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									                          COMMERCIAL REAL ESTATE BASICS

                           STATE CONVENTION

Presented By:                                                                    October 19, 2009

Mr. Robert J. Nahigian, FRICS, SIOR, CRE                                         MAR State Convention
Auburndale Realty Co.                                                            The DCU Center
P.O. Box 66125                                                                   Worcester, Mass.
335 Auburn Street
Newton, Massachusetts 02466

Tele: 617-332-6900
Fax: 617-965-2570
E-Mail: Rob@siorcre.com

Any reproduction or use of this material without the expressed written consent of Robert J. Nahigian or his legal
counsel is strictly prohibited.
                                      STATEMENT OF QUALIFICATIONS


Robert J. Nahigian, FRICS, SIOR, CRE has thirty-seven years of real estate experience with twenty-eight years
exclusively in commercial and industrial as a developer, advisor, expert witness and broker of approximately $4.7
billion of real estate totaling 37 million square feet. He has served as a real estate mediator and arbitrator. Rob is the
national recipient of the “2009 James Felt Creative Counseling Award”; was awarded by Boston’s Commercial
Brokers Association the “2005, 2004 and 2003 Advisory Assignment of the Year”; “2001 Industrial Deal of The
Year” and “Distinguished Achievements in Commercial Leasing”. He was nominated as “2003 Boston’s
Commercial Broker of the Year” and was honored by Banker & Tradesman as “Top 125 Business Leaders in
Massachusetts”. He was featured by various publications as “Movers and Shakers of Real Estate”; “People to Watch
in New England Real Estate”; “Who’s Who in New England Real Estate”; “Who’s Who in the East”; “Who’s Who
in America” and “Who’s Who in Residential and Commercial Real Estate”. He was appointed by the Governor to
the Mass Highway Real Estate Review Board and was elected to the Board of Advisors of an AMEX listed real
estate investment firm (NERA).

Mr. Nahigian is currently, Principal of Auburndale Realty Co. He provides brokerage/advisory and expert witness
services to public agencies, investment portfolio groups and corporations in New England, Missouri, Ohio,
California and Florida. Formerly, Mr. Nahigian was Director, Office/Industrial Division of The Robbins Group in
Cambridge, Massachusetts with office/industrial responsibilities in New England. Previous he was Vice-President of
The Norwood Group in Burlington, Massachusetts specializing on build-to-suits/speculative developments. He was a
City Planner in Bowie, Maryland; a planner with Perkins & Will, New York City and a junior planner with the
Bethlehem (Pa.) Redevelopment Authority.

He serves (d) on the faculty of Boston University/MAR/SIOR and CB Richard Ellis and has lectured at; Harvard,
MIT, Northeastern, Rutgers, Lehigh and DePaul Universities. Mr. Nahigian is an invited speaker in the United
States, Canada, Mexico, South America and Europe by Fiabci, Colliers, CoStar, NAI, ONCOR, CoreNet, CCIM,
NAIOP, CRE, AMPI, Latin American Real Estate Conference and other realtor associations. Mr. Nahigian has co-
authored four real estate books, over 300 professional articles and has developed over 100 realtor association

With SIOR, Mr. Nahigian serves as the National VC, Training&Development and was National Faculty Chair; New
England Chapter President, National Co-Chair, 2001 Boston Convention; National Budget & Finance Committee;
Nominating Committee; National Committee VP; National Education/Instructor Committee Chair; NE Regional
Vice-President; Executive Committee; National Board of Directors; and EdFund (ex officio). He was awarded the
2004/2003/2002/1994 SIOR National Instructor of the Year.

