ccim commercial mag

CommerCialin v es t men t

ShelterFrom the Storm

January | February | 2012

Find New Clients

Through Social Media

Where the Real Estate

Jobs Are in 2012

Commercial real estate offers investors refuge amid economic uncertainty.

The Magazine of the

Institute www.ccim.com

CAPITOL HILLCCIM’s Annual

VISIT

DAT

ES TUESDAY, APRIL 17 - Orientation

WEDNESDAY, APRIL 18 - Hill Visits

On April 18, CCIM Institute members will join with IREM to bring issues that affect commercial real estate to Capitol Hill.

An orientation will be held at the J.W. Marriott in Washington, D.C., in the afternoon on Tuesday, April 17.

Capitol Hill Visit Day provides a unique opportunity for CCIM members to build relationships with their U.S.

representatives and senators. Members will be prepared to discuss CCIM’s positions with their elected officials. It is

vitally important for CCIM members to attend and participate in the Capitol Hill visits.

The CCIM and IREM Capitol Hill visits have a proven track record of bringing change to the commercial real estate

industry. Here are just a few of the results of CCIM and IREM’s lobbying efforts over the past few years:

2010: Defeated proposed legislation that would have increased tax rates

2011: Built support for CCIM’s position on energy conservation

2010 - 2011: Consistently voiced the need for mortgage liquidity to increase health of overall U.S. economy

for financing and refinancing commercial property

LOC

ATIO

N

WASHINGTON, D.C.

CCIM Legislative Liaison Adriann Gerardi at

(312) 329-6033 or [email protected]

NTA

CT

mailto:[email protected]

1January | February | 2012

¬

COMMERCIALIN V ES T MEN T

DEPARTMENTS

4 In This Issue

6 Market Trends

42 Regional Outlook

44 International Beat

45 Buyers Guide

46 Deal Makers

48 CCIM Connections

COLUMNS

2 President’s Desk

12 CCIM Q&A

14 Financing Focus

16 Investment Analysis

18 Legal Briefs

20 Technology Solutions

FEATURES

22 Land of OpportunityForeign investors wash up on

U.S. shores, cash in hand.

by Dave Liniger

31 Build Your Business

Through Social MediaGet over it — the future of

marketing is online.

by Dennis LaMantia

34 Resizing or

Right-Sizing?There are big surprises in

store for the offi ce market.

by Rich Rosfelder

26

January.February 2012 Vol. XXXI No.1

Cove

r: S

treet,

Matt

hia

s K

ulk

a/C

orb

is;

Rain

dro

ps,

Ocean/C

orb

is

39 Employment

EvolutionWhere will you fi nd

your next job?

by Scott J. Kolb

6

Medical offi ce tops this year’s niche prospects.

COVER STORY

Shelter From the Storm

Commercial real estate offers investors refuge amid eco nomic

uncertainty.by Kenneth P. Riggs Jr.,

CCIM, CRE, MAI

January | February | 2012 Commercial Investment Real Estate

www.ciremagazine.com

PRESIDENT’SDESK

w @What’s online with Commercial Investment Real Estate

magazine?

• 2012 Expectations and Realities — Find out what’s on the horizon for the economy and commercial real estate from CCIM’s chief economist Ken Riggs, CCIM, CRE, MAI.

• Contemporary Zoning Confl icts — Today’s evolving landscape presents new challenges for urban planners, developers, and other commercial real estate professionals.

• 2012 Utility Budgeting — Howard Berends, a certifi ed property manager at American Utility Management, tells owners and facility managers how to keep expenses under control in the coming months.

• The New Bottom Lines — What factors should corporations consider when planning for tomorrow’s offi ce?

Online. All the Time.

Only at www.ccim.com/cire

Gearing UpWhat do you have to look forward to in 2012? More opportunities in

smaller markets if current forecasts are any indication.

CCIM members possess the network, skills, and tools to emerge as

sought-af er industry leaders. With the strong foundation you’ve built

as a CCIM member, it’s critical to renew your membership for 2012 and

continue to benefi t from:

• A network of CCIMs worldwide who are ready to make deals;

• Webinars, educational workshops, and other resources that provide

insight on today’s critical industry issues; and

• Technology that allows you to provide exceptional client service.

In 2012, CCIM will add even more value to your membership with

these initiatives:

Education, Marketing, and Technology. Plan to attend

an exclusive event at the Silverado Resort in Napa, Calif.,

Feb. 6–7. T is “super session” will incorporate highlights

of our updated core curriculum, a property marketing

deal-making session, and a technology education event.

National Property Marketing Webinars. A series of

national Webinars will provide an opportunity for members to show-

case their listings.

Strategic Plans for Global Growth. As the Institute continues to

expand internationally, CCIM’s education and networking will foster

more global opportunities for members.

CCIMs Pause for a Cause. T is summer the Institute will ask all

members to designate one day to give back to their local communities.

With the support of my strong executive leadership team that

includes Nick Miner, CCIM, Lou Nimkoff , CCIM, Carmela Ma, CCIM,

and Don Sebastian, CCIM, I look forward to a prosperous 2012 and

encourage you to renew your CCIM membership and position yourself

to succeed as the market recovers.

Leil Koch, CCIM

President, CCIM Institute

[email protected]

CCIM President Leil Koch talks more about his

2012 initiatives and how you will benefi t in a video

at http://j.mp/ccim2012.

Only@

Only@

Save the Date:APRIL 17–18, 2012

Join your fellow CCIMs in Washington, D.C., April 17–18,

to make your voice heard at CCIM’s annual Capitol Hill

Visit. Go to www.ccim.com/newscenter/public_policy

for more details or contact CCIM’s legislative liaison,

Adriann Gerardi, at [email protected].

COMMERCIALIN V ES T M EN T



Find New Clients

Through Social Media

Where the Real Estate

Jobs Are in 2012

Commercial real estate offers investors refuge amid economic uncertainty.

The Magazine of the

Institute www.ccim.com

http://www.ccim.com/cire


http://j.mp/ccim2012

http://www.ccim.com/newscenter/public_policy


http://www.ccim.com

I AM THE INDUSTRY OF ONE

BACKED BY A HISTORY OF$150 BILLION IN FINANCING.

Because I’m a part of Berkadia, I’m a part of the leading commercial mortgage lender

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with unparalleled fl exibility. That’s the Industry of One. So when you’re backed by me,

you have access to everything you need for the lifecycle of your property.

IRIS ANDRAKE VP TREASURY

GET THE INDUSTRY BEHIND YOU.

BERKADIA.COM

http://www.BERKADIA.COM


COMMERCIALIN V ES T MEN T

Commercial Investment

Real Estate, the member

publication of the CCIM

Institute, reports on market

trends and analysis, current

developments in the fi eld, and

successful business strategies.

CIRE Staff

Executive Vice President/CEO

Henry F. White Jr.

Executive Editor

Sara [email protected]

Senior Editor

Jennifer [email protected]

Associate Editor

Rich [email protected]

Contributing Editors

David Alvarado, Bernard D. Bollinger, Dennis LaMantia, Jay R. Lucas, CCIM, Delmar Nehrenberg, Lily Oberman,

Daniel Rowe, CPA

Design Consultant

Commercial Investment Real Estate

(ISSN 1524-3249) is published

bimonthly by the CCIM Institute of

the National Association of Realtors,

430 N. Michigan Avenue,

Chicago, IL 60611-4092.

Periodicals postage paid at Chicago,

Ill., and additional mailing offi ces.

Postmaster: Send address changes

to Commercial Investment Real

Estate, 430 N. Michigan Avenue,

Chicago, IL 60611-4092.

Subscriptions:

$45 for nonmembers in U.S.;

$55 for nonmembers in Canada and

Mexico. Call (800) 532-8633. For

reprints, call (312) 321-4460.

The opinions expressed in signed

articles and materials appearing in

Commercial Investment Real Estate,

including specifi c references to

products and services, are those of the

authors and not necessarily those of

Commercial Investment Real Estate,

the CCIM Institute, or the National

Association of Realtors.

© 2012 by the CCIM Institute.

All rights reserved.

Editorial address: 430 N. Michigan

Avenue, Chicago, IL 60611-4092;

(312) 321-4460; magazine@ccim.

com; www.ccim.com/cire.

The CCIM Institute, an

affi liate of the National

Association of Realtors, confers

the Certifi ed Commercial

Investment Member

designation to commercial real

estate professionals who have

extensive training and industry

experience and complete a

rigorous study program.

Executive Offi cers

President

Leil Koch, CCIM

Lahaina, Hawaii

President-Elect

Wayne D’Amico, CCIM

Essex, Connecticut

First Vice President

Karl Landreneau, CCIM

Baton Rouge, Louisiana

Treasurer

Craig Blorstad, CCIMBloomington, Indiana

Editorial Review Board

Adrian A. Arriaga, CCIM

Roger B. Broderick, CCIM

Todd D. Clarke, CCIM

David B. Eaton, CCIM

Jeff Engelstad, CCIM

Eric B. Garfi eld, CCIM

Tony M. Guglielmo, CCIM

Thomas E. Hankins, CCIM

James L. Helsel, CCIM

Soozi Jones-Walker, CCIM

J. Howard King, CCIM

Robert Knight, CCIM

George C. Larsen, CCIM

Kevin G. Lenze, CCIM

Mark L. Levine, CCIM

Charlie Mack, CCIM

Michael T. McLean, CCIM

James J. Piro, CCIM

David L. Schank, CCIM

Robert M. Stone, CCIM

Reader Services: All dues-paying

members of the CCIM Institute receive


magazine six times a year as a mem-

ber benefi t. Subscribe, purchase back

issues, or order customized article

reprints: www.ccim.com/cire or (800)

532-8633 x4507. Make address

changes: [email protected] or

(800) 532-8633 x4507. Request

reprint permissions: rrosfelder@ccim.

com. Submit articles and editorial

ideas: [email protected].

For advertising information, contact:

Rich Rosfelder at (312) 321-4507 or [email protected]

Only @ www.ccim.com/podcastsMarty Barkan, CCIM, CRE, senior vice president with First Property

Realty Corp., in Beverly Hills, Calif., explains how he’s building his

business through social media.

podcast

In the new post-recession market,

social media is going to be a huge

factor in attracting new clients, as many CCIMs are already

fi nding out. Check out what they told CCIM’s interactive mar-

keting manager Dennis LaMantia about

developing new business through social

media on p.31. Another big change is

how space will be used by corporations

in the coming years. On p.34, Associ-

ate Editor Rich Rosfelder examines the

trends that will determine how much

offi ce space companies will need.

FEATURED WRITERS T e roiling U.S. economy, buff eted by the euro

crisis and other world events, seems to have put

the recovery on hold. But that’s to be expected,

according to CCIM Chief Economist Ken Riggs,

CCIM, CRE, MAI, who, in this

issue’s cover story, explains that

2012 is the year these things get

sorted out in preparation for a strong comeback

in 2013. But through it all, commercial real estate

looks pretty solid in comparison to other invest-

ment options. Find out which sectors hold the

most promise on p.26. Dave Liniger, co-founder

and chairman of Re/Max, looks at foreign inves-

tor activity in U.S. markets, one of the most posi-

tive industry trends of the past six months, on

p.22. And Scott Kolb, a principal in the Chicago

office of Christenson Advisors, an executive

recruitment fi rm, discusses where the commer-

cial real estate jobs will be this year on p.39.

“The year 2012

will serve as the

foundation for

new business

growth.” p.26

¬

IN THIS

ISSUE

Riggs

Liniger

Kolb









http://www.ccim.com/podcasts

$22,200,000

Buffalo Grove, IL

Multifamily

236 Units

Acquisition

Agency

$5,200,000

Charlotte, NC

Office

64,637 Sq.Ft.

Acquisition

Insurance Company

$16,400,000

Galveston, TX

Hospitality

168 Rooms

Construction

Insurance Company

$12,740,000

Streetsboro, OH

Industrial

368,060 Sq. Ft.

Acquisition

Insurance Company

$144,432,200

TX, CO, AZ

MHC Credit Facility

11 Communities

Acquisition

Agency and CMBS

$27,000,000

Baton Rouge, LA

Multifamily

286 Units

Refinance

Agency

$20,370,000

Ft. Walton Beach, FL

Retail

722,284 Sq. Ft.

Refinance

Proprietary Bridge

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To find the lending professionals in your area, visit

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Connecting

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clients.

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TRENDSMARKET

Chri

stopher

Nuzz

aco/V

eer

Briefl y NotedHospitality — Up to a 100-day wait for visas

is keeping foreign tourists, especially those from

China, Brazil, and India, the fastest-growing and

highest-spending segment of overseas travelers,

from visiting the U.S., according to HotelNews

Now.com. Based on the U.S. Travel Association

statistics, from 2000 to 2010, the U.S. share of

global travelers fell almost 5 percent.

Industrial — Weary of fi ghting for offi ce tro-

phies, institutional investors are looking more

closely at plain-Jane warehouses, according to

CoStar, which has tracked an uptick of 3Q11

big-box warehouse sales in major distribution

hubs. Six quarters of positive absorption and a

70-basis-point drop in vacancy since 2009 may

signal rent growth ahead.

Multifamily — Buy multifamily “any way you

like it,” is the advice from Emerging Trends in

Real Estate 2012. Every market and class was

suggested by commercial real estate profession-

als interviewed, except one: Avoid markets with

an oversupply of single-family homes to rent.

Offi ce — While demand for medical offi ce

will certainly continue for the next decade, per-

formance varies considerably by market, says

Marcus & Millichap. Well-performing markets are

found in Texas, the Midwest, and the Northeast.

However the Southeast, the West, and Mountain

states suffer from an oversupply of spec devel-

opment built during the housing boom.

Retail — Tablets and smartphones will com-

pletely revolutionize the shopping experience

at apparel and department stores in the next

three years, according to Chainstoreage.com.

Cash registers and checkout counters will dis-

appear as sales associates armed with mobile

devices will make sales wherever the customer

happens to be. By 2015 more than 2.7 million

tablets a year will be shipped for use in retail

and hospitality locations.

Niche Investment Prospects1. Medical offi ce2. Urban mixed-use3. Data centers4. Self-storage5. Mixed–use town centersSource: Emerging Trends in Real Estate 2012 survey

2012

http://Now.com

http://Chainstoreage.com

Register NOW by visiting CCIM.com/CourseSchedule or calling our Solution Center at (800) 621-7027, ext. 3100

*For specific dates and times of Online, Instructor-Led courses, please refer to the course schedule or contact the CCIM Solution Center for more information.

+Denotes Non-United States/Canada courses Schedule subject to change without notice. For the most up-to-date schedule, visit CCIM.com/CourseSchedule.

