other day blogging and form of marketing, is persistence
Does it pay? Despite the fact that some 59 per- responding to questions from and repetition, says Sardinas. “You
While it may take a while for online cent of those responding to the RCA peers and consumers. Yet he have to work it over and over
networking to translate into actual survey felt that social networking admits that he dropped offline for again, and it has to be fun. But if
business—as it does with face-to- was at least “somewhat valuable,” several months last year for health you enjoy it, social networking is a
face contacts—Sardinas’s com- commercial real estate is still reasons and is just beginning to great way to keep in touch and stay
pany became involved in a joint underrepresented in the online ramp up again. at the top of everyone’s mind.”
w w w. R E A LT O R . o r g / r c a SPRING 2008 7
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Financial
Continued from page 1 2007 Commercial mortgage originations
fill the void. According to MBA Percentage change over 2007, showing a total drop of 11 percent liquidity to return to the financial
data, only government-sponsored in the second half. system by the second half of 2008,
enterprises Fannie Mae and Fred- 70% 2007 - 2nd half even if loan underwriting remains
49%
die Mac increased their commer- 2007 - 1st half fairly conservative. “In 12 to 24
cial loan originations in the second 17% months, when the write-downs have
half of 2007. Life insurance compa- -30% -15% -12% -4% -1% been taken, a functioning conduit
nies allocated approximately $60 market will emerge,” says Dan
billion to commercial loans in Wald, managing director, NAI BT
2007 and will probably allocate Conduits Commercial banks Life companies Fannie/Freddie Commercial, San Francisco.
about the same amount for 2008, Source: Mortgage Bankers Association Whether that recovery will be
says Doan. Although commercial enough to prevent serious deterio-
real estate lending has become lending with as little as 10 percent kept rates and terms attractive, he ration in commercial property
more profitable thanks to the rise down to borrowers with good notes. He has seen more emphasis prices and demand fundamentals is
in CMBS spreads, insurance com- credit, providing that the building on personal guarantees of loans, a harder question. Commercial
panies can still earn more from will produce sufficient cash flow to but “there’s no lack of capital if you property prices have already
investments such as AAA CMBS cover the debt. have good relationships with retreated from summer highs, and
paper than from permanent mort- Buyers who intend to use prop- lenders,” he says. And despite a most experts anticipate that prices
gages, he explains. erty for a business and need to bor- January 2008 Federal Reserve sur- will decline 10 percent to 15 per-
Even where funds are available row under $1 million can still get vey of senior loan officers at U.S. cent before the market hits bottom.
from life insurance companies, very favorable rates with loans banks, which found that 80 percent Some, like Goldman Sachs, predict
borrowers with maturing conduit guaranteed by the Small Business had increased their underwriting price falls in the 25 percent range.
loans may find that life insurance Administration, advises Bill Davies, requirements on commercial loans But commercial markets aren’t
companies’ demand for higher a former commercial real estate in the last three months, Schenk faced with a serious oversupply of
institutional-grade properties cuts broker who now works as a com- says “we haven’t found that local product, which should prevent the
off that avenue to refinancing. mercial mortgage specialist for banks in our area have significantly “meltdown of the early 1990s when
These conservative real estate Acceptance Capital Mortgage Corp. increased underwriting require- buildings were worth less than their
lenders are now requiring loan-to- Greg Schenk, SIOR, of the Schenk ments, although they are looking a debt,” says Wald.
value ratios of 70 percent or even Co. in Columbus, Ohio, is also find- little harder at appraisals since Others aren’t quite as certain.
60 percent, with spreads in the ing lenders willing to write perma- commercial real estate price appre- “Loans that were made between
range of 240 to 260 basis points nent mortgages for commercial ciations have slowed.” 2003 and 2006 will be resetting
over 10-year Treasuries (in late borrowers with experience and beginning in 2008, and there’s a
February), says Jerry Monash, viable pro formas. Schenk is seeing Funding going forward risk that the cash flows to cover the
executive director of investment some loans quoted at 5.7 percent It’s this concern about the extent to debt service won’t necessarily be
services for NAI Global. for a five-year fixed loan. Fierce which the financial crisis will affect there, especially if the economy
competition for business among the commercial prices and demand slows further,” says Monash.
Main Street money growing number of local banks has that remains the greater worry for The risk may be even greater in
But if megaborrowers are strug- helped make these lenders more many commercial practitioners. 2010 or 2011, says Tupler. “Borrow-
gling, local and community banks willing to provide financing and Most of those we interviewed expect ers with interest-only loans should
in second- and third-tier markets be able to cover debt service today
still seem ready and willing to even if fundamentals shift. It’s when
finance sound commercial proper- Get clients the money these loans mature and need to be
ties priced below $10 million. Got clients who need to borrow now? Share these tips from Bill Davies refinanced that you face the real
Unlike larger lenders, community of Acceptance Capital, Murphys, Calif., to get the loans they need. risk if there’s not liquidity,” he says.
banks seldom securitize commer- ■ Bring equity. You can’t expect to get a permanent loan without at For now, leveraged buyers without
cial real estate loans and thus have least 25 percent down. equity capital and sound pro for-
dodged most of the fallout from mas are being pushed to the side-
CMBS. ■ Don’t base your pro forma on rent bumps. With threats of a lines, but the many owners “sitting
“Credit is available and afford- recession, cash flow projections need to be based on facts, not hopes. on good capitalization will ride out
able. With low interest rates, it’s a ■ Look for a lender that fits your niche. A company that special- the storm,” says Tupler. For those
great time to borrow,” says com- izes in your loan size and property type will often be more receptive. who must sell, he notes, there’s still
mercial practitioner and mortgage a lot of capital out there among
broker Manny Jemente of Cham- ■ Talk to the lender before you make the offer. Know what your REITs, pension funds, and foreign
pion Lending Group in El Paso. client will be able to borrow to avoid deals falling through. investors, and they’re looking for
Lenders in El Paso, he notes, are opportunities.
8 R E A LT O R S ® C O M M E R C I A L A L L I A N C E R E P O R T