Mr. Nahigian received his BA from Lehigh University and a Masters in Urban Planning from Columbia University.
He has earned the FRICS, SIOR and CRE accreditations and elected to LAI. Rob serves as the CRE New
England/NY Chapter President; served as the CRE National Chair, Public Relations Committee and on the National
Board of Directors. He serves (d) on MAR/GBREB Committees; Govt. Affairs and Education Curriculum.
                                                                                                     Page 3


This module qualifies towards two points for Massachusetts real estate agent license renewal with a
Massachusetts real estate approved school and instructor. Do not rely on the accuracies of any of the
information provided. The author, the sponsor and the instructor cannot be responsible for errors in
the preparation of the materials, nor the presentation of the same. The program is for educational
purposes only and neither the author, the sponsor nor the instructor are providing advice, legal or
otherwise which would be dependent on the facts and circumstances of any particular situation. The
student should contact professionals, legal counsel or experts on updates, corrections or revisions on
any information provided herein.

As a further disclaimer, any names or information should not be relied upon for professional or legal
purposes or to aid in a business decision in real estate or any other field. The material presented may
be inaccurate or may be improper for any business decision. Some examples in this presentation are
good examples of practices that would be better to avoid.

Two-Hour Module

01. Defining Commercial Real Estate

02. Needs of the Commercial Real Estate

03. Criteria and Concerns in making Commercial Real Estate Decisions

 Course Objective

The course is directed to the beginning residential and/or commercial real estate broker to help
understand the differences between residential and commercial real estate leasing and sales.
This course is an overview to the real estate broker that exposes him/her to various types of
commercial properties, explore how tenants evaluate real estate and to identify valuation methods.
                                                                      Page 4


1. “SIOR Professional Report”
   “Strategies in Tenant Representation”
   “Mastering Office Leasing”
   “Comparative Statistics”
   Society of Industrial and Office Realtors
   1201 NY Avenue, NW, Suite 350
   Washington, DC 20005
   (202) 449-8200

2. “Directory of Corporate Real Estate Managers”
   “Crittenden Directory Retail Space Users”
   “Crittenden Directory of Investors”
   “Crittenden Retail Space News”
   Crittenden Publishing Co.
   P.O. Box 1150
   Novato, CA 94948
   (800) 421-3483

3. “Massachusetts Commercial Real Estate Resource Guide”
   New England Real Estate Journal
   P.O. Box 55
   Accord, Mass. 02018
   (781) 878- 4540

4. “Marketing Office and Industrial Parks”
   National Association of Office and Industrial Properties (NAIOP)
   Woodlands Park, 2201 Cooperative Way, 3rd Floor
   Hernon, VA 20171-3034
   (703) 904-7100

5. The Warren Group
   Bankers & Tradesman
   280 Summer Street
   Boston, Mass. 02210-1131
   (617) 428–5100
                                                       Page 5

6. Commercial Property News
   770 Broadway, 4th Floor
   NYC, NY 10003
   (646) 654-5380

7. NAR Commercial
   National Association of Realtors
   430 North Michigan Avenue
   Chicago, IL 60611-4087
   (800) 874-6500

8. Building Owners and Managers Association (BOMA)
   Commercial Brokers Association (CBA)
   Greater Boston Real Estate Board
   11 Beacon Street, 1st Floor
   Boston, Mass. 02110
   (617) 432-8700

9. Certified Commercial Investment Member (CCIM)
   430 North Michigan Avenue
   Suite 800
   Chicago, Illinois 60611-4092
   (312) 321-4460

10. International Council of Shopping Centers (ICSC)
    P.O. Box 26958
    NYC, NY 10087-6958
    (646) 728-3800
                                                                                               Page 6


     Learning The Terminology and Techniques

     A.       It’s a New Language. Learning the “Lingo”

             What is a Square Foot? In England, Square Meter
             West Coast tends to quote on a monthly basis
             Many countries have different methods and rules on commercial leasing
             CAF, CAM, PSF, triple net, etc.

