prucrelv.com

Last night at the In Business Who’s Who in Real Estate and Development event our little group was approached by an energetic young man. He handed out his business card which prominently communicated that he is a “residential” Realtor. The self promotion he subsequently provided was reminiscent of the pitch everyone seemed to have during the beginning of the housing bubble bust.

“I work with a group of investors out of (fill in the blank with a State or foreign Country) that is buying distressed property and/or distressed notes.”

Not to take anything away from the above mentioned individual, because this was the Who’s Who event after all, and he very well could have been someone. However, there are an increased amount of real estate agents out there “working with a group of investors.” On the same token, there seems to be tremendous amount of inquiry from investors looking for a “good deal.”

Last night our new friend was regaling our group with a complex deal that his “buyers” were going to be bidding for the following day. This morning we received an email from said residential Realtor with a summary packet of the note asking if we were interested in placing a bid. Coincidentally, our team received a full packet on this transaction two weeks ago from the auction company that was hired by the bank to disposition the note. Today was the last day to place a bid.

From a practical point of view, how in the world could this residential Realtor even think it was possible to procure and close the transaction of a note that is securitized by two properties with a tenant in bankruptcy and borrower in good standing with less than 24 hours for due diligence?  

The next several months are going to produce more of these ridiculous “opportunities.” There is no question that fortunes could be made in this down market. But you have to ask…

As a real estate professional how can you tell if the investors looking for a good deal are real?

As an investor how can you be certain that your real estate agent is providing you with reliable information rather than regurgitating second hand information from third party sources that haven’t be vetted?

Real estate professionals – Find out up front from investors what properties they currently own, have recently purchased and a verification of funds to purchase. Also, avoid the seduction of the daisy chain… I know a guy, who knows a gal, who has xyz. Seek to control the transaction or move on to another deal.

Investors – You should first know that in Nevada a Real Estate License does not permit the licensee to procure or broker note sales. You should also seek out professionals who are reputable, specialists, and/or list bank owned property.

For more up to date market information contact Hayim Mizrachi 702-853-4257 hayim@prucre.com.

Written by Hayim Mizrachi, Sr. Commercial Advisor hayim@prucre.com

Prudential | IPG announced the Commercial REO Division in the first quarter of 2009 as a response to what we anticipate to be a 24 – 36 month commercial foreclosure market.

While we are not the only agents in our office working on banked owned property, our team has been designed to work in conjunction with financial institutions Chief Credit Officer and/or Special Asset Managers to service a property inclusively from Default-to-Disposition.

We identified the need for this hands-on approach early in 2008 when we noticed a growing number of monthly default filings. That February we surveyed all of the NV State Chartered banks and received the same reply across the board, “We don’t have any bad notes. Thank you for your call.” That reply modified slightly as recent as five months ago to, “Thank you for your call, we have it under control.” Today there are a small amount of advertisements popping up from local commercial brokerage houses, (including Prudential | IPG) headlined with “Bank Owned.”

For a more in depth report please contact Hayim Mizrachi at 702-853-4257 or hayimm@prucres.com.

By: Dean Willmore, SIOR

Two years ago, our industrial real estate market was completely out of control. Investors were ignoring all of the fundamentals (just so they could buy something); Cap Rates were at a 50-year low (perhaps the lowest of all time); Investors engaged in bidding wars to try and secure a property; Vacant buildings actually sold as “Income Producing Property”; Developers Pro-formaed small industrial buildings for sale at twice the price the same building would have sold for four years prior (and built 5 times more than we typically absorb in one year); Per-square-foot prices for shell industrial buildings were exceeding those for shell office buildings; Developers were paying more than $1 million per acre for industrial dirt, believing rents and building prices would continue to escalate; and The hi-rise condo craze pushed the price for industrial properties located near the Las Vegas Resort Corridor between $4,000,000 and $10,000,000 per acre. All of this was fueled by banks and other lenders making overly aggressive loans and Equity Dollars available everywhere. For some, those were the “good old days” of commercial real estate. As I have watched that real estate bubble burst and the market change I still feel that there is a great deal of opportunity in the Las Vegas industrial market.

