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By AZ Advisory Team, October 13, 2009 3:47 pm

What’s the outlook on commercial real estate for next year? For the next two years? What are the rising trends in the office, medical, and industrial classes? Should I buy, sell, or hold?

Is the economy recovering? Is the commercial real estate market in trouble? Has it bottomed yet? Will it bounce back fast? How should I position my property in the market? Should I offer financing?

Where do I get intel on the commercial real estate market as it applies to my property or investment needs?

These are just some of the questions investors and property owners like you are asking.

Get in-depth data and expert views from our regular release of Market Reports to help you strategize and make informed Commercial Real Estate Investment decisions by going here: Marcus & Millichap Commercial Real Estate Market Reports, and get advice from Alex Zylberglait – Your Commercial Real Estate Investment Expert to help you find the right fit based on your objectives and get the transaction done.

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 Alex Zylberglait, October 9, 2009 4:17 am

Data, Information, Knowledge and Action

Databases form the necessary foundation for managing current projects and programs and for projecting future costs and property facility management department activities. Data by itself, however, is fairly useless. A skilled analyst can take raw data and manipulate it to extract patterns, trends, and inferences—information—that explain relationships between the events that constitute the data. Therefore, energy consumption figures, for example  that reveal an office using 3000 kilowatt-hours of electricity in 1997 and 6000 in 2001 are data; the observation that consumption increased between 1997 and 2001 is information.

Knowledge takes information one step further by putting it in the context of experience.  For example, the increased in power consumption makes sense because occupancy in the building increased.  But since 1997, there were no energy saving measures in place such as motion-sensing automatic light switches and an efficient air conditioning. If energy-saving measures are implemented, they would expect some reduction on energy consumption.  Knowledge, therefore, is information used to explain something and even project future values.

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 Alex Zylberglait, October 8, 2009 8:00 am

Most building facility and operations departments have a wealth of information but inadequate means to organize it. To manage the wide spectrum of operations and facility information properly, managers must understand the term database and building an operations manual in its most basic sense.

Great care must be exercised in designing and selecting management tools that enable managers to find what they are looking for—even when they are rushed, cannot remember where the information is, do not remember its name, and do not know how it works. The management tool for these tasks is a simple database to provide access to needed information and a manual, either in electronic or physical form, to provide information on how to use each element and how the entire facility works. Before you design a database and a manual, however, it is important to understand the relationship between information and data.

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, October 7, 2009 9:00 am

Alex Zylberglait of Marcus & Millichap Real Estate Investment Services is pleased to present 14705 NW 25 Ct, consisting of approximately 49,000 rentable square feet, located in Opa-Locka, FL. Construction of this concrete block industrial facility was completed in 1966 on a 2.02 acre site. It is a Class B property in its market. There is approximately 9,000 square feet of office space with central A/C. There is also mezzanine storage space in the building. The warehouse has three dock-level doors and four grade-level doors. The clear height is 22 feet. The property is currently vacant. The building was recently renovated in 2004, renovations included interior office build-out and the roof.

Opa-Locka is a primarily industrial community located in northern Miami-Dade County. The property’s neighborhood consists of a harmonious mixture of industrial and commercial development. The neighborhood is well located with respect to transportation arteries and employment centers. It is strategically near the Golden Glades Interchange. The interchange connects the Palmetto Expressway, Interstate 95, and the Florida Turnpike. Downtown Miami and the Port of Miami are easily accessible using I-95. Industrial areas in Hialeah and Doral are accessible using the Palmetto. The Miami International Airport is accessible using both I-95 or the Palmetto. Located nearby the property is the Opa-Locka Airport which supports the business aviation community and light cargo traffic to the Caribbean.

Property Address:
14705 NW 25th Ct
Opa-Locka, FL 33054

Property Type:
Industrial Warehouse

Parcel Size:
2.02 AC
Rentable Square Feet: 48,846
Floor Area Ratio (FAR): 0.56 FAR
Zoning: I-2 Industrial – Heavy Manufacturing District
Parking: 22 Spaces
Landscaping :Trees and bushes
Street Frontage: NW 147th ST
Cross Street: NW 25th Ct

Contact Alex Zylberglait for his expert investment advisory services on this industrial warehouse in Opa-Locka.

