Archive for March, 2010
|Acquisition Opportunities are Beginning to Reveal Themselves
Wednesday, March 31st, 2010
By Jim Leslie
There has been a lot of speculation over the pending doom of real estate values and the resulting opportunities this will bring for steep discounts in selling prices. To date, there have been very few transactions completed particularly at rock bottom prices. Buyers are now starting to adjust their expectations and we are beginning to see more serious discussions with sellers. Banks have been reluctant to take significant discounts until their capital ratios have shown some recovery. This is now happening after a year of very low interest costs has allowed the banks to record strong earnings. The CMBS special servicers have either extended maturities or negotiated forbearance agreements to support the borrower through the depressed market.
The only assets selling at big discounts to par are class C buildings with little hope for the future. As a tenant, it is important to monitor these transactions or extensions as it will impact how buildings are operated and marketed. Very few lenders are declaring a maturity default if the borrower is current and well regarded. They are opting to extend the loan until the financial markets recover and the borrower can either refinance or sell the property. But if the building is not producing sufficient cash flow to service the debt with limited future prospects, they are willing to foreclose and pursue alternative exits. This can create numerous opportunities for the current tenant or a prospective tenant. Depending on the credit worthiness of the tenant there are numerous financing transactions that can be utilized to minimize occupancy cost and perhaps participate in some long-term appreciation. Lenders look at deals differently if it is an owner-occupied facility. For banks, this is categorized as something other than a real estate loan. They have pressure to make new loans but are restricted on doing traditional real estate lending. An owner-occupied facility will bring a lot of interest and proposals.
Your real estate professional should be knowledgeable of these debt situations and be able to anticipate the most probable course of action for each lender. There is not one solution as we have found that the execution varies widely from lender to lender. Lease rates can vary materially if you properly analyze and understand these issues. We have seen tenants reduce their annual occupancy costs by as much as 40% working through the analysis and strategically approaching the lender or landlord depending on the situation. The financing environment has changed for the time being and anything short of a thorough evaluation of these markets can be very costly to the tenant.
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Underemployment: What is it and why does it matter?
Wednesday, March 24th, 2010
By Michelle Cammarata
Every month, the government reports the national unemploym
ent rate, and journalists and pundits dissect the news for its economic and political implications. Recently, along with the usual reporting on unemployment, we’re seeing a growing focus on underemployment, defined in simplest terms as unemployed persons plus employed persons who are working part-time but seek full-time work. One of five Americans were underemployed as of mid-March, according to a much-discussed report from Gallup. (Read the article and Gallup’s methodology here.) The Bureau of Labor Statistics (BLS) reported underemployment for February at 16.8%, the official government measure.
The unemployment rate has fallen slowly in recent months, a cause for so
me cautious optimism. Yet underemployment remains persistently high. For economists, underemployment is a source of concern about consumer spending, the housing market, and other facets of the economy. For consumers, it’s a real barrier to simply making ends meet. To understand the social, economic, and political impacts of widespread underemployment, it’s useful first to understand exactly what these terms mean and what they measure.
The BLS, a unit of the U.S. Department of Labor, is the principal fact-finding agency for the federal government in the field of labor economics and statistics. The BLS also conducts several measures of labor underutilization, referred to as U-1 through U-6. (Click here for a discussion of BLS methodology.)
The data above are for February 2010, released in March and are adjusted to account for normal seasonal events such as winter weather and holidays that affect employment.
The underemployment rate (U-6) is 7.1 points higher than the unemployment rate (U-3) of 9.7%. Combine the U-3 rate of 9.7% and the U-6 rate of 16.8%, and the data show that more than one quarter of the labor force is not fully employed.
-Lower incomes mean lower government revenues, which mean cuts to programs and services.
-Consumers remain wary, in bargain hunting mode, preventing a rebound in consumer spending.
-Money worries affect our health, well being, and self esteem and put undue strain on our relationships, leading to trouble at home.
A look beyond the unemployment rate to understand what is happening in the labor market reveals alarming conditions and highlights a need for public policies to support job creation and private sector innovation to put unemployed and underemployed back to full-time work.
