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By AZ Advisory Team, February 15, 2010 12:11 pm

Reducing Costs

All players involved in tenant improvements, from the contractor to the tenant, are looking at ways to save or get the best value for their money. Tenants are trying to be efficient with their space planning and that they are looking at any way they can keep down the costs.

This value engineering analysis oftentimes involves tenants determining what TIs they must have and what TIs they want. Some ways tenants and landlords are cutting TI costs are by reducing or eliminating built-in cabinets, 4- to 6-foot-high divider walls, and any unnecessary frills, such as sidelights on doors and windows next to doors.

The trend is away from multiple coffee stations and back to one central break room, to avoid the costs of multiple sinks.

Tenants are spending more money on the highly visible, public places, typically lobbies and conference rooms, while keeping the remainder basic. As far as interiors and finishes, color schemes that will last 10 or more years are popular. Tenants are moving away from a lot of color – such as pink – and toward the use of neutral shades that won’t go out of style.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 12, 2010 1:49 pm

Construction costs and therefore tenant improvement costs are high, and are continuing to rise. Due to this, tenant improvement allowances are also increasing.

The high costs of TIs are driving some companies to forego new and opt for second, third- or fourth-generation space. Consequently, a surge in retrofitting of older buildings is taking place. The increased demand in these older buildings is driving up their lease rates, too.

The high costs of carrying out TIs are affecting lease lengths. Most often, landlords require a five-year minimum lease because they need that time to amortize the cost of the tenant improvements. Because tenants typically want only a three-year lease on second- or greater-generation space, landlords typically spend less money on those TIs.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 11, 2010 7:10 pm

Tenants or buyers are ultimately responsible for the cost of tenant improvements. However, with leased property, the landlord may provide an allowance that pays for some, or all of them. In those cases, the tenant funds the remainder. The financial arrangement can get worked out in a number of ways, which often depends upon the tenant’s credit worthiness.

The landlord may pay for all TIs but insist upon a 10-year lease. When the landlord and tenant share the TI expense, the landlord may request the tenant pay the tenant’s portion up front. The landlord may allow the tenant to pay half at the outset and the rest over the lease term, with interest added for the amortized share. Or, if the tenant has strong financials, the landlord may amortize the entire amount over the lease term, along with an 8 percent to 12 percent interest rate.

You might get a $30 per square foot allowance, but have to move into a gray shell and buy everything, or you might get a $15 per square foot allowance and get painted walls, a ceiling, slab and a bathroom.

When a landlord contributes to the TI costs, the landlord usually wants to control how the money is spent and ensure the improvements are done to code.  In the case of a purchase, however, the developer only oversees a few issues, such as whether and how anything will be attached to the shell. Otherwise, buyers may do whatever they wish inside.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 10, 2010 1:36 pm

Alex Zylberglait of Marcus & Millichap is pleased to present 12459 Seminole Boulevard. The portfolio consists of two class C office buildings with a total of approximately 18,000 rentable square feet. The buildings were built in 1972 of concrete block. Each building has approximately 9,000 square feet with two floors. This portfolio also has on-site parking with a total of 48 spaces.

The property is located in Largo, Florida. Largo is located in the heart of Pinellas County along the Gulf Coast of West Central Florida. Centrally located, the properties are at the crossroads of the county. The property is proximate to major thoroughfares Ulmerton Road and Seminole Blvd (State Hwy 585), which has a traffic count of 33,000 vehicles a day. Within three miles, the population is over 100,000. Largo has grown to become the fourth largest city in the Tampa Bay area and is an extremely dense rental market. There is easy access to Interstate 275 which connects Tampa and St. Petersburg. The property is nearby Largo Mall anchored by Target and is minutes from the St. Petersburg-Clearwater International Airport.

Contact Alex Zylberglait, CCIM, SIOR
Vice President Investments
Director – National Office and Industrial Properties Group

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 9, 2010 4:39 pm

Alex Zylberglait of Marcus & Millichap is proud to present 6285 Sunset Drive. This ready for occupancy 5,200-square foot medical office building is ideally suited for a small medical practice.

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6285 Sunset Drive lies within an established medical hub just steps from South Miami Hospital (which recently completed its medical office complex), a few blocks from South Dixie Highway, and the Metrorail & bus stations.

This medical office building commands a high visibility location in a heavily traveled section of Sunset Drive. It is in the vibrant city of South Miami which borders the University of Miami main campus and the affluent communities of Coral Gables and Pinecrest.