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.

Comments (1)

By AZ Advisory Team, October 5, 2009 10:10 pm

While companies with extensive supply chain management requirements look forward to the economy recovering but are still cautious to expend too much funds or has limited sources to finance their operations look into shared warehouse services. For investors and warehouse property owners/managers, now is the time to look into this commercial real estate class and ramp up shared warehouse services.

Implementing a Warehouse Management System will increase the business value of your warehouse or shared warehouse as it increases accuracy, reduction in labor costs, provides seamless category management   and a greater ability to service the customer by reducing cycle times.  The setup requirements of WMS can be extensive.  The characteristics of each item and location must be maintained either at the detail level or by grouping similar items, locations, and clients/users into categories.

A lot of other modules are being added to WMS packages. These would include full financials, light manufacturing, transportation management, purchasing, and sales order management.  Adding these functionalities will also help you run your warehouse with much efficiency.

Alex Zylberglait is constantly on the lookout for good investments in the warehouse class.

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 Alex Zylberglait, October 2, 2009 11:18 pm

Here’s the continuation of my post last Wednesday taken from a section of the Marcus & Millichap Special Outlook on Government Programs and Maturities Report.  To get the full report, go here and sign-up.

Negative Investor Psychology vs. Long-Term Opportunity

Government programs to jumpstart the credit markets are promising, but they are only the first step in reversing the negative feedback loop currently in play throughout the commercial real estate segment. One of the most challenging issues to overcome for the investment market will be the negative psychology that has permeated the commercial property sector. Many investors are awaiting the return of economic growth to redeploy capital into commercial real estate. These investors run the risk of missing acquisition opportunities, particularly for properties that rarely change hands, as more of these assets are now available at reasonable prices.

Central Clearinghouse for Troubled Commercial Properties Unlikely

While the FDIC will begin to accept bids on failed bank assets this summer, offerings are unlikely to include a significant number of individual commercial properties. In the early 1990s, the RTC helped to liquidate real estate- and mortgage-related assets of failed Savings and Loan Associations (S&Ls). At that time, it was typical for institutions to hold whole loans on their balance sheets. The situation today is far more complex due to the securitization of mortgage debt, which grew out of the S&L crisis. Furthermore, compared to the S&L crisis, the number of bank failures during the current downturn has been relatively low. Even if a central clearinghouse was established to liquidate bank assets, it would likely be on a much smaller scale than the RTC. Disposition of troubled loans has largely been left up to individual institutions and government agencies.

Opportunities Emerging

Unlike stocks and bonds, real estate investors must wait for properties to be offered for sale, and some assets rarely trade. As sellers become increasingly motivated due to maturing debt or capital needs for other assets in their portfolios, a wide array of commercial properties should emerge. This will mark a unique window to acquire assets that fit long-term strategies at attractive returns, including core, stable properties in solid locations. Investors with expectations of unrealistic discounts relative to quality will find it difficult to participate.

Plenty of Capital Parked on Sidelines

There is already a significant amount of private and REIT capital available for well-priced, quality assets to be offered for sale. During the first six months of this year, REITs raised approximately $19 billion, some of which will be used to pay down existing debt, but it is likely a portion has been set aside for acquisitions. As lower-leverage investors, REITs may face limited competition for large assets, since obtaining financing for properties priced at more than $15 million has become particularly challenging.

Special thanks to my colleagues here at Marcus & Millichap, Erica Linn – Senior Analyst, and Hessam Nadji – Managing Director.

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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 Alex Zylberglait, September 30, 2009 4:46 pm

What opportunites should we see coming in this period?  This is a 2-part post which I am posting today Wednesday and on Friday.

Anyway, I think that a huge number of commercial properties in all classes will hit the market as sellers become increasingly motivated due to debt maturities and needs for capitalization.  Investors are now scaling up their radar and preparing their resources  today to ensure they find attractive properties and can move quickly when these assets become available.

Read the rest of this post below which came from a section of the Marcus & Millichap Special Outlook on Government Programs and Maturities Report.