Tags: BLS, Bureau of Labor Statistics, Gallup, underemployment, unemployment
Posted in Workforce & Location Planning | Comments Off
Sustainability Promises Transparency and Opportunities
Wednesday, March 17th, 2010
By Mike Tobin
Let’s continue down this track of discussing the new clean/green technology decade as I am inspired by the changes and opportunities that await us all.
As discussed last time, the current activity surrounding greenhouse gas policy and regulation will cause a myriad of changes in the way we assess real estate. One of the larger catalysts of change will be the increased level of transparency in the marketplace. The greater availability of operational data will trigger multiple opportunities and challenges for businesses worldwide. Amazingly, this transparency is already taking place due to the efficiency of our capital markets and the desire to get ahead of the competition.
The market’s early adopters are embracing the possibility and inevitability of future regulation by reporting greenhouse gas emissions in the form of disclosure reports like the Carbon Disclosure Project. In reviewing the companies that are already involved in the Carbon Disclosure Project, one will find a lengthy list of formidable companies that are measuring and disclosing this new information. This new level of disclosure is also having a ripple effect as the vendors and suppliers of these companies are being asked for similar data and told that service selection will depend to a degree on the information provided.
Walmart is a case in point of this ripple effect. Last year they announced their 15 point Sustainable Product Index – eight of which are impacted by real estate decisions – and indicated that this will factor into their vendor and product selection. When Walmart says jump, the rest of the market says, “How high?”
Another area of transparency that relates to greenhouse gas emissions is the energy use of buildings. Historically, the market has not had a reliable method to determine the energy efficiency of any given building. That could change in 2010 with the anticipated release of the American Society of Heating, Refrigerating, and Air-Conditioning Engineers’ (ASHRAE) new Building Energy Quotient (Building EQ). This new labeling system will join the US Department of Energy’s (DOE) Energy Star program as the two major programs that can be used to reliably measure the energy performance of a building.
As our society looks for ways to reduce energy consumption, information is the critical first step to help make informed choices and changes. Decision-makers will spur a review of the methodology to select, value, and underwrite property. They will reweight the emphasis placed on different aspects of a piece of real estate and create entirely new aspects.
We have only begun to scratch the surface of the potential changes on the horizon due to the increased transparency in the marketplace. Questions still remain like:
- Will other companies create competing Sustainable Product Indexes to that of
Walmart?
- Will building labels be voluntary or become a national requirement?
- How will financial underwriters take into account an energy rating system?
- What will your corporate real estate’s new GHG emission and energy usage
thresholds become?
As we enter the new decade with the promise of more transparency, what do you see on the horizon?
Tags: ASHRAE, building EQ, carbon disclosure project, DOE, energy, energy star, green, greenhouse gas emissions, sustainable product index, walmart
Posted in Sustainability | Comments Off
The New Day Project Manager
Wednesday, March 10th, 2010
By Phillip Infelise
Welcome back.
Last month we defined our Project Management paradigm. Project Management in the New Day context is much more than overseeing design and construction efforts. Embracing that, I thought this month we could talk about what it takes to be a New Day Project Manager. It requires an interesting mix of skills that is often hard to define. However, try we must, and with that in mind the high performance Project Manager (PM) must possess all of the following:
- Clear Vision. (and a clear head) To see both the big picture strategy and the most minute details; often hundreds of them simultaneously. A need to know what happened in the rear view, and at the same time, look far over the horizon.
- Consummate Communications Skills. Both verbal and written. The PM needs to be able to describe technical things in layperson’s terms for the client, jump into the techno-speak when the techies talk; reduce a complex issue into a simple memorandum; and craft the perfect PowerPoint presentation to win Board approval.
- Listening Skills. Need to listen intently to needs, constraints, and expectations and translate those to a project strategy, a design approach, and a project result.
- Numbers. Uncanny ability to archive costs in the databanks of our brain, memorizing particularly important ones. We need to have the cost of everything that goes into a facility at the tip of our tongues.
- Sticks and Bricks. While we play more as an advisor/consultant than as a construction manager and downplay the importance of pure construction background, knowing the details of the process and the inner workings of the design and construction interrelationship goes a long way to establishing the credibility needed to manage the process.
- Penny-Pinchability. To protect every client dollar as if it was the PM’s own money, to be spent to enhance project value at every turn.
- Diplomatic skills. Like a UN representative – often negotiating territory between feuding departments and navigating Board and CFO approval.