2012 COURSE SCHEDULE

CI INTRO ClassroomCary NC Jan 19 - 20

Washington DC Feb 9 - 10

Mandeville LA Feb 9 - 10

El Paso TX Feb 9 - 10

Birmingham AL Mar 1 - 2

Albany NY Mar 15 - 16

San Francisco CA Mar 21 - 22

Kirkland WA Mar 29 - 30

Orlando FL Apr 5 - 6

Houston TX Apr 12 - 13

Addison TX Apr 19 - 20

Columbus OH Apr 19 - 20

New York NY Apr 21 - 22

Oak Forest IL May 10 - 11

Radnor PA May 10 - 11

Minneapolis MN May 14 - 15

Austin TX May 14 - 15

Denver CO May 15 - 16

New York NY May 26 - 27

Santa Ana CA Jun 21 - 22

Honolulu HI Jun 25 - 26

St. Augustine FL Jul 19 - 20

Alexandria LA Jul 26 - 27

Sacramento CA Sep 12 - 13

Kirkland WA Sep 27 - 28

Baton Rouge LA Sep 27 - 28

El Paso TX Oct 1 - 2

Cromwell CT Oct 3 - 4

Oak Brook IL Oct 4 - 5

Richmond VA Oct 8 - 9

Las Vegas NV Nov 1 - 2

CI 101Classroom

Addison TX Feb 6 - 9

St. Louis MO Feb 13 - 16

Scottsdale AZ Feb 13 - 16

Calgary + AB Feb 27 - Mar 1

Atlanta GA Feb 27 - Mar 1

Coralville IA Feb 27 - Mar 1

Moscow + RU Feb 28 - Mar 4

Stamford CT Apr 16 - 19

Kent WA Apr 30 - May 3

Indianapolis IN Apr 30 - May 3

Warsaw + PL May 14 - 19

CI 101 CONTINUED

San Francisco CA May 14 - 17

St. Petersburg + RU May 19 - 24

Singapore + SG Jun 4 - 9

Leawood KS Jun 4 - 7

Nashville TN Jun 4 - 7

New York NY Jun 9, 10, 16, 17

Austin TX Jun 11 - 14

Charlotte NC Jul 9 - 12

Denver CO Jul 10 - 13

Tampa FL Sep 10 - 13

Moscow + RU Sep 11 - 16

Honolulu HI Sep 17 - 20

Birmingham AL Sep 18 - 21

Warsaw + PL Sep 28 - Oct 3

Houston TX Oct 22 - 25

Santa Ana CA Oct 23 - 26

Washington DC Oct 24 - 27

Calgary + AB Nov 5 - 8

New Orleans LA Nov 5 - 8

Portland OR Nov 12 - 15

Online Jan 24 - Feb 23

Online Mar 6 - Apr 5

Online May 8 - Jun 7

Online Jul 16 - Aug 15

Online Aug 21 - Sep 20

Online Sep 11 - Oct 18

Online Oct 22 - Nov 26

Online Nov 5 - Dec 10

Online, Instructor-Led*

CI 102Classroom

Warsaw + PL Jan 9 - 14

Santa Ana CA Mar 12 - 15

Radnor PA Mar 19 - 22

Chicago IL Apr 16 - 19

Addison TX Apr 16 - 19

Calgary + AB Apr 30 - May 3

Atlanta GA May 21 - 24

San Francisco CA Jul 23 - 26

Columbus OH Sep 10 - 13

Kent WA Oct 1 - 4

St. Louis MO Oct 2 - 5

Scottsdale AZ Oct 8 - 11

Moscow + RU Oct 9 - 14

Stamford CT Oct 22 - 25

Orlando FL Nov 5 - 8

Warsaw + PL Nov 12 - 17

Online Feb 13 - Mar 19


Online May 1 - 31


Online Aug 14 - Sep 13


CI 102 CONTINUED

Online Oct 29 - Nov 28

CI 103Classroom

San Francisco CA Feb 13 - 16

Warsaw + PL Feb 20 - 25

Miami FL Feb 20 - 23

Moscow + RU Mar 27 - Apr 1

Denver CO Apr 10 - 13

Addison TX Jun 4 - 7

Calgary + AB Jun 18 - 21

Washington DC Aug 8 - 11

Las Vegas NV Aug 27 - 30

Atlanta GA Oct 1 - 4

New York NY Oct 13, 14, 20, 21

Chicago IL Nov 5 - 8

Santa Ana CA Nov 5 - 8

Moscow + RU Nov 13 - 18

Online Feb 6 - Mar 12


Online May 1 - 31




CI 104 In ClassTokyo + JP Feb 1 - 5

Austin TX Feb 13 - 16

Leawood KS Feb 20 - 23

Las Vegas NV Feb 27 - Mar 1

Kent WA Feb 27 - Mar 1

Warsaw + PL Mar 26 - 31

Orlando FL Apr 30 - May 3

Charlotte NC Apr 30 - May 3

Radnor PA Jun 4 - 7

Santa Ana CA Jun 5 - 8

Addison TX Jul 16 - 19

Calgary + AB Sep 24 - 27

Chicago IL Oct 1 - 4

Atlanta GA Nov 5 - 8

Online, Instructor-Led*Online Jan 31 - Mar 1


Online Apr 30 - May 31



http://CCIM.com/CourseSchedule




Svl

um

a/V

eer

TRENDSMARKET


Top U.S. Cities for Investment Increase in property investment

4Q10–3Q11, excluding development

Source: Real Capital Analytics/Cushman & Wakefi eld

29.7New York metro

Investment volume4Q10-3Q11

(in $ billions)

8.7Chicago

2.6Philadelphia metro

3.2Denver

6.1 Boston

0 50 100 150 200

165.5%

160.6%

157.7%

148.9%

141.3%

“Commercial real

estate has already

demonstrated for a solid

18 months that it can

perform reasonably

well in the throes of a

deleveraging recovery.”—Kevin J. T orpe, chief economist,

Cassidy Turley

2012 U.S. OutlookSECTOR NET ABSORPTION (MSF)

2012 (2011)VACANCY

(%)PSF RENTS

($)

Offi ce 56.5 (51.7) 15.6 (16.3) 21.53 (21.37)

Industrial 69.6 (89.8) 8.8 (9.3) 5.20 (5.10)

Retail 8.2 (-0.2) 10.9 (11.0) 18.99 (18.97)

Multifamily (in thousands)120.0 (167.5)

4.9 (5.8) (per month) 1,110 (1,056)

Source: Cassidy Turley

Bank Failures ContinueAs of November, 90 banks had failed in 2011, according

to Trepp, which predicts bank closures to continue

into 2012 and beyond. Of the 11 banks that failed in

October and fi ve in November, commercial real

estate loans comprised 80.8 percent of the banks’

nonperforming loans.

0 10 20 30 40 50

Tennessee 11

North Carolina 13

Minnesota 14

Illinois 26

Florida 37

44Georgia

2012’s High-Risk Banks Location Number of banks at risk

Source: Trepp

JOIN US IN BEAUTIFUL NAPA, CA,

FEBRUARY 6 - 7, FOR

CCIM EMTEducation, Marketing,

and Technology is a new event, designed so you can reconvene with colleagues between national business

meetings.

PROGRAM HIGHLIGHTS: Financial Analysis Update - learn to use the latest CCIM analysis tools to streamline your workflowMarket Analysis Update - discover how to bridge the gap between market and financial analysis Personal Networking - get up close and personal in this speed networking sessionUser Decisions Analysis Update - examine occupancy alternatives to help your clients make better decisions Investment Analysis Update - examine hold vs. dispose investment decisions through quantitative analysis High-Tech Marketing - use technology to market commercial real estate and position yourself as an industry expertProperty Marketing - learn best practices and test your property “elevator pitch”

Registration fee is only $149 for CCIM Institute members, $349 for non-members. Don't miss out – register now for this exciting new event at the Napa Silverado Resort. Book your room early to receive CCIM's special rate.

SEE YOU

IN NAPA.

CHEERS!

Visit our Conferences & Meetings page for full program details: http://www.ccim.com/networking/conferences-meetings

http://www.ccim.com/networking/conferences-meetings


TRENDSMARKET

TRENDSMARKET

Operatingexpenses53.6%

Compensation11.9%

Maintenance& repairs

5.2%

Insurance 1.9%

Marketing 3.1%

Turnover 2.4%

Taxes9.0%

Utilities11.0%

Late fees1.0%

StudentHousing Expenses Average expenses as a percent of rental income

Source: Off-Campus Student Housing: 2011 Income and

Expense Benchmarking Survey, National Multi-Housing Council

2012’s Top 3 CRE Issues On a scale of 1 (no importance) to 5 (very important)

Source: Emerging Trends in Real Estate 2012 survey

Vacancy rates

4.10

Interest rates

4.12

Job growth

4.82

0

1

2

3

4

5

West

Rock/G

ett

y Im

ages

ICSC’s Largest Annual Educational EventNew colleges of study for 2012:

t College of Finance for Non-Financial Professionals

t College of Law for Non-Lawyers

Also featuring:

t CCIM Institute’s College of Financial Analysis

t College of Debt Workout, Transactions and Repositioning of Distressed Assets

t Real-world examples and practical solutions

t Distinguished faculty of industry leaders and experienced practitioners

For more information please visit www.icsc.org/2012UV

MARCH 5 — 7, 2012

Now is the time to boost your retail industry

knowledge and be ready to conduct business

when the sector rebounds.

http://www.icsc.org/2012UV


Q&ACCIM

iby Jennifer Norbut

Tuned Into the Market

In a world where business professionals have instant access to information, some

might think radio communication is a thing of the past. Not true, say listeners who

tune into the “Commercial Real Estate Show,” a weekly online and on-air talk radio

broadcast. Hosted by Michael Bull, CCIM, CRB, founder of Bull Realty in Atlanta,

the show brings together a new panel of experts each week to share their insights.

Commercial Investment Real Estate asked Bull for a behind-the-airwaves look at what

goes into producing his show.

media. On average, it requires 60 to 70 hours

per week for a one-hour show and that does

not include the guests’ prep time.

As for the return, the show certainly helps

us build relationships, stay on top of the mar-

ket, and establish credibility. It has increased

our number of Twitter followers as well as

driven traffi c to our blogs, YouTube chan-

nel, and BullRealty.com. T e show is part of

a large marketing funnel to attract clients,

customers, brokers, and referrals. Bull Realty

has done very well in a tough cycle, so the

show is helping — or the combination of

what we are doing is working.

CIRE: How has your CCIM designation

helped you achieve success with the

show and in the industry?

Bull: Part of the benefi t of the CCIM train-

ing is the confi dence. You’re confi dent dis-

cussing business with the chief fi nancial

officer of a major firm, the underwriter

for a big fund, or just the guy next door.

CIRE: What prompted you to start

your own radio show?

Bull: I’ve been in the industry for 30 years

and several clients and colleagues along

the way have said that my sense of humor

combined with my commercial real estate

expertise would make for interesting talk

radio. So I decided to produce a show with

meaningful content for listeners, regardless

of where they live or work. T e show is fast-

paced and covers a tremendous amount of

industry information each week.

CIRE: How do you determine the

topics and select your guests?

Bull: Topics are chosen based on cur-

rent issues in commercial real estate. For

example, we have quarterly updates on the

various property sectors as well as shows

that address buying and selling distressed

assets, the health of the banking industry,

auctions, and commercial loan workouts,

among other topics. We’ve also covered

commercial real estate training, the return

on sustainability, tenanting strategies, and

social media marketing.

We invite guests who are well-known

for their experience related to each topic

and we’ve established relationships with

top analysts at Reis, Real Capital Analytics,

and many other industry-leading fi rms as

well as with top developers and real estate

investment trusts. Guests also include

leaders from the top commercial real estate

associations, such as CCIM’s 2011 Presi-

dent Frank Simpson, CCIM.

CIRE: How much time does the show

take to produce? Is it worth it?

Bull: T e show has a full staff and is much

more time-consuming and involved than

initially anticipated. Staff members are

devoted to planning the shows, writing

the content, selecting and coordinating

the guests, producing the show, marketing,

updating the website, and handling social

http://BullRealty.com

January | February | 2012www.ccim.com

My CCIM experience gives me more con-

fi dence when talking to powerful industry

leaders on the show.

We have a large concentration of CCIMs at

Bull Realty and recommend CCIM training,

resources, and networking to everyone. T e

fi rst place we turn to partner with expertise

around the country is the CCIM network.

CIRE: With access to so many experts

in the industry, you must glean a lot

of insights on the market. What does

2012 hold for commercial real estate?

Bull: T e already-strong sectors, such as

multifamily, single-tenant net lease, and

medical offi ce, will continue to strengthen

in 2012. T e sales volume of these assets

will increase and capitalization rates will

remain stable or compress even further

on properties with longer leases. Cap rates

for stable assets in secondary markets will

improve for sellers as investor demand

spreads to these markets.

Industrial, offi ce, and retail sector perfor-

mance will continue to improve very slowly

and in that order. T e growth will be slower

for class B properties and even slower for C

properties, especially in suburban locations

not tied to an employment or education cen-

ter. Improving performance will be partially

due to lack of new construction.

Jennifer Norbut is senior editor of Commer-

cial Investment Real Estate. If you have a

story worth sharing in CCIM Q&A, send it to

[email protected].

Michael Bull, CCIM, CRB

Listen to the “Commercial Real Estate

Show” online anytime at

www.CommercialRealEstateShow.com.

MAKE PLACES, not projects.

Curriculum focuses on sustainable and responsible real estate development practices.

Executive Master of Real Estate Development Program

For more information visit: mred.auburn.edu

a joint degree offered by the College of Architecture, Design and Construction and the College of Business

Auburn University is an equal opportunity educational institution/employer.

Starting May 2011 with rolling admissions

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FOCUSFINANCING

Self-Rental Rule Don’t get caught in a trap of unintended consequences.

by Daniel Rowe, CPA

tbecause under the passive activity loss rules, a

passive loss usually can only be used to off set

passive income. Generally, any passive loss

that exceeds passive income is suspended and

carried forward to be deducted in a future

year. However, there is an exception of up to

$25,000 for taxpayers who actively participate

in a rental real estate activity. Nonpassive loss,

on the other hand, can off set both passive and

nonpassive income.

Self-Rental NuancesTaxpayers can generally offset rental

income from one property by rental loss

from another property, as passive loss is

The only thing worse than incurring a loss on investment property

is incurring a loss that cannot be deducted for tax purposes. Self-

rental property may cause this tax result for some property owners

if rental arrangements are not strategically prepared. The following

overview of the self-rental rule, including an explanation of passive

activities in the context of rental real estate, may shed light for prop-

erty owners who want to avoid such tax consequences.

Passive Activities ConceptThe Internal Revenue Service considers

most business activities to be nonpassive

if a taxpayer materially participates in the

business. One exception to this rule is rental

real estate.

Partly because of their past use in tax shel-

ters, rental real estate activities are generally

considered passive regardless of participation

level. (T ere are exceptions that go beyond the

scope of this article.) T e distinction between

passive and nonpassive activities is important West

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ages


deductible to the extent of passive income.

However, an exception to this simple rule

occurs when property is rented to one’s self

or a business in which one materially par-

ticipates. In such a case, the rental real estate

activity’s treatment as passive or nonpassive

varies depending on whether it produces

income or loss.

For example, assume Juan has three activi-

ties for tax purposes: He is the sole owner

of a bookstore, in which he materially par-

ticipates, and he owns two rental properties

—a warehouse and an apartment building

—that are passive by nature. T e activities

generate $150,000 income and $100,000 loss,

with a net gain of $50,000. (See Example 1.)

T e rental loss can off set rental income, with

the excess loss then suspended. T e result

for Juan is $100,000 of taxable income and

$50,000 of suspended loss.

But suppose Juan rents the warehouse to

his bookstore instead of an unrelated third

party. T is is when the self-rental rules come

into play to recharacterize the rental activity.

In the case of a self-rental, income is

treated as nonpassive and loss is treated as

passive. T us, the warehouse income is non-

passive and the apartment loss cannot be

deducted against it. Because of the self-rental

trap, Juan’s tax result is $150,000 of income

and $100,000 of suspended loss, as shown in

Example 2.