Tight Credit Hampering Commercial Real Estate Sales

The escalation of the credit crunch to a full-blown financial crisis in the fall of 2008 led to additional constraints on tight commercial real estate financing, reducing sales activity further through the first part of 2009. Prior to the near shutdown of credit markets last fall, commercial real estate sales volume was already down 70 percent from peak levels. The trend gained momentum through the end of 2008 and first half of 2009, with sales volume 90 percent below its peak as of the second quarter.

Buyer/Seller Disconnect Easing

In addition to the tighter financing climate, the wide gap between buyers’ and sellers’ price expectations is a major contributor to the drop-off in property sales. The disconnect became more severe in recent quarters, as buyers anticipated far deeper discounts due to rising distress and weaker fundamentals. There is some evidence emerging that sellers are becoming more accepting of current market sentiment, with cap rates on newly offered properties up approximately 50 basis points to 100 basis points from last year. At the same time, buyers are recognizing the difference in pricing based on market and property quality. Many investors remain on the sidelines, but interest in commercial real estate has increased, as have available inventory and offer activity.

Commercial Real Estate Investors Re-Evaluate Strategies as Downturn Continues

Until earlier this year, many owners were operating under the assumption that they were well-positioned to ride out the downturn. The deepening of the financial crisis last fall, however, led to severe job cuts across industries, as many companies were unable to secure short-term financing to fund basic operations. As a result, space demand deteriorated rapidly, cutting into NOIs and property valuations. With forecasts calling for continued economic weakness in the near term and rising distress in the commercial real estate sector, more property owners will opt to adjust prices rather than risk further equity erosion or a foreclosure.

Special thanks to my colleagues here at Marcus & Millichap, Erica Linn – Senior Analyst, and Hessam Nadji – Managing Director.

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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.

Comments (3)

By Alex Zylberglait, September 29, 2009 2:49 pm

Consider Tax, Legal, Liability, Succession and Management Issues When Determining How to Hold Title to an Investment Commercial Real Estate

Holding real estate in your name makes investors targets for frivolous lawsuits as property ownership is public record in most parts of the country. There are over 24 million lawsuits in the US each year. Using those numbers, the average American can expect to be sued 3 times in their lifetime. Since it makes no sense paying a lawyer to sue a poor person (and lawyers wouldn’t take a contingency case unless the defendant had easily visibly assets) real estate investors that don’t protect the privacy of their investments will be disproportional sued. Don’t put a target on your head for frivolous lawsuits.

If you have a business, avoid titling real estate in the name of the corporation. Beyond the negative aspects of adding debt to your company’s books (assuming you have financed the property) any suit related to the property will flow through to the company.   You will also face these negative situations:

• Separate taxable entity which will pay corporate tax rates
• No preferred capital gains tax treatment
• No ability to pass through losses to personal income tax

Ultimately, the decision on how to hold title to a property depends on many factors including the number and type of owners in the property, the goals of the investor, and whether that property correlates to a business of the owner.  Creating and properly maintaining a real estate holding entity to hold title to your investment real estate is a critical component to protect your real estate investment from lawsuits against you personally and from lawsuits against the property that is in the entity from spilling over to you personally.  
Properly structured real estate holding companies (LLCs, LLPs, etc) provide asset protection but alone they will not protect you from the time and expense of probate. 

Put Real Estate into a Living Trust to Avoid Probate

Probate means court supervision of your estate at your death.  Probate is expensive and takes time, so most people like to avoid it whenever possible.  Simply having a will does not avoid probate.

A living trust, on the other hand, is a legal document that replaces what you think of as your will.  The living trust makes sure your assets go to the people you choose.  It also avoids probate upon death or a conservatorship proceeding if you become incapacitated.  Properly prepared it allows couples to eliminate or substantially reduce taxes, and eliminate the time and expense of probate. 

Many people that have trusts fail to officially put their properties into the trust (“funding the trust”) which can force them into probate.  In some counties you can petition the court to include the asset in the trust but its prudent simply to place the property in the trust to begin with.

Putting your property directly into a trust for example, “John and Jane Doe Living Trust” does not provide asset protection.  The preferred method is often to place the property into the entity (LLC, LLP, etc) and make the Trust the primary shareholder in the entity.  As always, consult your tax and legal advisors for advice on your particular situation.