Although our current market conditions are troubling for many, I am thankful that our market is correcting itself. The good news is that 2008 proved to be a relatively good leasing year. Preliminary estimates put our total 2008 absorption of industrial space in Las Vegas for around 5 million square feet. That is in-line with our average net industrial absorption during the past six years .

Industrial Trends

Even better, is the fact that over 80% of our 2008 industrial net absorption is comprised of tenants leasing space. That is good news for landlords, because in 2007 over 50% of net absorption was owner/user building purchases. As for 2009, I expect the percentage of lease absorption vs. owner/user sales to be even higher. I also believe that 2009 will present some of the best industrial real estate buying opportunities not seen in 20 years.

Since I began tracking this market in 1989, I have witnessed average industrial real estate appreciation of about 5% per year. My forecast is that in 2009-2010, we will see industrial property values drop 15% to 50% from where they were during the First Quarter of 2008, which is when our market peaked. Still, given the amount of appreciation industrial real estate owners gained during the past 5 years, few will get hurt, because most of the value lost was “phantom” and not real in the first place. In addition, leasing activity should remain strong in 2009 and most owners should, at a minimum, be able to cover their debt service.

Here are some other trends and observations I forecast for 2009:

1. Owner/User financing will be cheap and readily available to credit-worthy borrowers; Non- Owner/Occupied financing will remain very difficult to obtain;
2. The credit-worthiness of prospective tenants will be a much bigger issue than normal for Landlords;
3. Industrial vacancy rates will climb slightly and then level-off by mid-year. Expect lower vacancy and less landlord concessions by the end of summer;
4. Inflation will cause higher operating expenses and utility costs;
5. Rental rates will remain flat for most of the year;
6. Cap Rates will increase to between 9%-10% in order to move old inventory;
7. Operators of small bay, multi-tenant properties will fare the best in 2009 as tenants will migrate from bigger spaces to smaller spaces to save costs;
8. Operators of flex space with a high percentage of office and big box distribution will fare the worst because of plummeting office rents;
9. Industrial land prices are still searching for a bottom and will continue to do so;
10. Expect to see more sale lease-backs as companies search to raise operating capital

Remember that the FSLIC (Federal Saving and Loan Insurance Corporation) did not begin closing down the Savings and Loan (S&L) industry until 1986 and the Resolution Trust Corporation (RTC) was not created until 1989. The RTC’s involvement with the disposition of S&L assets finally ended in 1995, with total estimated cost to taxpayers of $160 Billion. Some of the reasons for the Savings and Loan bust in the 1980’s are the same reason Commercial Banks are failing today.

However, the commercial real estate crash we experienced in the early 1990’s was also sparked by Federal Tax breaks that encouraged over investment and over building. This time around, the real estate frenzy was fueled by cheap credit, which allowed investors and developers to bid up prices of existing properties.

How much of a correction will we see in 2009? The answer depends on how much “phantom” appreciation a particular property gained during the past 2-3 years, during the era known as “cap rate compression”. I call it phantom appreciation, because many Sellers were showing 50% to 100% gains in value within a 12 to 24-month time frame, which is just not real. Real appreciation comes from rent growth and operating expense containment.

I believe the adjustment in land values in Las Vegas will be very healthy for our market in the long run and keep it one of the most vibrant and healthy commercial real estate markets in the United States. I believe that now more than ever.

It is a fact that our Las Vegas economy and commercial real estate market has been one of, if not the most resilient economies in the U.S., generally speaking. Las Vegas has always been the last community in America to experience a slow-down and the first to recover. The high land prices we have experienced actually worked in our favor by keeping construction in check. Our industrial market is not over built and we may actually start to see a shortage of industrial space in 2010. Businesses still want and need to be in Las Vegas to take advantage of our geographic location, tax and business incentives, quality of life and service our expanding population and infrastructure needs. As for industrial real estate prices, now is the time to buy. Sellers, who a year ago were asking exagerated prices for their assets are no longer in a state of denial regarding current values and are now anxious to make deals. Many are also willing to carry first trust deeds, eliminating the need for buyers to obtain financing. Investors with access to syndicated, private equity sources will also be able to take advantage of this current real estate correction. The cost of financing will dictate CAP rates and therefore, prices. I believe true “buy” opportunities must be at least 1 to 1.5 points above cost of capital. Today, that would be about 8 to 8.75%. Also, the current income on a particular buy opportunity must match current market rents, as many existing leases are over-inflated. Remember that industrial rents today are about 10-15% less than they were a year ago.