Because he is renting to himself, Juan

controls the rent that the bookstore pays. By

adjusting this amount he can theoretically

create a loss for the bookstore. If he increases

the bookstore’s rent for the warehouse by

$125,000, he will get the results in Example

3, which is $150,000 in taxable income and

$100,000 in suspended losses. Again, because

it is a self-rental, the warehouse income is

treated as nonpassive.

T e result would be the same even if Juan’s

spouse was running the bookstore business.

In determining material participation, par-

ticipation by Juan’s spouse is considered

participation by him as well. T e self-rental

rule’s primary purpose is to prevent taxpay-

ers from manipulating rent for companies

they (or their spouses) own and operate to

create passive income to use against other

passive losses.

Avoiding the TrapTaxpayers can avoid or reduce the detri-

mental tax eff ect of the self-rental rule. One

way is to reduce their participation level in

the operating activity so it fails the material

participation tests. T en both the operat-

ing activity and the rental activity will be

considered passive and the self-rental rule

will not apply. However, it is usually not

feasible for owners to reduce their partici-

pation, especially when the operating activ-

ity is their primary business. T e interplay

of the operating activity and its income or

loss with any other activities of the taxpayer

should be analyzed in aggregate prior to

considering a reduction in participation.

A more reasonable method of combating

the self-rental rule is to minimize net income

for the rental activity. A net loss will still be

Potential tax consequences of a self-rental arrangement can make a bad situation even worse.

Effects on Taxable Income EXAMPLE 1 EXAMPLE 2 EXAMPLE 3

Nonpassive Bookstore

$100,000 income

Bookstore

$100,000 income

Warehouse

$50,000 income

Bookstore

($25,000) loss

Warehouse

$175,000 income

Passive Warehouse

$50,000 income

Apartment

($100,000) loss

Apartment

($100,000) loss

Apartment

($100,000) loss

Net ($50,000) $150,000 income $150,000 income

Taxable income $100,000 $150,000 $150,000

subject to the normal PAL rules, so minimiz-

ing loss may be important as well. However,

fair-market rent must be charged, as an arti-

fi cially high or low rent used to manipulate

income will not withstand IRS scrutiny.

Another option is to rent from a third

party. To avoid the poor tax results in

Example 2, Juan’s bookstore could rent a

warehouse from an unrelated party and he

could rent his warehouse to another unre-

lated company for an off setting amount. T is

method relies heavily on market conditions

that allow Juan to fi nd both a tenant for his

property and his own lease space.

It’s not always easy or practical to avoid

the reclassifi cation of income under the self-

rental rule. Property owners or investors who

rent to themselves or their entities should be

aware of the potential tax consequences that

can make a bad situation even worse.

Daniel Rowe, CPA, is a tax manager at the

accounting fi rm Deemer Dana & Froehle LLP

in Savannah, Ga. Contact him at drowe@

ddfcpas.com.

http://www.ccim.com




tThe recent bankruptcy fi ling by retailer Syms signals that the dis-

tressed asset fallout is far from over in the commercial real estate

market. In addition, roiling credit markets and the reduction in both

commercial and residential real estate values have resulted in a

new interest in the impact of bankruptcy fi lings upon real estate

investments. As banks succumb to the pressure to move bad

loans off their books, more distressed properties will come

onto the market this year. Here’s a look at what this

can mean for investors and landlords.

Could an increase in bankruptcy sales change the game?

by Bernard D. Bollinger

Distressed Opportunities

INVESTMENTANALYSIS


Are asset sales in bankruptcy cases an opportunity to buy real estate on the cheap?Although it might seem counterintuitive,

the distressed nature of bankruptcy sales

doesn’t always lead to depressed sales prices.

While I have recently seen more real estate

sales in bankruptcy cases than at any other

time in my nearly 25 years as an insolvency

attorney, whether those sales resulted in

good investment opportunities still depends

upon the investor’s knowledge of both the

asset being sold and the particular market

niche involved.

However, knowledge of the bankruptcy

sales process helps to increase the chance

of getting a good buy. All bankruptcy sales

are subject to overbid, but the process for

obtaining the highest bid is

somewhat malleable. Most

sales occur only af er a sepa-

rate notice and a hearing estab-

lish sales procedures. T ese of en

include provisions such as breakup

fees, bid deposits, and bid qualifi ca-

tion deadlines that ostensibly stream-

line the process but can also operate to

restrict the number of bidders.

Inherent in the process of restrict-

ing bidders is the potential that a

debtor’s management could

be attempting to steer a

bankruptcy sale toward

a desired bidder. Thus,

the most successful

investors in this arena are

those who realize how the

sales process works — that it is based upon

the inherent contradiction between the

creditors’ interest in obtaining the highest

sales price and the desire of a debtor’s insid-

ers to maintain control of an asset or steer

the sale toward a preferred purchaser. To

be successful, investors must understand

the target asset, the details of the sales pro-

cess, and how to combat any attempts at

manipulation of that process. T ese goals

are more likely to be achieved if the investor

is involved in the early stages of a debtor’s

bankruptcy case and is nimble in its due

diligence capabilities.

Has the proliferation of single-asset real estate cases increased the likelihood that the bankruptcy sales process will result in a good investment opportunity?T e bankruptcy code was revised in 1994 to

apply special rules limiting the automatic

stay in single-asset real estate cases and

those rules were expanded as part of the

bankruptcy code revisions of 2005. Limiting

the automatic stay was intended to expedite

Alm

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SARE cases involving “real property con-

stituting a single [nonresidential] property

or project … with fewer than four units …

on which no substantial business is being

conducted by the debtor other than the

business of operating the real property” [11

U.S.C. §363(d)(3)]. But it hasn’t quite played

out that way.

Instead, many courts have loosely applied

the SARE standards. For example, one court

held that the “historic synergy” between

multiple single-asset properties in a case pre-

vented the single-asset standard from being

applied to any of those properties, while

another court held that a hotel was not a

single-asset property because room cleaning,

Internet service, and food service constituted

enough business beyond the mere operation

of the real property.

These types of exceptions to the rule

appear to be indicative of a larger trend that

has resulted in many potential investment

properties remaining in bankruptcy longer,

thereby regulating the fl ow of assets to mar-

ket and reducing the likelihood that bank-

ruptcy sales will result in an extraordinary

investment opportunity.

How might existing real estate investments be impacted by the infl ux of commercial tenant bankruptcies?While a tenant’s bankruptcy of en portends

a reduced income stream from a commercial

property, the bankruptcy code does contain

a number of provisions that are calculated to

protect a landlord’s interests. T ose provi-

sions include administrative claim priority

and expedited payment requirements for

post-petition occupation of leased prem-

ises; restrictions on assumption and assign-

ment (although the bankruptcy code does

permit assignment even if the underlying

lease prohibits it); and an expedited process

for requiring a debtor tenant to determine

whether it will assume or reject a pending

lease [11 U.S.C. §365].

T ese provisions are very complicated and

can be tricky in their application, but with

the help of experienced bankruptcy coun-

sel, the owner of commercial real estate can

eff ectively limit the losses typically incurred

when a commercial tenant fi les a bankruptcy

petition.

Bankruptcies and distressed assets will

continue to aff ect the commercial real estate

market throughout this year and probably

beyond. While such investments can off er

value-add opportunities that may pay off

handsomely when the market recovers,

investors must have an in-depth understand-

ing of the asset and its market before moving

forward.

Bernard D. “Bo” Bollinger is chair of the insol-

vency and fi nancial solutions practice group

at law fi rm Buchalter Nemer in Los Angeles.

Contact him at [email protected].

SAV

E TH

E D

ATE APRIL 22 - 26, 2012

MIDYEAR BUSINESS MEETINGS

CCIM INSTITUTE

Kansas City, MOKansas City Marriott Downtown

http://www.ccim.com



Commercial Calculations Measurement methods can make a big difference in lease negotiations.

rRent, operating expenses, tax obligations, and several other economic matters are tied to the square

footage of leased premises. Generally speaking, a higher square footage yields higher rent and other

payments for the leased premises. Therefore, landlords and tenants often disagree on the appropriate

square footage to be used in lease negotiations.

by Delmar Nehrenberg and David Alvarado

BRIEFSLEGAL

Confl icting Measurements In California’s largest offi ce lease transac-

tion in recent years, digital television ser-

vices provider DirecTV signed a 15-year,

approximately 630,000 rentable square-

foot lease valued at more than $400 million

for the company’s corporate headquarters

in El Segundo, Calif. T e lease included

another approximately 89,000 rentable

square feet of must-take space to be

delivered by the landlord and leased

by DirecTV upon the expiration

of the existing third-party

leases. Eventually DirecTV

would exclusively lease the

entire three-building Kil-

roy Airport Center.

How to CalculateMany methods are used to calculate square

footage in commercial leases. Usable square

footage refers to the actual occupied area

leased. Rentable square footage is the sum

of the usable square footage and a portion

of common areas and other non-leasable

building areas allocated to the area leased

(of en determined by applying a percentage

load factor to the usable square footage). T e

portion of such other areas to be added to

the space’s leased usable area is negotiable.

T e most widely used U.S. standard for

measuring offi ce buildings is published by

the Building Owners and Managers Associa-

tion International. T e BOMA standard was

fi rst published in 1915 and has been revised

various times to refl ect industry changes.

T ough widely used, the BOMA standard

is voluntary. Landlords may choose not to

use it at all or may elect from a variety of ver-

sions of the standard to apply. T e selection

of the appropriate BOMA standard version

to be used isn’t always straightforward. And

more importantly, when landlords and ten-

ants disagree on which standard to use, the

diff erence in rent over the lease term can be

substantial. For example, in the following

case, the diff erence in the applied standards

amounted to $10 million in lease payments.

One major point of contention was how

to measure the premises. Prior to beginning

lease negotiations, both parties agreed that

the 1996 version of the BOMA standard

would be applied. However, a disagreement

ensued regarding the application of that

standard during lease negotiations.

It was the landlord’s position that any full

buildings leased by DirecTV should be mea-

sured as “gross building area,” as defi ned in

the 1996 BOMA standard yielding a higher


Am

bie

nt

Ideas/

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square footage than other methods. T e GBA

measurement includes the total constructed

area of a building and is computed by measur-

ing to the outside fi nished surface of perma-

nent outer building walls without deductions.

DirecTV argued that, whether or not it

leased a building in its entirety, GBA was not

the appropriate standard. Rather, DirecTV

proposed that the 1996 BOMA standard

used for multitenant offi ce buildings be used

for all portions of their premises. T e mul-

titenant application begins with the occupi-

able area of the premises and adds a portion

of the common areas but excludes from the

rentable square footage the major vertical

penetrations (stairs, elevator shaf s, fl ues,

pipe shaf s, vertical ducts, and the like), and

other non-usable areas.

T e 1996 BOMA standard provides mul-

tiple variations as to how to measure the

premises when a building is leased by a single

tenant. T e landlord argued that the 1996

BOMA standard would not have provided

for a GBA if BOMA did not intend for it to be

used; GBA applied specifi cally to and was the

most appropriate method for single-occu-

pant buildings. In addition, the landlord

argued that, where a tenant occupies all of

the rentable area of a building, it is appropri-

ate to charge a single occupant based upon

the entire gross area as the entire building is

dedicated to its use.

DirecTV argued that the application of

GBA was not consistent with market stan-

dards and that it should not have to pay for

vertical penetrations or non-usable areas

simply because it was the single occupant

(particularly given that the landlord did not

have other single-tenant off ers and would

likely have to lease on a multitenant basis

in DirecTV’s absence).

T e economic diff erence resulting from

application of the two proposed mea-

surement methods was approximately

$10 million. Given the magnitude of the

economic impact at stake, the measure-

ment dispute led to a short stalemate in

the negotiations. T e parties were even-

tually able to consider the desirability of

completing the lease and agreed to a com-

promise as to the stated square footage of

the premises. T e compromise equated

economically to more than the multiten-

ant measurement but less than the gross

building area.

Delmar Nehrenberg is a partner and David

Alvarado is an associate in the Century City,

Calif., offi ce of the law fi rm of Allen Matkins

Leck Gamble Mallory & Natsis LLP. Contact

them at [email protected]. and

[email protected] The authors of

this article represented the landlord in the dis-

cussed transaction.

One major point of

contention was how to

measure the premises.

Ward Center Online Education

Session 1: Feb 7 - 23

Session 2: Jul 17 - 31

Session 3: Oct 30 - Nov 8

REAL ESTATE

FINANCIAL ANALYSIS

USING EXCELMastering Microsoft Excel’s financial analysis capabilities can make proforma

models more accurate and bring enhanced meaning to sensitivity analyses. In this

class, students learn step-by-step instructions for creating an accurate proforma

for analyzing the financial performance of commercial and investment real estate.

Students are expected to have a basic knowledge of Excel and a firm grasp of basic

real estate finance concepts such as time value of money, IRR, and NPV.

Live virtual session dates and times vary. Visit http://www.ccim.com/

education/ward-center or call (800) 621-7027 for more information.

http://www.ccim.com



http://www.ccim.com/education/ward-center

http://www.ccim.com/education/ward-center

TECHNOLOGYSOLUTIONS

tThis year, the commercial real estate industry will continue to face

challenges. CCIM members are looking for information that will help

them save time, cut costs, and enhance their productivity. In the

current economic climate, for example, retail leasing specialists and

shopping center owners might benefi t from knowing which tenants

are most likely to succeed in their location. And with access to free

tech support, small fi rms and solo practitioners could focus on clos-

ing deals instead of fi xing their computers. Likewise, a neighbor-

hood’s “walkability” rating might help attract commercial tenants,

particularly in active urban markets.

by Jay R. Lucas, CCIM


Work Smarter

Svanhorn

/Veer

Last year, CCIM Tech introduced services

that meet these needs. CCIM members can

start the New Year by capitalizing on these

new member benefi ts to overcome the chal-

lenges that lie ahead.

Rating RetailBrandScore is the most recent addition

to STDB, in cooperation with T eRetail

Planet.com. BrandScore measures the

degree to which a specifi c brand is likely to

succeed in a given retail location based on

four components: neighborhood, retailer

synergy, competitive environment, and

commercial activity. T e higher the Brand-

Score, the more likely a retailer will be to

succeed.

Let’s say a broker would like to recruit a

new tenant for a retail property in Denver.

She can enter the property address into

STDB, and using the BrandScore wid-

get, she can immediately see the top fi ve

retail tenants for that location based on

To learn more about

these services and other

valuable technologies

available for CCIM

members, visit the

CCIM Tech Learning

Center at www.

ccimtechlearningcenter.com.

http://Planet.com

http://ccimtechlearningcenter.com


TheRetailPlanet.com’s proprietary retail

property scoring algorithms. She can then

focus her recruiting eff orts on those retail-

ers. T ere is also a link to T eRetailPlanet.

com, where users can get more-valuable in-

depth data with a subscription.

To access the top BrandScore retailers

for a specifi c location, log in to STDB’s Site

Analysis. Click on the RetailPlanet icon on

the right-hand side of the map below the

measurement tools. T en click on the prop-

erty location to see a list of retailers with the

highest BrandScores. Users can also modify

the square-footage range to get a new list.

Tech RescueDo you ever have problems with your com-

puter hardware, sof ware, network, or digi-

tal devices? Are these problems so frustrat-

ing that you can’t focus on the transaction

you’d rather be working on?