     B.       Commercial Real Estate Publications and Organizations

               2007: Approximately 3.4 million total real estate licensees in US
               2008: NAR has approximately 1.3 million members
               2006: Massachusetts has 83,294 real estate licensees
               2002: Approximately 750,000 US people employed in commercial real estate of which
                120,000 are commercial brokers.
               SIOR, CCIM, CRE, ULI, NAIOP, ICSC, CoreNet
               NEREJ, Banker & Tradesman, Boston Business Journal, etc.
               NAR Commercial

     C.       National Realtors Library, Chicago, IL

                 www.realtor.org
                 Great research available on any real estate topic

     D.       Marketing Sessions

                 “Haves and Wants” of brokers in your market
                 Monthly Commercial-Investment Division meetings
                 Chamber of Commerce

     E.             Defining Commercial Real Estate
                                                                                      Page 7

                           COMMERCIAL REAL ESTATE

RESIDENTIAL                       INDUSTRIAL
                                     DUSTRIAL                         COMMERCIAL
   Rental Houses          * Heavy & Light Manufacturing      * Office Buildings
   Rental Condos          * Warehouse                        * Shopping Centers
   Duplexes                                                  * Single Purpose
                                                              * Hotels/Motels
                                                              * Rest Homes
                                                              * Net Leased
                                                              * Government Occupied
                                                              * Parking Lots

              LAND                                    USER-PROPERTIES

       Farms & Ranches                         * Manufacturing
       Recreation Land                         * Restaurants
       Subdivision Land                        * Home or District Office Buildings
       Development Land                        * Banks
       Raw Acreage                             * Car Dealers
                                                * Theatres
                                                * Real Estate Office
                                                * Office Condominiums
                                                                                    Page 8

F.      Having a Property Contact Listing Sheet or Site Selection Criteria

General Information

    Type of Property: Ind, Com, Office, Other           * Ceiling Height
    Location; Street, City, State                       * Office Area______
                                                         * Toilet Facilities
    Asking Price for Sale
    Quoted Lease Rate PSF, annually              Taxes
    Gross $____ Net $ _____                      * Total Annual Taxes_____
                                                  * Taxes PSF
    Lot Size                                     * Land Assessment
    Zoning                                       * Building Assessment
    Gas Service                                  * Total Assessment
    Rail Service                                 * Town Tax Rate
    Water Service
    Sewer or Septic Service                      Other Information

    Parking Spaces: cars/1,000sf                 * CAM (common area maintenance)
    Street Frontage                              * Age of Building
    Traffic Count                                * Former Use
                                                  * Existing Tenant
    Roofing Type                                 * Former Tenant
    Flooring Type                                * Carpet
    Elec. Power: Volts, Amps, Phase              * Tenant Improvement Allowance
                                                  * Name of Owner
Structure Information                             * Minimum Size/Unit
                                                  * Name of Property Manager
    Total SF                                     * Date of First Contact
    Available Space                              * Name of Representing Broker
    # of Floors
    # of Buildings                               Signage
    Plant Dimensions
    Loading Docks                                * Size
    Drive-In Ramps                               * By rights or permit
    Column Spacing                               * Height restrictions
    Elevator Capacity                            * Number allowed and where
    Type of Heat                                 * Illuminated?
    Type of AC and Capacity
    Type of Lighting
    Type of Sprinklers
                                                                                 Page 9

      A.   Know Your Geographical Market

      B.   Research is focused on Lessee’s Site Selection Criteria Needs:

           1.       Planning

                   Traffic Patterns
                   Street Flow
                   Pending Road Changes/Construction

           2.       Water, Sewer, Septic, Utilities, Rail Service Availability

                   Moratoriums
                   Utilities, Building Permits, Etc.
                   Gas Service
                   Electric Service
                   Rail Service
                   Public sewer vs. private septic
                   T1 line/DSL/Verizon connection
                   T5, T8 Lighting

           3.       Employee Work Base

                       Availability and Cost of Labor
                       Tight Labor market in Massachusetts

           4.       Housing Availability

                       Is there an adequate supply for new workers?
                       Vacancy Rates and Cost
                       Are housing costs affordable?
                       Rental v. Purchase

           5.       Transportation

                       Highway Access
                       Proximity to Market Place and Suppliers
                       Traffic Counts
                                                                                          Page 10
        6.        Town/Public Attitude Toward Commercial Growth