Needless to say, these are interesting and exciting times. Every investment is subject to fluctuations in value and commercial real estate is no exception. Many of my clients made their fortunes during the Savings and Loan Crisis in the 1980’s and 1990’s. Those with the foresight and courage to take advantage of our current market correction in Las Vegas may have the same opportunity to make fortunes as well.

 For more information about the Las Vegas Industrial Market contact Dean Willmore, SIOR at 702-363-7600.

For those who were convinced that green building was merely a passing fad, a new survey by the National Real Estate Investor and its sister publications may prove otherwise. The survey reveals that not only is green building gaining momentum as a commercial real estate strategy, but it is also vying for status as the new industry standard.
In fact, the exclusive survey, which drew responses from 218 corporate users and 166 developers of commercial real estate, reveals that 52% of corporate respondents and 39% of developer respondents currently own, manage or lease at least some “green” properties.
Even more compelling is the fact that the focus on sustainable real estate is clearly on the rise with 84% of corporate users and 77% of developers expecting to own, manage or lease at least some green properties five years from now.
Survey results support the premise that corporations and developers are embracing green building practices. Respondents expect that green building ownership and management will increase dramatically in just a few short years. Corporate users anticipate that the amount of green facilities they own or lease will more than double from 9% to 21% in the next five years. Developers also expect the volume of green properties in their portfolios to take a similar jump from 9% to 20% by 2012.
Respondents are most likely to be involved in office and retail. Among developers, 55% own or manage retail, followed by office (48%) and mixed-use and hospitality (35% each). On the corporate side, 51% of respondents own or lease office space, followed by industrial (42%) and retail (25%).
Corporations ranging from Bank of America to Best Buy are incorporating green building as part of their real estate strategies, and developers are clearly responding to the rising demand for these facilities.
The desire to cut energy costs is the main force pushing green building into the mainstream. Four out of five respondents indicate energy efficiency is important to their company when selecting, acquiring or developing a green building.
When asked what the most important factors are when choosing green buildings to buy or lease, corporate users most frequently cite energy efficiency (81%) followed by water savings (53%) and indoor environmental quality (50%). Corporate users believe the most significant benefits of green building design are lower energy costs (78%) and that it has a low impact on the environment (75%).  Most developers also believe lower operating costs are the greatest benefit of green building design (79%), while being environmentally friendly also rated high (74%). The ability to differentiate in marketing followed at 46%.
Indeed, most corporate users say they would be willing to pay more for LEED-certified buildings, with more than one-third (39%) willing to pay 1% to 2% more; 27% would pay 3% to 4% more; and 23% would pay 5% to 9% more. Another 8% say they would even be willing to pay 10% or higher. The U.S. Green Building Council contends that green buildings have higher lease rates and occupants are healthier and more productive. The USGBC states that the average return on investment in a green building is 20%.

With the potential of the definition of “Class-A office space” meaning the building must be green within the next three to five years developers are now looking at green buildings as the new standard.  Green building practices are clearly becoming entrenched in the commercial real estate universe. In fact, nearly half of respondents — 51% of developers and 47% of corporate users — believe that green building is not only a long-term phenomenon, but also that green building requirements will become part of future building codes.

Now is an excellent time to sell or upgrade your industrial property. National and local trends are indicate that with a diminishing supply of developable industrial land and with the global thirst for consumer based goods in countries like China and India, end users, developers and institutional buyers are entering the industrial market once again with strong momentum.
I anticipate vacancy rates to fall gradually by the end of second quarter in 2009 and asking industrial leasing rates to climb at a steady pace. With the rising cost of energy and current fuel prices, I believe that rail served industrial land will be of extreme value for our national and local transportation needs. In addition, I foresee technology and energy businesses continuing to grow and they will require more industrial space in Las Vegas.
Our strong brokerage network and client relationships offers access to such affordable rail served and industrial land in Nevada either for immediate build- to- suit or for a long term investment hold.