CCIM members now have free access to

the full-time Tech Helpline, which can assist

in fi xing any tech-related problem. Helpline

experts efficiently troubleshoot and offer

solutions, of en by remotely connecting to

members’ computers. T is allows members

to spend that time focusing on the assign-

ments that pay the bills. Tech Helpline users

have successfully removed computer viruses,

resolved sof ware confl icts, connected to new

routers, and fi xed problems with antivirus

programs. T e Tech Helpline can be reached

at (888) 509-9541 or by clicking on the “Free

IT Support” link on www.stdb.com.

What’s the Score?CCIM members also now have access to

Walk Score and Transit Score through

STDB. T ese tools display location ratings

based on services within walking distance

and access to public transit. Given the fl uctu-

ating cost of gasoline and increased interest

in urban real estate, a good score could help

convince a buyer or tenant to close the deal.

Access Walk Score through the STDB

services menu af er logging in to www.stdb.

com. Enter a property address and click

“Get Walk Score.” A tremendous amount

of information appears, including a Walk

Score and Transit Score on a scale of 1 to

100. High scores indicate that a property is

in a walkable area with easy access to public

transit. Also provided are a map and list of

nearby businesses such as restaurants, hotels,

banks, child care, gyms, and other highly

valued services. Walk Score includes direc-

tions and additional details for each business

listed, and Transit Score provides a list of all

public transit services around the property

including bus numbers and stops.

Walk Score has also been added to STDB’s

Site Analysis as a heat map, with green por-

traying more walkable areas and red denoting

less walkable locations. Walk Score heat maps

can be found under STDB’s Map Layers tab.

Jay R. Lucas, CCIM, is president of CCIM

Technologies, a wholly owned subsidiary

of the CCIM Institute. Contact him at jayr@

stdbonline.com.

Coldwell Banker Commercial® has the most

CCIM designees and candidates of any

commercial real estate company!

Emil Akopian, CCIMColdwell Banker Commercial

North County

Glendale, CA 91203

(818) 334-1889

[email protected]

Don G. Chapman Jr., CCIMColdwell Banker Commercial

Las Colinas

Albuquerque, NM 87109

(505) 897-7227

[email protected]

Jeffrey Cusson, CCIMColdwell Banker Commercial

Saunders Real Estate

Lakeland, FL 33801

(772) 332-9070

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NRT - FL

Maitland, FL 32751

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Advantage

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David R. Issaians, CCIMColdwell Banker Commercial

North County

Glendale, CA 91203

(818) 334-1916

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Justin Kite, CCIMColdwell Banker Commercial

First Equity, Realtors

Amarillo, TX 79106

(806) 468-4897

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Stephen C. Lyon, CCIMColdwell Banker Commercial

Las Colinas

Albuquerque, NM 87109

(505) 897-7227

[email protected]

Karl D. Maret, Jr., CCIMColdwell Banker Commercial

NRT - FL

Tampa, FL 33609

813-286-2964 x205

[email protected]

Leslie Mary Anna Phelps, CCIMColdwell Banker Commercial

United, Realtors

Houston, TX 77049

(281) 935-0755

[email protected]

David P. Schooff, CCIMColdwell Banker Commercial

Fisher Group

Mankato, MN 56001

(507) 625-4715

[email protected]

Beau Tucker, CCIMColdwell Banker Commercial

Rick Canup, Realtors

Lubbock, TX 79414

(806) 793-0888

[email protected]

Congratulations to the Newest Designees

cbcworldwide.com��&ROGZHOO�%DQNHU�&RPPHUFLDO�$IÀOLDWHV��$�5HDORJ\�&RPSDQ\��$OO�5LJKWV�5HVHUYHG��(DFK�2IÀFH�LV�,QGHSHQGHQWO\�2ZQHG�DQG�2SHUDWHG��

http://www.ccim.com

http://TheRetailPlanet.com

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Land of

by Dave Liniger

Foreign investors rejuvenate the U.S.

commercial real estate market.attteeeeeee

It’s no secret that commercial real estate in the U.S. has had its fair

share of struggles as the economy gets back on track. But when

compared to other parts of the world such as Europe, which is expe-

riencing sovereign debt crises and economic angst, the U.S. is still

one of the most attractive options for foreign investors with capital

to spend.

Just as we’ve seen in the housing market, challenging times cre-

ate great opportunities in the commercial sector. Foreign investors

recognize this, and they see the value in investing in U.S. commer-

cial properties. Savvy, professional commercial brokers can expand

their businesses to include this growing client base and be a part of

something big.


ing to the U.S. in droves. In 3Q11, Canadian

capital represented one-third of all foreign

commercial acquisitions, followed closely

by Latin American and Asian investors,

according to Real Capital Analytics.

Investors based in Hong Kong and China

have also ramped up activity, with acquisi-

tions surging to nearly $1.5 billion in the past

year — a major increase considering these

investors acquired practically nothing 18

months ago. South Koreans are right on their

heels, totaling well over $1.1 billion worth of

commercial investments over the past year.

T e surge in Canadian acquisitions is a

relatively new phenomenon, driven mostly

by strong economic conditions and a stable

Canadian dollar, says Jim Fetgatter, chief

executive of the Association of Foreign

Investors in Real Estate, a trade organization

that represents foreign investors interested in

U.S. real estate.

“Canada’s economy never went through

the fi nancial crisis we did during this reces-

sion, so the U.S. is an ideal choice, plus there

are limited investment opportunities in Can-

ada due to the smaller size of its commercial

market,” Fetgatter says.

It might be surprising to some that despite

the infl ux of cross-border acquisitions, pur-

chasing U.S. real estate is actually a diffi cult

endeavor for foreign investors, due in large

T e numbers tell the story: For the fi rst

time since 2007, cross-border acquisitions

topped $7.8 billion in third quarter 2011.

What’s more, these buyers accounted for

more than 10 percent of all sales volume —

another recent high, according to Real

Capital Analytics.

Underpinning global investment activity

is a mix of buyers who are looking for quality

assets, investment safety, and high returns.

U.S. commercial markets possess these

strengths, says George Ratiu, manager of

quantitative and commercial research with

the National Association of Realtors.

“T e U.S. is attractive to global investors

because it has a mature and stable economic

environment, which provides investors with

quality assets and capital safety,” Ratiu says.

“Another factor is the rising availability of

investment capital in China. While Chinese

real estate continues to be a powerful magnet

for international investors, Chinese inves-

tors are looking to diversify their holdings,

and the U.S. is an ideal choice. Also, the sof

dollar is making dollar-denominated assets

a relative good buy.”

Canadians Lead the Way

Looking at the overall picture, our neigh-

bors from up north are the largest group of

international investors, and they’re fl ock-

BROKERS:

BE ON THE

FOREFRONT Real estate is based on relation-

ships, and this includes both

investors and other brokers who

could serve as a gateway to

potential buyers for your commer-

cial listings. It always helps if you

have a direct tie in common and

a way to meet them in person.

For example, vital contacts are

made at the annual Re/Max Com-

mercial World Symposium and

the R4 convention, where com-

mercial professionals from doz-

ens of countries come together

for a special commercial track to

network. If you don’t have this

sort of global network available to

you, look for other ways to meet

and interact with international

contacts, such as attending

foreign investment association

meetings and conferences.

Aside from being knowledge-

able about your market and other

global commercial hotspots, be

hands-on in your service. You

ultimately control how much — or

how little — you are involved with

foreign investors.

One thing I’ve always noticed

in my travels, which include visits

to some of the 80-plus countries

in the Re/Max network, is how

entrepreneurs from other coun-

tries are so savvy about what’s

happening in the U.S. They read

up on international news. They

know business trends. They take

the time to cultivate contacts

abroad.

We should be just as diligent

in knowing what’s happening

around the world.


Spectr

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C.J

. B

urt

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orb

is

http://www.ccim.com


part to Foreign Investment in Real Property

Tax Act legislation. FIRPTA mandates that

foreign investors be taxed on dispositions of

U.S. real property interests. It makes transac-

tions more costly and time-consuming for

inbound investors.

“No other type of foreign investor is taxed

on capital gains in the U.S. except for real

estate investors,” Fetgatter says. “T e manner

in which foreign investors tailor their acqui-

sitions for tax purposes depends on whether

the U.S. has a double taxation treaty with that

country and what kind of investor they are.

For example, high-net worth individuals are

taxed diff erently than foreign pension funds

in relation to how they’re able to structure

their investments.”

Secondary Markets Gain Steam

Traditional commercial gateway markets

such as Manhattan, which accounted for 40

percent of foreign purchases through 3Q11,

are still the hot destinations for global inves-

tors. But cities like Miami, Houston, Seattle,

Dallas, and San Diego are making gains in

commercial investment activity.

In Miami, for example, foreign investors

purchased more than $650 million worth of

commercial properties as of mid-October.

Asian investors led the way, accounting for

about 63 percent of all foreign capital in the

city, according to RCA data.

JM Padron, CCIM, broker/owner of Re/

Max Commercial Associates in Fort Lauder-

dale, Fla., is seeing this fi rsthand. Large multi-

national companies, such as Genting Malaysia

Berhad and Hong Kong’s Swire Group, have

recently announced major multimillion-dol-

lar investment projects in downtown Miami.

And that’s just the beginning.

“Asian investors are defi nitely prominent

in South Florida investments, but we’re also

seeing major players come in from Brazil and

other Latin American countries; Brazilians

account for 35 percent of commercial buys in

downtown Miami,” Padron says. “Israel also

is an important investor in South Florida; the

Dizengoff Group has invested $85 million,

mostly in anchored retail centers and bulk

condo deals.”

Nationally for foreign investment, offi ce

sales have recovered quite nicely, account-

ing for over half of cross-border acquisitions

as of June 2011 — a 65 percent year-over-

year increase over 2Q10, according to RCA.

T e retail and apartment sectors, however,

recorded the largest gains, signaling an

emerging preference for those property

types.

If 2011 numbers are any indication, more

foreign investors will be looking to diversify

their holdings — and they’ll be investing

their capital in the U.S.

Dave Liniger is co-founder and chairman of

Re/Max, one of the leading real estate fran-

chise companies with a global reach of more

than 80 countries. Contact him at dave@

remax.com.

Foreign Investment in Secondary Markets U.S. market Investor country

2011 total investment

($)# of properties

Dallas Canada 180,165,000 6

Israel 96,900,000 7

Germany 6,040,274 1

Australia 49,750,000 2

Hong Kong 182,602,304 3

Total 515,457,577 19

Houston Canada 167,756,400 5

Europe 3,809,001 1

Israel 175,999,944 3

Japan 7,000,000 1

Total 354,565,345 10

Miami Asia 412,249,896 4

United Kingdom 61,000,000 1

Americas 67,350,000 5

Germany 99,927,500 2

Hong Kong 13,100,000 1

Total 653,627,396 13

San Diego Europe 4,674,750 1

Asia 9,200,000 1

Total 13,874,750 2

Seattle Canada 78,100,000 1

Switzerland 51,915,250 1

United Kingdom 55,325,250 3

Japan 18,400,029 2

Hong Kong 3,400,000 1

Total 207,140,529 8

Source: Real Capital Analytics



Contact

Kenneth P. Riggs, Jr.,

CFA, CRE, FRICS, MAI, CCIM

312.587.1900

One of the first,and now, more than 80 years later,we are still at the heart of the industry.Real Estate Research Corporation (RERC) continues to be one of the most committed

commercial real estate research, valuation and consulting/advisory firms in the

nation. Our real estate research, publications, market studies, property valuations,

and investment and trends analysis have proven visionary for more than 80 years.

As an SEC-registered investment advisor, we use our knowledge and expertise in the real estate

field to act as an independent fiduciary on behalf of our clients, including:

� Independent fiduciary services for a major financial services fund valued in excess of

$12 billion.

� Fairness opinions on dozens of major acquisitions.

� Expert witness testimony regarding the valuation of billions of dollars of real estate.

� Valuation management and consulting for one of the nation’s largest pension funds, with

oversight responsibilities on a real estate portfolio containing approximately $20 billion in

gross asset value.

For additional information, including a complete list of services provided by RERC,

visit www.rerc.com.

Fiduciary & Advisory Services

Research & Publications

Valuation Management & Oversight

Management Information Systems

Addressing the industry’s real estate investment needs since 1931.

http://www.rerc.com


Now that we are several years past the credit

crisis of 2008, the world is still in turmoil.

T e European debt crisis and unrest in the

Middle East — these global circumstances

set the tenor for U.S. economic concerns.

Gross domestic product grew 2.0 percent in

3Q11, but the federal debt grew to $15 tril-

lion in 4Q11. Unemployment remains at 9.0

percent, home prices are still declining, and

although the nation has dealt with many of

its fi nancial issues, the political climate is

the worst we have seen in recent history as

attested by Standard & Poor’s downgrading

of U.S. credit to AA+.

Not surprisingly, businesses and con-

sumers lack confi dence, market volatility

has increased, and investors are tentative. It

seems the only certainty is that uncertainty

will prevail throughout 2012, at least until

the fall elections. T e year 2012 will serve as

a foundation for new business growth, more

deals, and getting our ducks in a row for what

is to come. T en we can fi nally turn the page

to 2013, when it’s time for commercial real

estate to come clean.

Ballast in the Storm

Although the uncertainty is dragging on,

investors can take heart in the fact that com-

mercial real estate has been able to more

than hold its own in this environment.

Commercial real estate has held vary-

ing degrees of value throughout history,

but compared to the banking industry and

other investment alternatives, it has always

been tangible, mostly transparent, and has

served as a secure investment to which

we have retreated when times were tough.

Given the uncertainty we are experiencing,

this security is a very appealing place to be —

an investment foundation that is relatively

stable fi ts our needs quite well and, from an

investment perspective, will continue to for

the next decade. Commercial real estate is

able to deliver what cannot be delivered by

the alternatives.

As shown in Table 1, the returns for com-

mercial real estate for private institutional

equity investors are up strongly and exceed

all other investments on a year-to-date basis

through 3Q11, according to the National

Council for Real Estate Investment Fiducia-

ries Index. Public equity investors are down

on a YTD basis following a strong bull run

in the prior two years, according to the

National Association of Real Estate Invest-

ment Trusts Index. In addition, much of the

loss we are seeing in the NAREIT Index is

due to the inherent volatility in the stock

market. In fact, as of 3Q11, institutional real

estate investors are still seeing a YTD annual

rate of return of 10.97 percent according to

the NCREIF Index, despite the increasing

risk. Most investors consider these returns

quite good on a relative or risk-adjusted basis.

Investors are fed up with the volatile stock

market, which can fl uctuate 3.0 percent or

more a day based on news from overseas.

Further, according to some estimates, 80

percent of daily trading volume comes from

high-frequency traders that are careless about

the fundamental value of the companies they

are trading. Much of 2012 will be spent clean-

ing up the volatility created by traders versus

investors. T e bond market is a risky bet too,

with interest rates at historical lows. As rates

rise — and they will one day — values will

go down accordingly. T e year 2012 will be

a pivotal time for the fi nancial markets, as

investors separate the wheat from the chaff .

As for commercial real estate returns, we

are already seeing moves toward stabilization

among the core property types, according to

Real Estate Research Corp.’s institutional

investment survey respondents. As shown in

Table 2, RERC’s required pre-tax yield rates

and required going-in and terminal capi-

talization rates increased or decreased only

nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnCommercial real

estate offers investors refuge amid economic

uncertainty.

by Kenneth P. Riggs, CCIM, CRE, MAI


slightly, if at all, for the offi ce, industrial, retail,

and apartment sectors. In contrast, required

returns for the hotel sector decreased some-

what signifi cantly from the previous quarter.