                     Snob or desirable Attitude?
                     Town Economic Development Office
                     Town Hall Web site/Town Cable
                     MassDevelopment Financing
                     SBA Financing
                     Local Chamber of Commerce
                     State and/or local tax incentives for job creation: TIF

        7.        Signage Availability and Size

        8.        Demographics, Population Trends

        9.        Developments Planned in the Area

        10.       Inventory All Commercial Listings in Your Market Area by Type,
                  Size and Location: Broker Due Diligence

                 Print Media: NEREJ, Boston Sunday Globe, etc.
                 Broker Open Receptions
                 Signage
                 CoStar
                 LoopNet, DealMaker, Craigslist, OfficeSeeker, MyNextDeal.com; NAR.com
                 Read, attend seminars, talk with competitors

C. Lessee/Lessor Mutual Needs

I.      How Needs Differ for Owners v. Tenants

    First Recognize that Real Estate Is:

a.      A Physical Asset
b.      A Financial Asset
c.      Therefore everyone’s needs for real estate is conceptually different
                                                                                  Page 11
II.        Real Estate Investor/Landlord Goals:

              Rate of Return
              Appreciation
              “Entrance” Strategy
              “Exit” Strategy
              Holding Period
              Real estate is an investment

A.         Therefore Landlords Want:

           a. “Bricks & Mortar”?
           b. Legal Contract
           c. Seeks Stability
           d. Estate Planning Issues

B.         Landlords Need to Know:

           a. Tenant Building Requirements
           b. Tenant Credit History
           c. How does one define “a good credit” tenant?
           d. 3 Year Corporate Tax Returns

C.         Purpose of Investor Ownership

               Create Wealth

               Need “Entrance” and “Exit” Strategies

               Exit Strategy issues: Hold, Sell or Exchange?

D.         Tax-Deferrred Exchange: IRS Code 1031

     Tax Deferred Exchange 1031 IRS Code: Goes back to The Revenue Act of 1919
     IRS sanctioned over 80 years ago.
     Benefits seller/buyer of investment real estate
     Same Day or Forward Exchange
                                                                                                 Page 12
       III.   Both Parties Focus On:

There is no universal industry agreement between all real estate professionals on the definitions.
This lack of continuity adds confusion for tenants and brokers.

1.     Three Categories of Space:

       A.     Defining Space Calculations: Consumer Protection 93A Issue
               The space you pay rent on, may not be the space you occupy!
               Surprise!

       B.     Tenant Wants Information on:

              a.       Space and Methods of Measuring

                      Define: Length x Width
                      Gross Square Feet (GSF)
                      Rentable Square Feet (RSF)
                      Usable Square Feet (USF)

               OFFICE SUITE

                                  HALLWAY/COMMON AREA


                                    OUTSIDE DIMENSIONS / GSF
                                                                                            Page 13

         b.     Building Services

         c.     Minimal Economic Effects/Liabilities
                    Type of Lease
                    Term of Lease
                    Occupancy Costs
                    No Escalators

C. Lease Rate: (See APOD sheet)

a. “Quoted Rent”
 Asking price for first year’s lease

b. “Full Service Lease” v. “Gross Lease”

    Not standard for an industrial lease; used more in office real estate
    A rent that includes most or all operating expenses in the lease rate
    In Massachusetts market, often does not include electrical expense

c. “Triple Net” Lease or a better term “Absolute Net” or “All Net” lease

    More typical for industrial lease

    Rent Includes “Nothing”

    Tenant charged pro rata share of: Insurance, common area maintenance (CAM), real estate taxes,
     repairs and maintenance, snow plowing, landscaping and sometimes property management.