Contact Art Farmanali, SIOR for more information: 702-363-7600

Durango Village is a garden style office development located on Durango Drive and Patrick Lane in the Southwest. The project is strategically located equal distance from Southern Hills, San Martin and Spring Valley and offers easy access to the 215 Beltway. Durango Village is home to an array of professional business owners and now real estate owners. Seven of the 12 buildings have been sold to the likes of doctors, dentists, attorneys, insurance companies and more.

Durango Village was recently completed and is nearly sold out. The project offers 1,200 to 25,000 square feet of space for sale. Each building is delivered in grey shell condition, which means that you purchase a space that you can customize to your specifications. Each unit comes with covered parking and signage on the building as well as on the monument sign prominently located on Durango. The two-story building has common rest rooms on each floor and an elevator.

Just this March, Durango Village won the NAIOP Spotlight Award for best Small Office Building in Las Vegas.

For more information on the remaining space at Durango Village contact Miriam Campos-Root, CCIM, LEED AP or Dana Berggren at (702) 363-7600.

On February 13th of this year President Bush signed the Economic Stimulus Act of 2008 that amounted to more than $152 billion this year. The bill provides temporary tax incentives for businesses to make investments in their companies in hopes of spurring new jobs.  A “bonus” depreciation schedule was made available for landlords and commercial tenants who complete capital improvements to residential or commercial rental property by the end of 2008. The 2008 write off is a generous 50 percent of the costs for qualified leasehold improvements. The remainder of the cost is written off in declining increments over 15 years. Improvements completed after 2008, however, revert back to the previous schedule. The prior write off is only 2.5 percent of the cost in the first year, with the remaining spread over 39 years.

The fundamentals in commercial real estate remain healthy with only slight increases in vacancy rates expected for the office and industrial sectors during 2008. Recent credit restrictions have slowed overall investment activity. While vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or are built-to-suit. Vacancy rates in the retail and multi-family sectors are projected to tighten in 2008 with rents rising in all sectors. Commercial real estate investment is at record-high levels, but tighter credit conditions will limit deals from moving forward because capitalization rates are low, it is likely that commercial property prices will ease. The era of rapid commercial property price increases has ended. Even with the low cap rates, the investment market is brisk. By the end of October 2007, a record $325 billion worth of commercial real estate had traded hands nationwide, with over half involving office properties prices will ease. The era of rapid commercial property price increases has ended. Even with the low cap rates, the investment market is brisk. By the end of October 2007, a record $325 billion worth of commercial real estate had traded hands nationwide, with over half involving office properties.

For more information contact Art Farmanali, SIOR: 702-363-7600

With the year 2007 behind us and moving forward with an optimistic outlook for 2008, foreign investors are pouring record amounts of money in the United States. Markets such as manufacturing, pharmaceutical, and real estate are the beneficiaries of such investments. Last year, a record of $414 billion went into securing stakes in American companies and more is expected in 2008.

The United States is for sale at a discounted rate for much of the world. With the magnitude of such large foreign investments coming into American firms, foreign investment might be the ticket to save the US economy from going into a serious recession by infusing hard-luck companies with cash and keeping them in business. Our goods are available at bargain prices and the world is taking advantage of the opportunity. The result is a massive boom in exporting, particularly to Third World countries that are desperately trying to become Second World countries and need our goods to do so because they do not have the resources to create them themselves. This will indeed help our GDP (Gross Domestic Product) to grow at a rapid pace.

Wall Street banks like Merrill Lynch, Citigroup and Morgan Stanley, which have sold stakes to foreign investments to compensate for substantial losses sustained in the mortgage markets, were also the beneficiaries of such foreign investment. The weakened dollar has made American companies and real estate in the United States cheaper in global terms. As quoted by Jeffrey E. Garten, a trade expert at the Yale School of Management, “The United States has not ever been on the receiving end of this before.” With weakness in the US dollar, foreign investment firms are buying financial and real estate assets at well under book value. For anyone who has been waiting on the sidelines for the past few years and has the liquidity to make some bold and calculated moves, now is the time and the US is the place. The year 2008 would be a good entry point to pluck bargains in commercial real estate markets and harvest the profits in 2010 and beyond. Start by making an initial investment by retaining the services of a good, successful and ethical commercial broker who is knowledgeable about the market and has the expertise to help you in making sound real estate related decisions.

For more information contact Art Farmanali, SIOR: 702-363-7600