It does not take much brain power to con-

nect the dots when commercial real estate is

providing extremely attractive risk-adjusted

returns versus Treasuries (Table 3). Analy-

ses of RERC’s required pre-tax yield rate

(discount rate) and cap rates demonstrate

returns with spreads of 600 basis points

and 450 basis points respectively, which

are above the long-term averages. Although

Treasuries are at all-time lows, these low

rates are anticipated to continue for the next

several years.

U.S. commercial real estate continues

to provide the ballast needed in this global

fi nancial storm that remains fraught with

moral hazard, lacks honesty and transpar-

ency, and has turned the world on its head.

It will take several years to deal with many of

these systemic issues in a world that operates

between greed and fear, but if commercial

real estate does not come clean by 2013, it will

be a lost relic of the Great Recession.

Fundamentals Hold Their Own

Commercial real estate’s saving grace is that

it was not signifi cantly overbuilt nor did it

have a huge construction pipeline when

the recession began. As a result, property

fundamentals continue to improve, despite

sluggish and downright dismal employment

growth. T e interaction between demand

and supply for commercial properties has

translated into stabilizing fundamentals

relative to the dislocation felt throughout

most industries. Commercial space absorp-

tion is now positive, and new construction

remained at record lows in 2011. As a result,

vacancy rates and rents posted slow but

steady improvements. T is is what needs to

continue for property prices to inch up.

Offi ce vacancy declined to 17.4 percent

in 3Q11, while asking and eff ective rents

increased 0.4 percent and 0.6 percent respec-

tively, according to Reis. RERC’s transac-

tion analysis indicated that total volume

increased 20.0 percent, as the size-weighted

average price per square foot increased

approximately 5.0 percent.

T e availability rate for industrial proper-

ties declined to 13.0 percent in 3Q11, accord-

ing to Grubb & Ellis, as new supply and rents

increased slightly. Industrial property volume

increased about 10.0 percent on a 12-month

trailing basis, but the overall size-weighted

average price per square foot declined slightly,

according to RERC’s analysis.

Despite a weak economy and slow con-

sumer spending, the retail sector vacancy

rate remained at 11.0 percent during 3Q11,

according to Reis. However, net absorption

remained negative, and rents remained fl at.

Transaction volume increased nearly 10.0

percent on a 12-month trailing basis, and

the size-weighted average price psf of retail

property space increased slightly, according

to RERC’s analysis.

With a vacancy rate of only 5.6 percent

during 3Q11, according to Reis, increas-

ing rents, and positive net absorption, it is

easy to see that the multifamily sector poses

minimal risk nationally, regionally, and in

most metro areas. Apartment sector volume

increased 15.0 percent on a 12-month trail-

ing basis, although the size-weighted average

price per unit declined slightly, according to

RERC.

Hotel occupancy rose to 62.8 percent in

3Q11, according to Smith Travel Research.

T e average daily rate and revenue per avail-

able room also increased. RERC’s transac-

tion analysis showed that total volume for

the hotel sector rose 10.0 percent, but the

overall size-weighted average price per unit

decreased about 5.0 percent.

All in all, we should be thankful for the

fundamentals we see today on the heels of

Table 1:

Financial Markets vs. Commercial Real Estate PerformanceCOMPOUNDED ANNUAL RATES OF RETURN AS OF 9/30/2011

Market Indices YTD4 1-Year 3-Year 5-Year 10-Year 15-Year

Consumer Price Index1 3.05% 3.93% 1.23% 2.27% 2.45% 2.46%

10-Year Treasury Bond2 3.02% 2.98% 3.14% 3.62% 4.01% 4.59%

Dow Jones Industrial Avg. -3.90% 9.21% 3.15% 1.37% 4.67% 6.52%

NASDAQ Composite3 -8.95% 1.97% 4.91% 1.35% 4.89% 4.62%

NYSE Composite3 -14.72% -6.72% -3.39% -4.32% 1.68% 3.80%

S&P 500 -8.67% 1.14% 1.22% -1.18% 2.81% 5.23%

NCREIF Index 10.97% 16.10% -1.45% 3.40% 7.82% 9.39%

NAREIT Index (Equity REITs) -6.05% 0.93% -1.99% -2.43% 9.18% 9.14%

1 Based on the published data from the Bureau of Labor Statistics (seasonally adjusted)2 Based on Average End of Day T-Bond Rates3 Based on Price Index, and does not include the dividend yield4 Year-to-date (YTD) averages are not compounded annually

Source: BLS, Federal Reserve Board, S&P, Dow Jones, NCREIF, compiled by RERC


Table 2: RERC Required Return Expectations1 by Property TypeCOMPOUNDED ANNUAL RATES OF RETURN AS OF 9/30/2011

Offi ce Industrial RetailApartment Hotel

AverageAll Types

RERC Portfolio

IndexCBD Suburban Warehouse R&D Flex Regional Mall Power Center Neigh/Comm

Pre-tax Yield (IRR) (%)

Range 7.0-10.0 7.5-11.0 7.0-11.0 8.0-11.5 8.0-12.0 6.5-11.5 6.0-11.0 7.0-12.0 6.0-11.0 8.0-15.0 6.0-15.0 6.0-15.0

Average2 8.1 9.1 8.6 9.1 9.5 8.1 8.7 8.67.9 10.4 8.8 8.5

Weighted Average3 8.7 8.7 8.4

BPS Change4 20 0 10 0 10 10 -10 -3010 -30 0 10

10 0 0

Going-in Cap Rate (%)

Range 5.0-8.5 6.3-9.5 6.0-8.0 7.0-9.0 7.0-9.0 5.0-8.0 6.5-8.0 6.0-9.0 5.0-8.0 6.0-10.0 5.0-10.0 5.0-10.0

Average2 6.4 7.4 7.1 7.7 7.9 6.4 7.4 7.15.9 8.3 7.2 6.7


BPS Change4 0 -10 10 0 10 -20 -10 0-10 -50 0 -10

-10 10 -10

Terminal Cap Rate (%)

Range 6.0-8.5 6.8-9.5 6.5-8.5 7.5-9.0 7.0-10.0 6.0-8.5 7.0-9.8 6.3-10.5 5.5-8.5 8.0-11.0 5.5-11.0 5.5-11.0

Average2 7 8 7.6 8.2 8.4 7 7.8 7.86.5 8.9 7.7 7.3


BPS Change4 0 -10 0 0 0 0 -30 0-10 -40 -10 -10

-20 0 -10

1 This survey was conducted in July, August, and September 2011 and refl ects expected returns for third quarter 2011 investments.2 Ranges and other data refl ect the central tendencies of respondents: Unusually high and low responses have been eliminated.3 Weighting is based upon 3Q11 NCREIF Portfolio market values.4 Change (+/-) in basis points (BPS) are from quarter immediately preceding current rate.

Source: RERC Investment Survey

the Great Recession. As 2012 unfolds and

we see increased fi nancial stability, the need

for companies to hire and the confi dence of

businesses to spend the $2 trillion in cash

hoarded over the past several years should

increase. T at said, commercial real estate

market fundamentals are poised to see

strong rent increases.

Class B and C Improve

Class B and C markets generally are not

seeing the kind of returns realized in the

institutional market or with class A proper-

ties in top markets, but investors have been

expanding their search into tertiary mar-

kets and smaller cities looking for higher

returns and lower-priced assets. T ere is

plenty of capital in search of the right deal

at the right price, as the issue is not liquidity,

but pricing.

Class B and C properties are starting to

show improving fundamentals, with class A

properties tending to see peak pricing and

Table 3: RERC Rates vs. 10-Year Treasuries

Recession

Historical Avg.: Going-in vs. 10-Yr Treasury

Spread: Going-in vs. 10-Yr Treasury

Historical Avg.: IRR vs. 10-Yr Treasury

Spread: IRR vs. 10-Yr Treasury

1Q '1

1

1Q '1

0

1Q '0

9

1Q '0

8

1Q '0

7

1Q '0

6

1Q '0

5

1Q '0

4

1Q '0

3

1Q '0

2

1Q '0

1

1Q '0

0100

200

300

400

500

600

700

800

Source: RERC, Federal Reserve, and NBER 3Q11 data

http://www.ccim.com


rents, according to Reis. For example, B and C

offi ce properties experienced rental growth

and positive absorption in 2011, although

vacancy rates have yet to decline. Tertiary

markets are also beginning to show growth,

given that volume doubled in the fi rst half of

2011 as compared to a year earlier. In addi-

tion, offi ce, apartment, and retail property

transactions of less than $5 million showed

larger increases in volume than transactions

greater than $5 million during 3Q11 on a

12-month trailing basis, according to RERC.

CCIM members are seeing this trend and

believe that commercial real estate’s overall

value is holding its own as well, giving the

asset a value versus price rating of 5.4 on a

scale of 1 to 10, with 10 being high, during

3Q11. As for the individual property types,

CCIM members rated the value of each sec-

tor equal to or higher than the property

price. As shown in Table 4, the apartment

and industrial property sectors have the

highest value versus price ratings.

Despite the relative stability of commercial

real estate, there is risk with any investment,

particularly in periods of great uncertainty.

As a result, we are seeing investors turn to

cash as the stock market turns stomachs

and bonds are priced for perfection. In fact,

according to RERC’s 3Q11 Investment Trends

Quarterly survey of CCIM members, cash

is the only investment type where the rat-

ings have consistently increased during the

past year. As we saw with the NCREIF and

NAREIT Index readings in Table 1, com-

mercial real estate is not immune from eco-

nomic risk — particularly when the rest of

the market is going haywire. It is diffi cult to

quantify the amount of risk associated with

commercial real estate, but according to

CCIM members, the return for commercial

real estate continued to outweigh its invest-

ment risk in 2011, even though the amount

of risk associated with commercial real estate

continued to increase throughout the year.

By 3Q11, the return versus risk rating for this

asset type overall was 5.1 on a scale of 1 to 10,

with 10 being high, indicating that the return

for commercial real estate was only slightly

more than the risk.

Further, the apartment sector was the only

property type where the return versus risk

rating increased in 2011, while investment

risk increased and outweighed the return for

the offi ce, retail, and hotel sectors, as detailed

in Table 4. T e industrial sector had a return

versus risk rating of 5.1 in 3Q11, indicating

a slightly higher return than risk, but this

return rating was down from 5.5 earlier in

the year. With a healthy score of 6.8, the

apartment sector’s investment return easily

outweighed the risk.

The Outlook for Values

RERC forecasts aggregate private commer-

cial real estate values to continue to increase

over the next few years. RERC’s expectation

is bracketed by upside and downside sce-

narios that refl ect a projected value change

between -1.0 percent and 6.0 percent in

2012, with the current investment climate

suggesting a higher probability to achiev-

ing the upside scenario versus the downside

scenario. Adding an income return of 6.0

percent, total returns in 2012 are expected to

range from 5.0 percent to 12.0 percent, with

the base-case scenario near 9.0 percent on

an unleveraged basis. It is important to note

that RERC’s estimates are unleveraged, and

the use of debt has a compounding impact

on value increases going forward. T us, if

positive leverage is added to these estimates,

one can see that commercial real estate

off ers very attractive risk-adjusted returns

for a core strategy.

Commercial real estate entered this reces-

sion in better shape than in past recessions

and did not need to come clean on as many

facets as other investments. In light of the

turmoil we see in the stock and bond mar-

kets, this forecast refl ects the fact that com-

mercial real estate is delivering what inves-

tors thought they would get from the asset

class some 40 years ago — a hard asset that

holds up in chaotic times, an income stream

that is relatively predictable when you truly

analyze leases that are in place, diversifi ca-

tion when times are bad in the other invest-

ment arenas, and some equity kicker with

values increasing, especially when you add

some debt into the equation.

Kenneth P. Riggs, CCIM, CRE, MAI, is chief

real estate economist for CCIM Institute

and chairman and president of Real Estate

Research Corp. in Chicago. Contact him at

[email protected].

Table 4: Historical Value vs. Price and Return vs. Risk RatingsHistorical Return/Risk and Value/Price Ratings

3Q 2011 2Q 2011 1Q 2011 4Q 2010 3Q 2010

Return vs. Risk

Overall 5.1 5.3 5.6 5.4 4.9

Offi ce 4.4 4.4 4.5 4.5 4.1

Industrial 5.1 5.1 5.5 5.2 4.8

Retail 4.4 4.7 4.8 4.9 4.2

Apartment 6.8 6.7 6.7 6.7 6.2

Hotel 4.7 4.8 4.8 4.7 4.1

Value vs. Price

Overall 5.4 5.4 5.5 5.5 5.1

Offi ce 5.1 5.0 5.1 4.8 4.7

Industrial 5.5 5.4 5.7 5.2 5.1

Retail 5.0 5.0 5.3 4.9 4.8

Apartment 5.5 5.2 5.4 5.3 5.4

Hotel 5.1 4.9 5.3 4.7 4.5

Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.Source: RERC/CCIM Investment Trends Quarterly Survey, 3Q 2011


BUILD YOUR

BUSINESS

THROUGHSOCIAL MEDIALOOKING FOR NEW CLIENTS? YOU’LL FIND THEM ONLINE.

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two

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g

Commercial real estate is all about relation-

ships. So the industry’s interest in social

media — a venue where relationship build-

ing is turbocharged — should be expected.

“We have gained several clients because

of the exposure we received through Face-

book,” says N. Justin Cazana, CCIM, princi-

pal at Cornerstone/Cushman & Wakefi eld in

Knoxville, Tenn. Cazana is one among many

CCIMs who have used the social networking

site as an eff ective business development tool.

As social media becomes a more integral

part of business development, commercial

real estate professionals are getting results by

incorporating Facebook, Twitter, and other

platforms into their marketing strategies. A

social media presence can increase the likeli-

hood of being found by new clients, establish

professional credibility, and streamline com-

munication. Although social media is free, it

does require time to learn and maintain. So

what’s the return?

Quantifying the Value

“Learning about social media and setting

up my profi les took a lot of time,” says Chad

Gleason, CCIM, of Real Estate Investment

Services in Kent, Wash. Although it can be

an effi cient tool, there is an opportunity cost

for overcoming the initial learning curve,

refi ning messaging, learning new programs,

and staying current on existing ones. And

high-profi le gaff es by celebrities and politi-

cians remind users of the potential risks of

participating in social media.

Given this risk and opportunity cost, com-

mercial real estate professionals — people who

rely on models and analysis for decision mak-

ing — are naturally interested in measuring

social media’s return on investment. “It’s hard

to determine,” says Greg J. Vollman, CCIM, of

Apartment Investment Realty in Cincinnati,

voicing a common sentiment among CCIMs.

Even Fortune 500 companies are still

fi nding their footing in social media analyt-

ics. Ford Motor Co. recently launched a $95

million marketing campaign that included

a Facebook page, but the company still had

by D

ennis L

aM

antia

www.ccim.com January | February | 2012

http://www.ccim.com


Integrating social media into a marketing

strategy doesn’t have to become a part-time

job. Palmeri limits his social media use to an

average of 30 minutes a day. Other interview-

ees worked eff ectively with even stricter time

limits. T ird-party sites like Seismic, Tweet-

Deck, and HootSuite improve efficiency

by allowing users to update multiple social

media profi les from one site. Using these

time-saving tools, “I am able to update my

Facebook and Twitter profi les with material

from my blog with one click of the mouse,”

Barkan says.