Because of the unparalleled quality of its location, 6285 Sunset Drive would be a solid investment with significant appreciation potential.

Contact Alex Zylberglait, CCIM, SIOR
Vice President Investments
Director – National Office and Industrial Properties Group

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 8, 2010 12:03 pm

Alex Zylberglait of Marcus & Millichap is proud to present 11981 Southwest 144th Court, a two-story Class B office building that was built in 2002 of concrete and stucco. The property has approximately 14,700 rentable square feet and will be delivered vacant. The building features upscale finishes. There is ample on-site parking with 50 parking spaces.

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The property is directly across from the Kendall-Tamiami Executive Airport which is one of the busiest airports in Florida, serving corporate, recreational, flight training, and governmental agency activities.

The Kendall area is one of the most densely populated metropolitan areas in Miami-Dade County, creating one of the most diverse cultural mixes that Miami has to offer. It is anticipated that the population of the Kendall area will continue to grow at a healthy pace over the next number of years. The property is minutes from the business centers of South Miami-Dade County and close to Southwest 137th Ave, Krome Ave, the Florida Turnpike and the Don Shula Expressway. The property’s location also provides fast and easy access to the Florida Keys as well as recreational and business activities in Miami and Miami Beach.

Contact Alex Zylberglait, CCIM, SIOR
Vice President Investments
Director – National Office and Industrial Properties Group

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 4, 2010 8:09 pm

Commercial real estate and multifamily property mortgage loan originations were 12 percent higher in the fourth quarter of 2009 than during the same period last year, and 15 percent higher than the third quarter of 2009 according to a quarterly survey released by the Mortgage Bankers Association (MBA) Tuesday at its Commercial Real Estate Finance convention in Las Vegas.

“Commercial and multifamily mortgage originations picked up in the fourth quarter, but remain at a low level in absolute terms,” explained Jamie Woodwell, VP of commercial real estate research at MBA. “The trend shows stability coming back to the market, but the pick-up in volumes really indicates just how low origination levels had fallen.”

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 3, 2010 1:22 pm

Regent Partners, one of Atlanta’s leading real estate investment, development and services firms and TriGate Capital, a prominent national real estate investment firm announce the formation of the Regent-TriGate Property Fund I (the “Fund” or “Regent-TriGate”).

The Fund focuses on the recapitalization of real estate assets in Atlanta and the Southeast that require both capital and management expertise.  Regent-TriGate is managed by seasoned real estate professionals with proven track records in investing in and managing real estate assets and related debt. The Fund combines capital with a market leading real estate firm that has a track record of more than $1 billion in acquisition and repositioning work.

“We believe that Regent-TriGate will offer management and capital solutions to lenders and owners of large, complicated real estate assets that are in need of recapitalization,” said David Allman, Chairman of Regent Partners. “It is our belief that market participants will be looking to firms that have capital, but also have the ability to add value to real estate through intensive management and redevelopment.”

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 2, 2010 12:41 pm

The Commercial Real Estate Stack:

GPI
- V/C
= EGI
- OE
= NOI
- ADS
=CFBT

-T

=NI

NI1+NI2+NI3…..

- IC

= ROI

So here it is. There are other factors to be added to the equation as we try to evaluate what will help add value to the building and increase its revenue-producing potential in terms of upgrading to various energy, environmental and accessibility building standards as well as improving amenities.

Each element influences the equation and even a slight upgrade or an application of expertise will factor in to a decreased, for example, Operating Expenses, or decreased Taxes – contributing to a significant ROI.

This concludes this topic. Feel free to contact me for other commercial real estate investment topics you are interested in.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 1, 2010 12:36 pm

Continued…

Annual Debt Service (ADS)

The ADS is the total of loan payments for the year. The annual debt service includes the principal and interest portion of the payment for all twelve months.

Cash Flow Before Taxes (CFBT)

Cash Flow Before Taxes is the amount of money realized by the investor for the year, whether positive or negative, before income taxes are computed.

Taxes (T)

This is simply the taxes you pay in connection to your property.

Net Income (NI)

This is your Net Income for the year after paying taxes. This is the amount of money realized after the payment of taxes.

Investment Cost (IC)

Investment Cost is the total amount of money you released to purchase that property including the professional fees and other expenses associated with buying that commercial investment property.

Return on Investment

When your Net Income added yearly reaches to a point that it surpasses your Investment Cost, then you have reached a Return on Investment.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.