Read Part 1. Read Part 2

I will post Part 4 on Thursday, October 1st, 2009.

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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.

Comments (1)

By AZ Advisory Team, September 24, 2009 8:00 am

Match Real Estate Investments to your Tax Bracket and Cash Flow Requirements

As a rule, newer properties that are net leased to strong national tenants provide more stable cash flow but with limited upside potential. Net leased retail properties have been very popular with retirees for many years due to their stability and limited management responsibilities associated with newer properties. At the other end of the spectrum is raw land, which in most cases is a negative cash flow investment through the holding period (remember property taxes and levies) and provides very limited tax benefits (depreciation can only be taken on structures, not land). Well located land however can have phenomenal upside potential for patient investors if it has a high potential for development in the path of growth.

Carefully consider and analyze the “best case”, “expected” and “worst case” financial scenarios for the property. Would the “worst case” scenario force you to sell the property to meet personal financial obligations?

Understand the Difference Between Property Management, Asset Management and Portfolio Management

Property Management: Revolves around the regular, ongoing operations of an investment property. Property management companies often specialize in particular property types, for example shopping center management. Common duties are collecting rents from tenants, ensuring that tenants are in compliance with their lease terms, paying expenses of property, preparing monthly or quarterly reports of property operations and cash flow. May or may not do leasing activities on property.  Typical fees for property managers run between 3 to 5% of the gross rents collected.

Asset Management: Provides strategic direction for a particular property based on the stated goals and requirements of ownership. Ensures that property management and leasing activities and proper and aligned with strategy. Often requires a Leasing Broker who supervises budget preparation by Property Manager. Reviews and approves all potential new leases, construction and capital improvements to the property.   Asset managment fees customarily run between 1-2% of the gross rents collected and are usually only done for large investment properties.

Portfolio Management: Ongoing analysis of multiple real estate investments, associated financing and structure, buy and sell decisions, and 1031 Tax Deferred Exchange decisions, as it relates to the unique financial and personal goals of each investor. Real estate portfolio management is the most overlooked of the three components and is critical to the long term success of real estate investors.

Read Part 1. Read Part 2. Read Part 3.

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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 Alex Zylberglait, September 22, 2009 5:42 am

Have a Clear Understanding of your Overall Financial Goals, Risk Tolerance, Income Requirements, and Tax Implications Before Making any Real Estate Decision

As an investor you can have extensive information on a particular property and market but still make a wealth draining decision if you have not carefully considered all possible real estate alternatives within the context of your unique tax and financial situation.

Successful commercial real estate investors understand that building and protecting commercial real estate wealth requires expert advice on the following issues:

• Buy, sell, hold, 1031 exchange, refinance or redevelop a property
• Financing structure and impact on operations and holding period
• Amount of financing leverage for the investment to maximize cash flow and tax benefits for a particular investor without adding undue risk
• Before and after tax impact on cash flows for all alternatives
• Ownership structure (LLP, LLC, Partnership, Individually, Living Trust, etc) benefits and limitations
• Decision making when properties have multiple owners with different goals and objectives
• Partnership buy-outs
• Redevelopment and repositioning of property
• Property management operations
• Building facilities maintenance and capital improvements
• Estate planning and wealth transfer planning

Balance Real Estate Holdings by Geography and Property Type to Protect Against Market Downturns

A balanced real estate portfolio can provide for wealth accumulation while managing the risks of downturns in individual property types and markets. It’s the same concept as having a balanced portfolio of stocks and bonds that is appropriate for your personal financial situation.  For instance, when most people retire their investment portfolio is often re-weighted to include less individual stocks and a higher percentage of fixed income investments and annuities. 

Real estate portfolios should be balanced in much the same way that is, changing to reflect the requirements of the investor for their stage in life.  Real estate, like all investments has a certain level of inherent risk.  However it would be rash to simply sell the real estate, pay all of the built up taxes and using whatever is left over to buy bonds and treasury bills.  Instead, adjust your real estate holdings to match your requirements when you enter a new phase of life.

Standby for the continuation on Thursday.
Read Part 2

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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.