An initial decision also needs to be made

about how “social” social media should

be. Users like Palmeri don’t mind mixing

business and personal information. “You

need to express a little bit of your personal-

ity, which gives insight into who you are,”

Palmeri says.

Gant B. Hill, CCIM, president and princi-

pal broker of Venterra Realty in Louisville,

Ky., also chooses to share personal infor-

mation alongside business information.

“I don’t mind mixing the two,” Hill says.

“It creates character and makes you more

approachable, but never take either to the

extreme.”

Facebook and Google+, Google’s social

network, allow users to have it both ways.

Facebook users can create a group of business

friends and share only certain updates with

that group. Google+ off ers similar function-

ality with its Circles feature.

diffi culty determining the value of the inter-

est it generated. “T ey can give you Likes,”

Scott Kelly, Ford’s head of digital marketing,

told T e Wall Street Journal, referring to the

Facebook feature that allows users to provide

quick, positive feedback. “But the question is,

What is the value of those Likes?”

“It’s too early to establish an ROI on the

time I invest in social media,” says Shawn E.

Massey, CCIM, partner at T e Shopping Cen-

ter Group in Memphis, Tenn. “My goal was

to increase exposure and keep my name in

the retail community during this slow period.

Based on that, it has worked very well.”

However, one concrete form of measure-

ment is new business. Cazana — whose com-

pany has four Facebook sites, three Twitter

feeds, and two blogs — has gained several

new clients as a result of social media. Dan-

iel Palmeri, a senior associate at Colliers

International in Las Vegas, uses LinkedIn

to locate potential clients and connections

to them. “T is has resulted in a far greater

success rate than a cold-call,” he says. He

attributes three closed deals to social media.

Gleason says that 40 percent of his deals can

be linked to social media connections, which

gives him a larger presence in the market and

a larger pool of lease tenants.

“When I get a call from someone I con-

nected with through social media, I know

my social media campaign is eff ective,” says

Martin Barkan, CCIM, CRE, senior vice

president of First Property Realty Corp. in

Beverly Hills, Calif. Barkan is working on

several transactions that originated from

connections on Facebook, LinkedIn, and his

blog. “T ese transactions with new clients

took six to 12 months to develop af er the

initial contact, but I believe the return on the

investment will be exponential over the next

two to three years. I’m certain this will be

the single biggest market visibility and client

growth platform in my business.”

Being Found

Candice A. Donofrio, owner of Next Wave

Real Estate Investments in Laughlin, Nev.,

gained referral business using social media.

Af er reading a commercial real estate blog

post, she found the author’s Facebook page

through a Web search. Af er commenting

on the author’s Facebook wall, she received a

phone call from him about a business oppor-

tunity, which she referred to a colleague in

Las Vegas.

Donofrio’s story is an example of how

social media can help with inbound mar-

keting. Prospective clients are searching the

Web for information about potential business

partners, and LinkedIn, Twitter, and Face-

book profi les and updates are of en top results

when an individual’s name is searched.

“When someone searches for me, my

LinkedIn page, Facebook business page, and

Twitter profi le are at the top of the results,”

Barkan says. Social media sites give users

privacy settings to control what parts of

their profi les appear in search engines. But

it pays to have some information available to

the public, especially if it’s business-related.

A recent Pew Research report found that 92

percent of adults use search engines to fi nd

information, making it the most common

online activity, along with e-mail. Creating

a social media profi le can help commercial

real estate professionals be found online, and

it gives their peers a convenient way to com-

municate with them.

I’m There. Now What?

The initial aversions to social media are

being replaced by questions about how to

best calibrate and integrate social media into

a broader marketing strategy.

0%

20%

40%

60%

80%

100%

Facebook Twitter YouTube

94%

77%

42%

Priority Social Media Platforms(% of respondents listing this platform among their top 3)

Source: Booz & Co.

Future Investments in Social Media

Source: Booz & Co.

Somewhat More Resources

56%

Substantially More

Resources39%

Will Remain

Unchanged 5%


Part of the appeal of Facebook and other

social media sites is their reach. Social media

provides an opportunity for businesses to

reach outside their customer contact lists to

a much bigger audience. “T e more I grow my

social media presence the more my inbound

marketing increases, which has been essential

to growing my business,” says Barkan, who

like other CCIMs, is fi nding that making

sense of social media makes business sense.

Dennis LaMantia is interactive marketing man-

ager at the CCIM Institute.

For those looking for more separation

between their business and personal lives,

the solution is to create diff erent profi les for

each. “People who want to communicate

their professional information to their per-

sonal network can simply post the relevant

information in both places,” says Jeff rey B.

Pollock, CCIM, principal at Pollock Com-

mercial in Atlanta.

What to Share

Sharing information about recent transac-

tions, insights into local market observations,

or trends in certain property types can help

establish credibility among peers and poten-

tial clients. “People are looking to us for infor-

mation, and we use social media to provide

news about properties and tenants that have

come to the market,” says Cazana.

LinkedIn is a particularly good platform

for such information. For example, Bob Rein,

CCIM, associate vice president of NAI REOC

Austin in Austin, Texas, posted a series of

LinkedIn updates to attract investment from

his home state of Arizona. What started as

a single post about Austin market trends

turned into series of 10 posts. A prospective

client saw the posts and contacted Rein, sug-

gesting they work together when an invest-

ment opportunity arises.

Finding business-related information to

share can sometimes be as easy as repurpos-

ing existing content. Barkan takes advantage

of the low incremental resource cost of social

media by repurposing blog and newsletter

content on Facebook and Twitter. Businesses

and individuals without blogs can still cre-

ate a social media presence by fi nding qual-

ity industry information and sharing it with

their followers. CCIMs can share insights by

applying CCIM education concepts to cur-

rent commercial real estate news.

Other sources of business-related infor-

mation include quotes from industry events,

reactions to other users’ posts, product

reviews, and more. A little bragging doesn’t

hurt either. “I used LinkedIn to announce

earning my CCIM designation, and my pro-

fi le views went up signifi cantly as a result,”

Rein says. His connections congratulated

him on the accomplishment and asked for

information about the designation.

Social media is about building relation-

ships, and in the U.S., that relationship build-

ing is mostly occurring on Facebook. T e site

dominates among social media platforms.

U.S. Internet users spend 16 percent of their

online time on Facebook, according to Citi

Investment Research and Analysis, a fi gure

that has steadily increased over the past few

years. Businesses are recognizing the impor-

tance of going where their customers are.

Booz & Co. recently reported that 94 percent

of the businesses surveyed view Facebook as

one of their top three social media priorities,

followed by Twitter with 77 percent and You-

Tube with 42 percent. T e same report found

that 96 percent of companies plan to either

allocate substantially or somewhat more

resources to social media.

0% 10% 20% 30%

23%

28%

40%

50%

40% 50% 60%

2008

2009

2010

2011

Companies Using Social Netwoking Tools

Source: McKinsey & Co.

http://www.ccim.com


ResizingRight-Sizing?

or

Prepare for the smaller

(and smarter) corporate

offi ce.

by Rich Rosfelder


Corporations around the globe have been

holding on to offi ce space in anticipation

of a market rebound, but that’s about to

change. “A growing number of corporate

property owners say they have up to 50 per-

cent excess leased offi ce space,” according

to Jim Young, CEO of RealComm, a com-

mercial real estate and technology advisory

fi rm. “T eir goal over the next fi ve to seven

years is to eliminate that excess space.”

T at “50 percent” fi gure might be shock-

ing, until you refl ect on recent changes aff ect-

ing corporate offi ce space usage. In the fi rst

10 months of 2011, employers announced

more than 520,000 planned job cuts, accord-

ing to outplacement company Challenger,

Gray & Christmas. While well below reces-

sion levels, this fi gure marks an increase of 16

percent over the same period in 2010.

At the same time, technology continues to

reshape corporate offi ce culture. T ose who

keep their jobs are now more likely to work

outside the offi ce, at home, or at client sites.

According to Teknion’s recent Workplace of

the Future study, 46 percent of companies

surveyed currently employ cloud comput-

ing — which allows employees to access

company data from any computer — and 90

percent plan to increase their investment in

productivity-enhancing technology by 2015.

Thus, when it comes to corporate office

space usage, bigger is no longer better. At

November 2011’s CoreNet Global Summit in

Atlanta, Peter Miscovich, managing director

of corporate solutions for Jones Lang LaSalle,

predicted that by 2015, the average square foot-

age allocated per employee will shrink by up to

75 percent, depending on the industry sector.

The new paradigm is “smaller and

smarter,” Young says. But less space means

smaller and possibly fewer leases. If portfolio

managers and brokers hope to compete in

the changing corporate real estate landscape,

they need to understand how companies are

preparing for tomorrow’s offi ce.

Sharing Space

What does tomorrow’s office look like?

According to Johnson Controls’ recent

study Collaboration 2020, during the next

decade employees expect to spend less time

at their desks and more time working in

dedicated collaboration rooms and com-

municating via video conferencing.

Many companies have already begun to

implement what is perhaps the most striking

innovation: shared seating. Some prefer a res-

ervation-less hot-desking arrangement, while

others use hoteling, which requires employ-

ees to reserve unassigned seats. Either way,

“the idea of an offi ce where you can hang pic-

tures of your family and display your sports

trophies is a thing of the past,” Young says.

T is change seems to be a natural out-

growth of the increased popularity of mobile

technology. According to an international

workplace study by Cisco, three out of fi ve

workers say they don’t need to be in the offi ce

to be productive anymore. With a laptop,

tablet, smartphone, or some combination

of those devices, many offi ce employees can

work anywhere they can get online.

cCorporations aroundC

holding on to offi ce h

of a market reboundo

change. “A growing c

property owners say tprop say t

cent excess leased offi cent e eased o

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T is also means that time spent in the

office is often dedicated to meetings and

other face-to-face activities rather than sit-

ting at a desk. According to the Workplace of

the Future survey, 77 percent of corporations

are already utilizing more open, collabora-

tive workspaces and fewer individual offi ces.

Ryan M. Lorey, CCIM, director of

global real estate at Booz Allen Hamilton

in McLean, Va., recently coordinated his

company’s move from two buildings total-

ing approximately 750,000 square feet of

old, ineffi cient offi ce space in Tysons Cor-

ner, Va., to newly designed buildings with

shared seating. “Our 15-year lease terms

were coming up, and the buildings’ heat-

ing, ventilation, and air conditioning and

other infrastructure were reaching the end

of their functional economic life,” Lorey says.

“All of the new buildings were designed for

maximum effi ciency, with more collabora-

tion space and a hoteling environment, so

eligible employees can work where they need

to, when they need to.”

Technology is also helping corporations

redefi ne their offi ce space utilization. “We

are implementing alternative work environ-

ments in every new project,” says Dennis

Virzi, CCIM, a senior portfolio manager with

AT&T in Dallas. “By deploying high-speed

Wi-Fi and Follow Me telephone services, we

can off er a functional workplace at approxi-

mately half the footprint of a traditional cube

layout.” Virzi’s company is currently in the

process of eliminating an expensive lease.

Using only technology enhancements, they

plan to accommodate 150 employees at a new

location that has only 85 workstations.

Other corporations are fi nding shared-

seating opportunities and collaboration

space in their current portfolios. Liam Mur-

phy, CCIM, of Hayes Commercial Group in

Santa Barbara, Calif., recently worked with

a client who began using offi ces previously

reserved for traveling executives to accom-

modate hot-desking. “Now they are able to fi t

more of their regular staff into the corporate

offi ce without taking on more square foot-

age,” Murphy explains. When the economy

bounces back, corporations that recognize

these opportunities will be able to expand

without leasing additional space.

At What Cost?

But as full economic recovery continues to

recede into the distance, most corporations

are still focused on cutting costs rather than

expanding payrolls. T e key to reducing

costs associated with a leased offi ce portfolio

is also one of the keys to creating a smaller

and smarter offi ce: Study occupancy needs.

A careful analysis is almost certain to reveal

excess space that can be shed or used more

effi ciently.

“Gone are the days when brokers and real

estate directors can use generic formulas to

calculate occupancy needs,” says Andrew

Job Cuts: Top 5 Industries

Industry 2011 (thru Oct.) 2010

Government 162,373 128,218

Financial 54,510 20,886

Retail 46,053 33,169

Aerospace/defense 33,256 16,186

Healthcare/products 22,584 25,411

Source: Challenger, Gray & Christmas

The key to reducing costs associated with a leased offi ce portfolio is also one of the keys to creating a smaller and smarter offi ce: Study occupancy needs.

Harnish, CCIM, director of enterprise devel-

opment for Johnson Controls in Seattle. “In

today’s global, virtual, and dynamic work-

place, we need to analyze how people work

together, where they work together, when

they work, and the frequency of their desk

and conference room usage.” T is process

might involve interviews, direct observation,

or the installation of temporary motion sen-

sors that track space usage. “T ough this

seems like an expensive study, the cost is

very little compared with the inefficient

space being paid for over the life of a lease,”

Harnish adds.

A shared-seating setup can also give

companies more information about their

workforce and how they utilize offi ce space.

At Booz Allen Hamilton, employees must

reserve a space, with a fi ve-day max per res-

ervation. To get metrics, Lorey collects data

from the online reservation system. T ough

the results are still preliminary, he expects

the company will reach 80 percent utiliza-

tion af er all of the renovations are complete.


Johnson Controls recently worked with

a global company that transitioned to a

shared-seating arrangement for several rea-

sons, including cost. T e company reduced

its carbon footprint by nearly 20 percent,

resulting in an annual savings of more than

$3 million. Another client that made this

transition was able to reduce infrastructure

needs by 15 percent, Harnish says.

“It is always more effi cient to consolidate,”

says Stuart L. Rosenberg, CCIM, SIOR,

president of ICI Commercial in Arlington

Heights, Ill. “Typically, utility costs can be

cut just by reducing the amount of exterior

wall space exposed to the elements.”

Corporations that aren’t ready to consoli-

date should consider taking advantage of

today’s rent rates to prepare for tomorrow’s

offi ce. “Open a dialog with the landlord for

a blend and extend,” Virzi says. “Market rent

rates are down and most owners are eager to

extend lease terms. B&Es are also a good way

to obtain fresh tenant improvement funds,

which takes the pressure off corporations’

operating budgets for things like new carpet-

ing, paint, and landscaping.”

Murphy suggests incorporating early ter-

mination or “buyout” language into every

new lease, as it saved one of his clients hun-

dreds of thousands of dollars. For example,

a seven-year lease might have a termination

option af er the third year. “T e end result is

that corporate users do not have to absorb

the risk of subleasing if their demand for

space changes suddenly,” he explains. “Most

of our buyout clauses end up being a penalty

of 10 percent of the remaining lease liability,

which ensures that the landlord is compen-

sated for unamortized TIs and brokerage

commissions.” Tenants have the option to

terminate, and landlords get an extra check.

Other consolidation and expense-reduc-

ing opportunities are out there, but small

companies may not have the resources to dis-

cover them. In that case, Murphy says, “Copy

the big guys.” Most Fortune 1,000 compa-

nies hire consultants or create full-time

positions to identify and implement these

[email protected] corporations missing opportunities

by focusing only on cost-reduction?

Read “The New Bottom Lines,” a

CIRE Web Exclusive supplement at

www.ccim.com/cire.

Changing the Corporate CultureProposed FASB rules could have unintended consequences.