    Utilities Separately Metered (gas, electric and sometimes water/sewer)

    Owner Responsible for Roof, Structural Repairs and Floor/Foundation

    What about the HVAC (heating, ventilation, air conditioning)?

d.       Tenant has immediate focus in a lease on “Exit Clause Strategies”

        Assignment & Sublet
        Termination Language
        Fire & Casualty
        Bankruptcy
        Landlord Default
        Death Clause
                                                                                                 Page 14

D.            Physical Characteristic Issues to User

             How does the real estate asset fit the business plan?
             Location
             Budget
             Square Footage Required
             Parking Requirements
             Electrical Power; amps, volts, phase
             # of Employee and Future Growth
             Labor Supply and Wages

E. Financial Asset

         Should the Tenant Own or Lease?
         Should the President of the firm own the building and lease back to his own company?
         If the company is growing, is there room to expand or add to the building size?
         Perhaps leasing space is less capital intensive and allows for movement flexibility

F. Other Variables in Real Estate Decisions for Landlord/User

     a.       Location Analysis
     b.       Inventory Market Studies
     c.       Absorption Rate Studies
     d.       Financing
     e.       Depreciation Schedule
     f.       Environmental Issues

             Hazardous Waste: 21E
             In-ground contamination
             Building contamination
             Title V
             Wetland Issues
                                                                                                        Page 15

IV.            Investor’s Valuation (Could be Tenant or 3rd Party Investor)

                   The Band Of Investment Approach: It’s History
                   (MacRossie then refined by McLaughlin: 1959)

      A. Capitalization Rates

                   Capitalization rate is an investor’s subjective overall rate of return demanded from one
                    specific property

                   Investors impose a capitalization rate to value investment property

                   Users may focus on replacement cost or price per square foot

      B.       Definition and Formula of Band of Investment Approach (BOI)

                          History of BOI
                          Using BOI for valuation and negotiating tool
                          Subjective Rates of Returns
                          Debt vs. Equity Financing

      C.       APOD Sheet

                  NOI/Cap Rate = Value

              Net Operating Income/Capitalization Rate = Value

              NOI is not legally standardized

              Gross Income – Operating Expenses = Net Operating Income

           How does one define “Operating Expenses”?

              See APOD Sheet
              Accounting & Legal
              Advertising, Licenses and Permits
              Property Insurance
              Property Management
              Payroll-Resident Management
              Personal Property Taxes
                              Page 16
   Real Estate Taxes
   Repairs and Maintenance
   Elevator Service
   Snowplowing
   Janitorial
   Landscaping
   Pool
   Rubbish
   Supplies
   Electric
   Gas or Oil
   Water and Sewer
   Telephone
   Other
   Miscellaneous
Page 17
                                                                                                          Page 18

                                          SEE BOI MODEL BELOW

                                  BAND OF INVESTMENT APPROACH

                                          INCOME/VALUE RATIO


1.           % of Mortgage to Value of Property                   % Rate of Return to the
                           X                              =       Loan Portion of the
             Loan Constant for Mortgage                           Investment

             % of Equity Raised
                     X                                     =       % Return on Equity
             % Cash on Cash Return Desired By
             the Investor                                         _________________

             OVERALL RATE OF RETURN                           =    % Amount

2.           Net Operating Income
             --------------------------                    =       Total Value of Property
             % Overall Rate of Return


    Assume you borrow 75% of the value of a property at 10.5% for 25 years

    Your investor requires a 12% return on his equity invested.

    If the net operating income of the property is $ 180,000 then what could the investor pay for this

Mortgage Constant Formula:

Annual Debt Service         = Mortgage Constant
Total Loan Amount
                                                                                                           Page 19

      D.           Own vs. Lease

           1. Financing v. Equity Contribution
           2. Could the cash be used for operating growth instead?
           3. Cost to Purchase
                    Annual Debt Service (ADS)
                    Convert ADS to Lease

           4. What length of time does tenant expect to stay?
           5. Need exit strategy
           6. Real estate is perceived as a liability rather than a separate asset class

      E.           APPRECIATION

                  Definition: An increase in the value of the property over and above the investor’s initial
                  Gain is not realized until ultimate disposition.
                  The Key: Increase the NOI or sell in a low cap rate/interest rate environment.
                  Inflation vs. Deflation
                  Decrease in Value of the Money

       F.      Use Professionals For Tax Consequences and Valuation

                  Accountant
                  Tax Attorney
                  Appraiser
                  CFP
                  Real Estate Counselor



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