- Manage both Up and Down. The PM is required to manage a myriad of complex details from the quarterback position to members of the team, but also required to “manage” the expectations of the C-Suite.
- Finesse. When managing a project team, a velvet hammer approach is preferred over the sledgehammer; the approach is required to achieve an “advocacy,” not “adversarial” relationship.
- People skills to empathize across the organization from the C-Suite to the mail room staff and support both extremes through tough decisions and unforeseen surprises.
- Broad Shoulders. For everyone to lean on and get advice and counsel; and to cry on when the trauma of the transition gets to be too much.
- Passion. Given the demands and the trials and tribulations, a PM truly has to love the challenge of this job and relish the results of a happy client in great space that has enhanced the client organization.
Tune in next time. Perhaps we can discuss how to put together the perfect high performance project team.
Cheers.
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Real Estate as an “Infraservice”
Wednesday, March 3rd, 2010
By Vik Bangia
In the area of corporate real estate outsourcing, smart service provider firms understand that the purpose behind their engagement is more than just doing what they’ve been told. To understand exactly what comprises a good outsourcing plan depends on the specific needs and challenges of the client’s organization, and that’s often difficult to discern. In most cases, it follows naturally with the size of the company. To get to that level of understanding, real estate has to be considered an infraservice by both the client and the service provider. I define “infraservice” as a service that is key to the entire corporate infrastructure from Human Resources to IT, Operations, and Finance.
As a general rule, smaller organizations from mom-and-pop sized companies to burgeoning start-ups (nano-caps) to micro-cap firms are burdened with resource scarcity, limited cash flow, and survival issues. The outsourcing solutions to smaller firms are best delivered through the use of just-in-time and variable resources, financial portfolio optimization services, and a view towards freeing the company to focus on its core business. These firms can be from less than $50 million to $300 million in market capitalization.
Conversely, medium sized companies, such as those in the Russell 3000, are typically burdened by limited access to capital, recruiting and retention challenges, an overwhelmed infrastructure, unpredictable processes (due in part to their inherent entrepreneurial spirit), and the fact that real estate is not a core competency that has been built in to the organization. These firms benefit from highly consultative partnership models that deliver tactical services along with financial management skills and business controls. Small and Mid Cap companies are defined as firms with market capitalization ranging from $300M to $2 billion and $2billion to $10 billion respectively.
Big companies, such as those in the Fortune 1000, (also defined as those with market caps above $10 billion and extending to the hundreds of billions) have entirely different issues. They are challenged by multiple business lines with varying levels of profitability (if they are profitable at all), underperforming assets, bureaucracies, long-term liabilities, and lack of speed or mobility. In addition to a strong consultative skill set, the service provider has to be willing to step into the fray of organizational politics and competing business unit agendas. The challenge here is that most service providers working for Fortune 1000 companies are relegated to a commodity role because the bigger the organization gets in complexity, the more the purchasing or procurement department exerts its authority on decision making. This lends itself to service models that are based on price and not performance.
Even more challenging for big corporations working in this mode is that there are fewer and fewer alternatives available to engage only one service provider. And service providers working in this mode cannot see real estate as an infraservice while they are engaged as a commodity. A dilemma indeed, but one that bodes well for those firms that are nimble and can provide resources beyond those that think only transactionally.
No matter the size of the company, the real estate service provider’s role is to think like an infraservice provider and input the corporate requirements for HR, Operations, Finance, and IT into the strategic decision for the company.
Question yourself. As a corporate real estate manager, does your real estate service provider team approach their role as an infraservice? Have they understood your unique needs based upon the size of your organization? Are they trying to go beyond the tactical day-to-day service delivery and get into all aspects of your business? Do you consider them the “go to” team for questions ranging from leasing to organizational design to M&A due diligence? Do they approach their role as a business consultant as well as a real estate expert? If the answer to any of these questions is no, consider the fact that your real estate service provider may have already put themselves in a commodity role. If so, you’re not getting good value for your money (but you probably already knew that). Take this as an opportunity to bring in experts who can show you how rethinking the service provider relationship can enhance your relevance to your company’s senior management.
Tags: infraservice, infrastructure, real estate outsourcing
Posted in National Accounts | Comments Off