T e single most important change of the proposed Financial Accounting Standards Board lease accounting standards would be

eliminating the distinction between capital and operating leases. Under the proposed guidelines, companies would be required to

recognize every leasehold obligation (in excess of one year) on its balance sheet.

But will that change the way corporations make their real estate decisions?

As part of our graduate thesis project at the Massachusetts Institute of Technology Center for Real Estate, we interviewed representa-

tives from 29 companies to answer that question. We conducted targeted interviews with a diverse sample of companies representing

tenants, landlords, and other industry professionals, from both the public and private sectors.

We concluded that the proposed changes in lease accounting would not cause an industry-wide shif in corporate real estate strat-

egy. However, for those companies that value the accounting impact of real estate decisions to a greater degree, the proposed changes

could be a catalyst for changes in real estate behavior.

T e impact for a particular fi rm would be largely based on two main factors: the size of a company’s operating lease portfolio rela-

tive to its balance sheet and a company’s sensitivity to fi nancial statement presentation. T ese factors make a company more likely to

change its behavior to mitigate the eff ects of the proposed changes.

We also discovered through our research that the proposed accounting changes would require companies to incorporate sophis-

ticated lease tracking systems in order to comply with the new reporting requirements. For example, since a balance sheet entry for

a particular lease could change over the lease term based on the likelihood of certain events (such as the exercise of a termination or

renewal option), more analysis and more communication between internal departments would be required. For instance, corporate

real estate groups would need to discuss transactions with corporate fi nance and accounting groups. As a result, companies would

scrutinize their real estate footprint in greater detail and have a greater awareness of any ineffi ciency in the space they occupy. Com-

panies would be better equipped to make real estate decisions that would lead to increased effi ciency in the market.

Timothy Canon was a senior analyst for Boston-based real estate advisory fi rm Richards Barry Joyce & Partners, and Christina Fenbert

is a portfolio analyst for Colony Realty Partners in Boston. Companies’ responses were based on the tentatively agreed upon FASB/IASB

changes as of July 2011. Read the complete research synopsis at www.ccim.com/cire.

strategies, and small companies can borrow

and apply the strategies that work for them.

For example, as a branding tool, companies

such as Cisco and Intel release white papers

that outline their sustainability eff orts. Other

companies publish their criteria for landlord

vendors, which might include a list of spe-

cifi c tenant improvements. “Best practices

are best practices,” Murphy adds, “no matter

who discovers them.”

Rich Rosfelder is associate editor of Commer-

cial Investment Real Estate.

http://www.ccim.com




Commercial real estate jobs adapt to new market dynamics.

Employment Evolution

by Scott J. Kolb

As the commercial real estate market has

so adeptly illustrated during the past fi ve

years, the saying “What goes up must come

down” has a much broader application

beyond Isaac Newton’s law of gravity. T is

idiom has served as an apt metaphor for

not only the commercial real estate market,

but also for the careers of the thousands of

professionals who are employed in this $10

trillion industry.

Af er more than three years in the down

phase of the cycle, it’s starting to look as

though commercial real estate’s trajectory

may be on the rise. Approximately 87 per-

cent of commercial real estate executives

who responded to a Christenson Advisors

market outlook survey anticipate continued

commercial real estate improvement in 2012,

including improved revenues and profit-

ability. And, as the commercial real estate

market continues its ascent, the employment

outlook will continue looking up.

Shifting Market Dynamics

To fully understand where the industry is

headed, it’s helpful to retrace the commer-

cial real estate employment market’s path in

recent years. T e market’s downturn in 2008

caused the commercial real estate industry to

shif its focus from transactions and develop-

ment to portfolio and asset management. As

a result, many companies redeployed their

transaction and development professionals

into portfolio and asset management roles.


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http://www.ccim.com


knowing when to acquire and sell at the

opportune time,” he added. T e survey fur-

ther suggests that while not only remaining

relevant during the downturn, the portfo-

lio/asset management role has evolved.

“Historically we’ve hired generalists in

this role that do not focus on a particular

property type, whereas today we look to fi ll

these positions with property specialists,”

the survey respondent said.

Ready for Growth

With a substantial amount of capital remain-

ing on the sidelines, many investors are

eagerly waiting to dive back into the industry

Further, many commercial real estate

companies used this extended down cycle

to reassess their organization from strategic,

organizational, human capital, and fi nan-

cial perspectives. Many fi rms restructured,

resulting in layoff s and leaving highly skilled

commercial real estate executives and pro-

fessionals unemployed. Companies quickly

learned how to do more with fewer resources

and employees.

A number of executives, particularly on

the debt side of the industry, branched off to

start new fi rms and prepare for the next mar-

ket cycle. Yet throughout the downturn and

still today, the most in-demand commercial

real estate jobs are in the areas of portfolio

and asset management, capital markets, and

fi nance and accounting.

“Given the contraction of the lending

markets during the downturn, professionals

with strong fi nancing skills became highly

valuable to our organization. High-perform-

ing-portfolio/asset managers help protect

assets and increase value through expense

control during volatile times,” said the senior

vice president of human resources at a public

real estate investment trust in response to a

Christenson Advisors survey.

“These managers are experienced at

understanding the value of assets and

40% 50%

43%4

0% 10% 20% 30%

29%

24%

17%

12%

12%

12%

12%

10%

10%

5%

7%

7%

2%

2%

2%

2%

7%

Future Roles in Commercial Real EstateIn Which of the Following Functions Does Your Company Plan to Hire the

Greatest Number of Employees Over the Next Few Years?

Source: Christenson Advisors 2011 Talent Management Survey

Portfolio/asset management

Property management

Transactions

Marketing

Brokerage

Capital markets

Construction

Leasing

Corporate accounting/tax

Due diligence/underwriting

Development

Legal

Facilities mangement

Appraisal

Technology

Project management

Risk management

Other


while others have already re-entered. Value-

add opportunities are a key driver and have

replaced the core deals that were active at the

beginning of the downturn.

As a result, now may be an opportune

time for young, well-educated professionals

to enter the commercial real estate industry.

Most companies have reassessed their oper-

ational strategies, right-sized their teams,

tightened up their balance sheets, and are

suffi ciently prepared for business again.

As the industry moves forward, appeal-

ing job opportunities will emerge across all

functional areas of commercial real estate,

including transactions, development, capi-

tal raising, investor relations, information

technology, and sales and marketing, among

other areas. More than 75 percent of respon-

dents to a 3Q11 Christenson Advisors talent

management survey expect their companies

to increase workforce size in 2012. T is is a

signifi cant improvement for the industry.

Since the downturn, commercial real

estate companies have increasingly searched

for younger, less-expensive hires to shore up

departments and be mentored by functional

heads with 15 or more years of experience.

“T e youth are our industry’s future and

we need to keep indentifying and attract-

ing young, talented professionals to learn

and eventually lead the business,” said a

human resources leader at one of the coun-

try’s largest real estate investment manage-

ment fi rms.

A vice president of human resources at

a public seniors housing company further

added, “My advice for the young interested

in commercial real estate is to get out there, be

proactive and aggressive, network with people

already in the industry, sell yourself, and work

hard, because the rewards are fulfi lling. Every

sector of our industry — from hotel to offi ce,

apartments to retail, industrial to self stor-

age — can provide an extremely satisfying

career/life’s work.”

Those in commercial real estate who

remained employed through the down-

turn were of en labeled as high performers

and deemed indispensible to the company,

according to Christenson Advisors research.

For many, however, this meant taking on

increased responsibilities and working lon-

ger hours than what was required during

better times. Many companies also shed

their low performers and kept their top talent

during the downturn, while other compa-

nies were apt to replace their low performers

with highly skilled, proven professionals at

reduced salaries given the level of talent read-

ily available.

As companies move forward and continue

to reassess their personnel, executives and

staff will need to make an impact and add

value to keep their positions. “We need

the doers, not the hiders, going for-

ward. Peak markets can cover up a

lot of mistakes and make mediocre

management teams look good,”

said a global head of recruiting for

a large public real estate services

fi rm. “Down markets expose weak

management teams. Our focus these

last several years has been to attract

and retain top talent across all facets of

our business, senior to junior.”

Over the next several years, as the indus-

try builds momentum, there will be a recur-

ring push for increased sophistication and

proactive behavior across all organizational

levels and functional areas. As the downturn

becomes an event of the past, executives will

once again focus their eff orts on growing

their businesses in a rising market.

Compensation Changes

Compensation in the commercial real estate

industry is highly competitive with other

industries. Since reaching a peak in 2007,

compensation has declined over the last few

years as a result of the downturn. However, it

has recently stabilized and now off ers a huge

upside given the current standing along the

bottom of the market cycle. Base salaries that

were reduced or frozen during 2008 and 2009

are once again increasing at the standard rate

of 3 percent to 5 percent on average, accord-

ing to Christenson Advisors research.

Similarly, cash bonus awards were down

considerably in 2008 and 2009. However,

bonuses paid for 2010 performance were in

line with what was targeted at the beginning

of the year and are expected to pay out at or

above target for 2011 performance on average.

Although long-term incentive awards in the

private market have been somewhat limited,

there have been consistent grants in the public

market — particularly at companies that have

raised capital and are well positioned from a

capital structure perspective. Across both the

private and public markets, long-term incen-

tive compensation is expected to increase

going forward. As a result, the compensation

opportunities for executives and staff alike are

compelling given the anticipated long-term

growth of the industry.

As the commercial real estate cycle con-

tinues to climb out of a down cycle, exciting,

rewarding career opportunities will become

available for skilled professionals in the sec-

tor. While opportunities in certain subsec-

tors, such as multifamily, healthcare, and

seniors housing, are likely to re-emerge faster

than others, the industry in general is well

positioned for another great run.

Scott J. Kolb is a principal in the Chicago offi ce

of Christenson Advisors, a full-service real estate

consultancy firm that provides customized

executive recruiting, compensation consulting,

survey services, and management consulting to

the global real estate industry.

Improved Financial Performance

How Do You Expect Your Company to Perform

Financially Compared to the Previous Year?

Source: Christenson Advisors 2011 Commercial

Real Estate Market Outlook Survey

Revenue Increase

21+%

22%

16-20%

11%

11-15%

11%6-10%

16%

1-5%

20%

No change

20%

http://www.ccim.com


S O U T H

“Based on the Miami Association of Realtors, the

city of Miami will break every sales record in the

history of Dade County in 2011, including the condo

boom years of 2006 and 2007, because of the torrid

pace of international buyers now fl ooding the market

with cash purchases.” — World Property Channel

Big Deal in TexasWarren Buffett’s favorite furniture store plans to enter the Texas market in a big way: Nebraska Furniture Mart — owned by Buffett’s Berkshire Hathaway — has announced a $1.5 billion development anchored by a 546,000-sf showroom, a regional headquarters, and a 1.2 million-sf warehouse and distribution facility, according to the Omaha World-Herald. NFM would occupy about 90 acres of a 433-acre site in the Dallas suburb of Colony, Texas, leaving plenty of room for just about anything else. “Everything’s possible,” NFM executive vice president Robert Batt told the paper, adding that a theme park, other retailers, a convention center, hotels, and residential development are all under consideration. Construction begins this spring with the fi rst phase scheduled to open in May 2015.

OUTLOOKREGIONAL

SOUTH

Ä E A S T

Class A Offi ce Rents – Now and Then

Source: Studley

0 5 10 15 20 25 30 35

Atlanta$23.43

$20.47

$26.52

$27.41New Jersey

$27.35

$24.73Philadelphia

$31.45

$30.67Northern Virginia

$31.84

$29.73U.S. average

3Q2011

3Q2006

Á

W E S T

Top Development Markets in 2012Rated “generally good”San FranciscoAustin, TexasSan Jose, Calif.SeattleSource: Emerging Trends in Real Estate 2012

Ä


Ã

BIG-BOX TENANT LOOKS WEST Discount retailer Forman Mills opened its fourth Chicago-area location, in a 50,000-sf former Burlington Coat Factory

in the Back of the Yards neighborhood on Chicago’s Southwest side. A privately owned company headquartered in

Philadelphia, Forman Mills is a good fi t for 50,000-sf to 80,000-sf big boxes in off-market locations. The 30-store

chain has locations in the East and Midwest and is researching expansion opportunities in the western U.S.M I D W E S T

ÁS O U T H

Offi ce Availability Rate, 3Q11

Houston 17.9%South Florida 21.6%Dallas/Fort Worth 25.4%Atlanta 26.0%U.S. average 17.9%Source: Studley

E A S T

Next Big Thing?ShopHouse Southeast Asian Kitchen debuted its fi rst restaurant in Washington, D.C., last

September, but given its pedigree as the second concept from the folks who brought you

Chipotle, this rice bowl eatery may be coming to a storefront space near you in the not-too-

distant future. Although expansion rollout plans have not been announced, the good food reviews

and the lack of a successful competing national Asian food chain bode well for this concept. In

addition, founder Steve Ells seems to know what he’s doing: Each Chipotle outlet — and there

are more than 1,000 — is worth three times the average McDonald’s, according to NYmag.com.

Ä

41%Canada

and Mexico

26%Latin Americaand Caribbean

23% WesternEurope

10%

Others

S O U T H

Florida's Foreign Buyers

W E S T

Denver Life Sciences StatsStatus: Emerging life sciences cluster

Epicenter: Northwest submarket

Business: 100 life sciences companies

Capital: $76.7 million venture capital

funding; $31.5 million state grant fund

“Denver’s life sciences industry is trending

positively. Budding start-ups have the

intellectual and innovation resources

needed to develop into successful and

solid companies, … However, it is

evident that the market requires investors

and landlords who specialize in the

development of research facilities.”

— Jones Lang LaSalle, Life Sciences

Cluster Report, 2011

Ä

N A T I O N A L

Top 5 States for Doing Business1. Texas overall cost of doing business

2. Georgia labor availability and work force

development programs

3. Alabama incentive programs, labor costs

4. South Carolina overall business environment

5. Indiana rail and highway accessibility,

leader in economic recovery

Source: Area Development Online

z

Source: World

Property Channel

Á

http://www.ccim.com

http://NYmag.com


INTERNATIONALBEAT

In what Jones Lang LaSalle calls “the largest deal ever recorded in Hong Kong’s history,” Mapletree Investments purchased Festival Walk shopping center from Swire Pacifi c for $2.4 billion, as its fi rst Hong Kong acquisition. Analysts predict it won’t be the last, speculating that the seven-story, 800,000-sf mall could be Mapletree’s seed property for a Chinese real estate investment trust. Hong Kong retail rents jumped 46 percent in 1Q11, according to CBRE, securing its place as the world’s second most expensive retail location after New York.

“The industrial market in Mexico is highly

segmented, with robust demand levels

in some markets such as Mexico City,

Monterrey, and Bajio (central Mexico),

while others, including several border

districts, are negatively impacted by the

demand shortfall in the U.S.”

—Jones Lang LaSalle, 4Q11

Biggest Deal

Ä


Top Cities for Foreign Direct Investment, 2006–2011

1. Singapore2. Shanghai3. Dubai4. London5. Tunis

Source: FDI Markets/Cushman & Wakefi eld

Top World Labor MarketsEmployment growth 2009–10 for these top fi ve cities

averaged between 4 percent and 7 percent.

1. Istanbul2. Santiago, Chile3. Shenzhen, China4. Lima, Peru5. Singapore

Source: Cushman & Wakefi eld

Hong Kong’s

Markets to Watch

¬ Europe is hard hit by the euro crisis, but

some markets may fare better than others, according

to DTZ Research. In a forecast scenario, non-euro-

zone countries such as Sweden, Russia, Poland, and Turkey off ered better value

to offi ce investors than traditional German and French safe havens.

¬ Along with other international fi nancial centers Hong Kong, New York,

and Singapore, London is seeing a decrease in offi ce leasing activity due to

fi nancial services layoff s, according to Jones Lang LaSalle. In 3Q11, London’s

offi ce leasing fell 40 percent YOY; New York’s leasing activity was down 40

percent from 2Q11.

www.ccim.com January | February | 2012

BUYERSGUIDE

Collaborate

Soonr

Project collaboration moves from

e-mail threads to the cloud with

Soonr, a cloud-based fi le storage pro-

gram. Similar to Dropbox, Soonr dif-

ferentiates itself with role-based per-

missions, 256-bit encryption, a search

function, and commenting and alerts

via text message and e-mail. The

program requires a monthly sub-

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to $29.95. For more information, visit www.soonr.

com or call (855) 377-8500.

More

Monitor AOC’s portable USB moni-

tor provides a second dis-

play screen for a laptop or

desktop computer through a

USB port. Powered only by

USB, the 16-inch device does

not require additional cords.

T e monitor also comes with

a foldable stand that can

be adjusted for vertical or

horizontal viewing. AOC’s

portable USB monitor costs

$129.99.Get more information at

us.aoc.com or call (510) 770-9988.

Investment PrimerWealth Opportunities in Commercial Real Estate: Management,

Financing and Marketing of Investment Properties, by Gary Gra-

bel, takes readers from basic commercial real estate terminol-

ogy to more-complex concepts including partnerships and deal

restructuring. Some of the material will already be familiar to

CCIMs: Discounted cash fl ow, net present value, and internal

rate of return all make an appearance. Grabel also includes seven

case studies and discusses the interdependence of property mar-

keting, leasing, and management. The book costs $32.64.

Get more information at www.wealthcreationbook.com or call

(877) 762-2974.

Fuse’s PowerSlice charger allows users to neatly charge up to four

devices on one pizza-inspired platform. T e pan-shaped base unit holds

customized charging “slices” that accommodate iPhones and iPods,

Samsung and LG phones, and any USB-powered device. T e base unit

costs $39.99, and each slice costs $9.99.For more information, visit www.fuseplusyou.com or call (877) 366-3432.

Personal

Pan Power

A Social BoostFacebook, the National Federation of Independent Business,

and the U.S. Chamber of Commerce recently unveiled the

Facebook Small Business Boost program, which provides

small-business owners with Facebook marketing training and

a $50 advertising stipend. Using Webinars and case studies,

the program shows business owners how to improve their

connection to customers via Facebook. In addition, a road-

show will bring Facebook training to state and local cham-

bers of commerce and regional NFIB offi ces. The training

resources are free, and the advertising credit is now available.Get more information at www.facebook.com/

smallbusinessboost.

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http://www.facebook.com/smallbusinessboost


DEALMAKERS

RetailBig Deal Patrick D. Gallagher, CCIM,

of Siegel-Gallagher Oncor Inter-

national in Milwaukee, and fi ve

partners negotiated the $15.4

million sale of the 188,122-sf

Brookfi eld Towne Centre in

Brookfi eld, Wis., to an undis-

closed buyer. Gallagher and a

partner also brokered the $1.4

million sale of the 14,000-sf

Gateway Market in Watertown,

Wis., to the Doneff family.

³Kevin D. Chin,

CCIM, of Sperry Van

Ness in San Francisco,

represented SC Flag-

staff LLC in the $12.7

million purchase of a 140,000-sf

Sam’s Club in Flagstaff , Ariz.,

from an undisclosed seller.

´Jim Casale, CCIM, of Lee

& Associates in

San Diego, rep-

resented a family

trust in the $7.3

million purchase

of a 14,500-sf Walgreens in

McKinney, Texas, from an

undisclosed seller.

³Christopher

Chamberlain,

CCIM, of Coldwell

Banker Commercial

NW in Medford,

Ore., represented Lithia Real

Estate in the more than $6.9

million purchase of a 2.8-

acre car dealership from JPF

Investments LLC.

Bruce R. Schiff, CCIM, of

Cassidy Turley BRE Commer-

cial in Carlsbad, Calif., and a

partner represented Lotus Café

in the 10-year, $1.4 million lease

of 3,625 sf of retail space in San

Diego from Village Hillcrest

Partners LP. Schiff and a part-

ner also represented Mortony’s

Pasta House in the 7-year, $1.2

million lease of 6,000 sf of retail

space in Vista, Calif., from

Regency Centers.

¶Christopher Prosser,

CCIM, of Colliers International

in Cincinnati, and a partner

represented

Snider Com-

mons LLC in the

more than $1

million sale of

the 10,799-sf Snider Commons

Shopping Center in Mason,

Ohio, to an undisclosed buyer.

FinancingBig Deal Lawrence J. Harwood,

CCIM, of Q10/Lutz Financial

Services in Birmingham,

Mich., arranged the more than

$14.4 million fi nancing for a

140,000-sf medical offi ce

building in Dearborn, Mich., for

an undisclosed borrower.

Larry Emmons, CCIM, of

Grubb & Ellis Co. in South-

fi eld, Mich., represented

CSMC 2007-C1 Warehouse

on 65th LLC in the more than

$1.5 million sale of the Planta-

tion warehouse in Plantation,

Fla., to Miron One LLC.

LandBig Deal Sandy Shindleman, CCIM,

of Shindico Realty in Winni-

peg, Manitoba, represented an

undisclosed seller in the more

than $3.7 million sale of 7.41

acres of land in

Winnipeg to a

local investor.

´William A.

Eshenbaugh,

CCIM, and Ryan Sampson,

CCIM, of the Eshenbaugh

Land Co. in Tampa, Fla., repre-

sented an undisclosed seller in

the $3.7 million sale of 67 acres

of land in Lakeland, Fla., to an

undisclosed buyer.

Robert J. Dikman, CCIM,

of the Dikman Co. in Tampa,

Fla., represented FR/CAL Inter-

change LLC in the more than

$1.4 million sale of 4.45 acres of

land in Riverview, Fla., to the

T omas M. Cooley Law School.

Larry Emmons, CCIM, of

Grubb & Ellis Co. in South-

fi eld, Mich., represented David

W. Wallard in the more than

$1.3 million sale of 82 acres of

land in Erie Township, Mich.,

to Lost Peninsula Port LLC.

Offi ceBig Deal ´Joel A.

Fulmer, CCIM,

of the Boyle Investment Co.

in Memphis, Tenn., and a

partner represented the city of

³Hersh Tencer, CCIM, of the Ontario Infrastructure and Lands Corp. in Toronto represented the city of Ontario in the $76 million sale of 2.5 acres in Toronto to Menkes Developments Ltd. and the Healthcare of Ontario Pension Plan Realty Inc.

The Biggest Deal

³Shahid K.

Abdulla, CCIM,

of Broadway

National Bank

in San Anto-

nio arranged the $12 million

fi nancing of a 120-unit, 15,770-

sf mixed-use building in San

Antonio for an undisclosed

borrower.

Paul Natalizio, CCIM, of

Cornerstone Realty Consul-

tants in Stoneham, Mass.,

arranged the more than

$5.4 million fi nancing of a

64-unit apartment portfolio

in Chelsea, Mass., for Trident

Management.

´Dimitris

Vattes, CCIM,

of Mortgage

World Bank-

ers in Astoria,

N.Y., arranged the $3.4 mil-

lion refi nancing of a 55-unit

multifamily property in

New York for an undisclosed

borrower.

IndustrialBig Deal Michael R. Merino, CCIM, of

NAI Norris, Beggs & Simpson

in Portland, Ore., and a partner

represented SIC in the $1.8

million sale of a 42,000-sf

industrial property in Portland,

Ore., to a private investor.


Looking for more information on a product or service? Visit our advertiser Web links on CIRE magazine’s Web site at www.ccim.com/cire.

For advertising information, contact: Rich Rosfelder at (312) 321-4507 or [email protected].

Submit transactions to Deal Makers, CIRE, 430 N. Michigan Ave., Chicago, IL 60611; e-mail to [email protected]; or fax to (312) 373-8219. Include a high-res digital color property photo or head shot if available.

Memphis and Shelby County in

the $35.8 million sale of the

4.2 million-sf Memphis Depot

Business Park in Memphis to

Mayfi eld Properties.

Hans Kaunath, CCIM, of

Ciminelli Real Estate Services

in Tampa, Fla., and a partner

represented CW Capital Asset

Management in the 11-year,

$13.6 million lease of 70,706 sf

of offi ce property in Clear-

water, Fla., to an undisclosed

lessee.

¶Nora Hogan, CCIM, of

Transwestern Commercial

Services in Dallas and a

partner repre-

sented Highland

Capital Man-

agement LP

in the 10-year,

more than $13 million lease of

43,515-sf of offi ce space in Dal-

las from an undisclosed lessor.

´Thomas F. Campenni,

CCIM, of T omas F.

Campenni Co.

in Stuart, Fla.,

represented

KMG Partners

in the 10-year,

more than $8.2 million lease

of a 22,000 sf of offi ce space in

New York to the Washington

Square Institute. Campenni

also represented CB Richard

Ellis in the more than $3.7

million lease of a 22,000-sf

offi ce space in New York to

Schematic.

Mark V. Phillips, CCIM, of

Sperry Van Ness in Fountain

Hills, Ariz., negotiated a $7.4

million sale of a 23,485-sf offi ce

property in Sierra Vista, Ariz.,

from the General Services

Administration to a New York-

based REIT.

Sandy G. Shindleman,

CCIM, of Shindico Realty

in Winnepeg, Manitoba,

represented an undisclosed

seller in the more than $7

million sale of a 69,096-sf

offi ce property in Winnipeg to

a private investor.

MultifamilyBig Deal Michael B. Gross, CCIM, of

LDG Development LLC/LDG

Multifamily LLC in Louisville,

Ky., negotiated the $24.5

million sale of a 192-unit

multifamily property from an

undisclosed seller to Mallard

Crossings LP.

¶Michael W. Bobick, CCIM,

of Granite City Real Estate in

St. Cloud, Minn.,

represented

Keeneland Vil-

lage LLC in the

more than $7.6

million sale of a 100-unit mul-

tifamily property in Sartell,

Minn., to a private investor

group.

¶Joe W. Edge, CCIM, of

Sherman & Hemstreet Real

Estate Co. in Augusta, Ga.,

represented an

undisclosed

seller in the $4.4

million sale of

a 285-unit mul-

tifamily portfolio in Orange-

burg, S.C., to an undisclosed

buyer.

Patrick D. Gallagher,

CCIM, of Siegel-Gallagher

Oncor International in

Milwaukee, and a partner rep-

resented an undisclosed seller

in the more than $1.1 million

sale of a 37-unit multifamily

complex in South Milwaukee

to LBAH II LLC.

HospitalityEarle B. Wason, CCIM, of

Wason Associates Hospitality

Real Estate Brokerage Group

in Portsmouth, N.H., repre-

sented B and C Management

T e General Services Administra-tion is not your average commercial tenant. Negotiating its unique terms and conditions can be diffi cult for a broker to master. So Brian E.

Fratzke, CCIM, of Fratzke Com-mercial Real Estate Advisors in

Bend, Ore., reached out to fellow CCIMs when he repre-sented Courtney Family LLC in the 20-year, more than $25 million lease of 25,000 sf of medical offi ce space to the U.S. Department of Veterans Aff airs. “T roughout the lease negotiations, I spoke with several designees in my region to understand how other lease negotiations took place with the federal government,” Fratzke says. By tapping the expertise of the CCIM network, he was able to close on a long-term lease with one of the most reliable tenants in the business.

in the $3.2 million purchase

of the 104-room Best Western

Granite Inn in Nashua, N.H.,

from Karen Enterprises.

SpecialtyPatrick D. Gallagher,

CCIM, of Siegel-Gallagher

Oncor International in

Milwaukee, and a partner

represented an undisclosed

seller in the more than $1.5

million sale of the Mequon

Country Club in Milwaukee

to a local investor.

CCIM ROI

Advertisers’ Index

Auburn University .....................13

Berkadia ......................................3

CCIM Capitol Hill Visit ........ cover 2

CCIM Course Schedule ...............7

CCIM EMT Napa .........................9

CCIM Membership ............ cover 3

CCIM Spring Business

Meetings ...................................17

CCIMREDEX ..............................38

CIRE Online .................................2

Coldwell Banker Commercial .....21

Grandbridge Real Estate Capital ..5

ICSC University of Shopping

Centers ......................................11

LoopNet ....................................10

Re/Max International ......... cover 4

Real Estate Research Corp ........25

Ward Center for Real Estate

Studies ......................................19

http://www.ccim.com





CCIMConneCtIons

Emmitt Smith may be best known among sports fans as a former Dallas Cowboys powerhouse, the National Football League’s all-time leading rusher, and a 2010 Pro Football Hall of Fame inductee. He may be widely recognized by reality TV watchers as the dance-floor champion of hit series “Danc-ing With the Stars.” But in commercial real estate, Smith is a star in his own right for earning the CCIM designation and proudly adding the coveted CCIM pin to his lapel last fall.

Afer his long and successful NFL career, Smith set his sights on real estate and embarked on the path to the pin. “Earn-ing the CCIM desig-nation means a great deal to me,” he said. “It shows that I went through the complete program, did the work, and showed commit-ment. It lets my peers know that I can do the work.”

Smith co-founded and currently serves as CEO and co-chairman of ESmith Legacy, a Dallas-based com-

mercial real estate development and asset management firm

with projects in New York, Baltimore, and Phoenix.

“I am willing to do whatever it takes to become the person I need to be so I can achieve the goals I have set for myself,” Smith says about his journey to success in his new book, Game On: Find Your Purpose — Pursue Your Dream.

“Today’s commercial real estate market is

a buyer’s market, particularly if you

are buying with cash. There is

great opportunity out there, but you

have to do your homework.”

— Emmitt Smith, CCIM

Winning strategy


STDB is an integrated resource center

providing comprehensive site analysis,

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visits and more time finding solutions for your

clients!

CCIM’s award-winning magazine is your

bi-monthly source for the latest articles,

analysis, and insight into all facets of

commercial investment real estate.

Your subscription keeps you up-to-date and

helps you make informed decisions about the

industry.

Through its affiliation with the National

Association of REALTORS®, the Institute is part

of a legislative advocacy team that constantly

monitors legislative and regulatory developments

in order to shape the direction of today’s policy

issues. CCIM Institute’s Public Policy staff tracks

federal, state, and local legislative activity to

ensure that the interests of the commercial real

estate industry are addressed at all levels of

government.

Interact with brokers, leasing professionals,

investment counselors, asset managers,

appraisers, corporate real estate executives,

property managers, developers, institutional

investors, commercial lenders, attorneys,

bankers, and other allied professionals. The

experts who possess the CCIM designation

are an invaluable resource for commercial real

estate owners, investors, and users.

Explore your education options with CCIM’s

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giving you the tools you need today with

expanded classroom, online instructor-led,

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To learn more about the benefits of membership,

please call (800) 621-7027, e-mail membership@

ccim.com, or visit www.ccim.com/membership

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With an ENTREPRENEURIAL APPROACH AND FLEXIBLE COMPENSATION MODEL RE/MAX puts them in charge of their business. It can do the same for you.

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