Retail Chatr Commercial Real Estate Blog

Have you ever given any thought to the relevance of individual titles at commercial real estate brokerage companies? There are numerous different titles that companies bestow on their agents. I have always wondered what they mean and why they actually exist being that brokerage companies are just about the most horizontally intergrated businesses of which I can think. Actually, I know the answers to these questions. They don’t mean anything and they exist to make the individual bestowed with said title appear more important to the outside world than he or she actually is. The following is a list of several brokerage titles you may encounter and what they actually mean in the grand pecking order:

GIVEN TITLE = ACTUAL MEANING/ROLE

CEO = Broker
President = Broker
Senior Managing Director = Agent
Managing Director = Agent
Senior Vice President = Agent
Vice President = Agent
Junior Vice President = Agent
Senior Associate = Agent
Associate = Agent
Junior Associate = Runner/Support Staff

These titles have always cracked me up. Oh, you got promoted to Senior Managing Director but your pay is exactly the same (100% commission) and your responsibilities are exactly the same (brokerage)? How interesting. Congratulations, I guess.

Andrew Zezas, author of the blog Corporate Advisor recently published a post about a couple of brokers operating on the wrong side of the line.  You can read his post here.  In this day and age, how does someone think they can get away with shady practices without being called out in a very public way?  Blogs, Twitter, Facebook, etc. have fundamentally changed the way information proliferates.  Talk of evil deeds done will no longer remain confined to whispers amongst a small regional crowd but have the potential to ruin a reputation (maybe deservedly so) in an instant.  I personally think he should have called out the names of the offending brokers and their company.  If he is telling the truth, he should have nothing about which to worry.

(H/T – @Maggiacomo)

That is a pretty broad question.  I can’t say for sure for every single product type nor do I really care about CAP Rate trends for multi-tenant office/industrial/multi-family/etc. buildings in the midwest/south/east/etc.  I can make an intelligent guess and say no, CAP Rates are not heading back down, they are continuing to rise – industry-wide.  By this I mean nationally, on average, over all property types, prices may still be falling.  Again, I can’t say for sure and I don’t really care either.

In my specific niche I can say that there is heavy downward pressure on CAP Rates right now.  Whether or not this pressure will manifest itself as a sustained price rally is yet to be determined.  The main source of this pressure is one of simple supply and demand.  We get several inquiries from investors and brokers every single day for clean, “shiny penny” single-tenant NNN leased properties.  The level of requests (demand) have risen steadily over the last several months to a point where I’m no longer shocked to hear 5% and 6% CAP Rate figures (gasp!) quoted for the best assets.  Who woulda thunk it?  To be clear, the product type I am referring to here is best of class, single-tenant NNN leased properties – office, industrial, medical or retail.  Quality single-tenant net leased (STNL) properties can be found in all of these product types but is most commonly available in the retail sector.  The reason for this is simple.  A tenant like IBM does not need 600 office locations to reach their customers. Taco Bell does.

Back to CAP Rates.  What we are hearing from our small community of investors and brokers is that people are quite simply fed up with sitting on cash on the sidelines waiting for these purported deals of a lifetime.  [SIDE NOTE: A client of mine was just sent instructions from an escrow officer for setting up an interest bearing account for their initial deposit.  The interest rate offered?  0.35%!!]  They are simply not appearing.  Banks are letting out distressed assets at a snail’s pace and the assets they do sell get bid up to prices that basically remove any real upside.  Not surprising because you have the same supply/demand forces at work in the distressed circles as well.

With development of new properties slowed to a near standstill, it is understandable that a large, liquid supply of money chasing an essentially fixed supply of assets will push prices higher.  This is exactly what is happening in my world.  Not for every property.  Not in every location.  This is happening (justifiably) for the best properties in the best locations.  Unfortunately for some buyers, they are jumping in head first and pushing prices up on assets that should not be invited to the price increase party.  We are seeing this with Jack in the Boxes and 7-Eleven’s (to name just 2 tenants) nationwide – in locations that should not have comparable returns to those of Southern California, SF Bay Area, NYC, etc.  Just because someone else is willing to pay a premium price for a property in Timbuktoo does not mean it is a good deal and that you should try to outbid him.  It is happening though.  Too often, in my opinion.  This can lead to one of two outcomes: 1) prices remain strong, everything stabilizes and all is well; or 2) another bubble bursts.  I can’t say which one will happen but the undeniable flight of investment dollars from 0% returns in the bank to the safest commercial real estate assets is creating bidding wars for the best assets.  At least the investors are not 80% leveraged this time around.

I see the writing on the wall.  Back in the heyday (2004-2007) we used to say that every broker seemed to have 5-CAP-itis – list a deal a slap a 5% CAP on it.  I’m not quite sure if the same strain of this virus is going around again, maybe a variant though – 6-CAP-itis.  Buyer beware.

I have been receiving numerous emails from CREOBA every single day for a very long time and just archiving them for some future post or action that I have yet to think of.  Today’s email does require a quick mention though.  Apparently, CREOBA has decided to start offering their hugely valuable (ha!) courses via webinar!  Here is an excerpt from the announcement:

Don’t Want to travel?

CREOBA is NOW offering online WEBINAR training programs

Translation: Nobody is coming to our classes which we have been trying in vain to host at hotel conference sites so we are hopeful that we can reach more suckers with a lower barrier to entry.

This is a very good strategy for CREOBA.  Continuing to stoop to the deepest, darkest depths of the industry in search of the lowest hanging fruit has been a cornerstone of the CREABA mission statement since day one.  This move only further ratifies the fact that CREOBA will do anything possible to remain on the bottom rung of the ladder.  Way to go CREOBA!

It would appear that CREOBA does not know when to say enough is enough.

This post is a short follow-up post to the one I wrote on February 5th about the marketing email I received stating the price would be reduced by $150,000 every two weeks until the property was sold.  True to his word, Mr. Pollard has reduced the offering price of the property by $300,000 (per email received today) from $2,845,000 to $2,545,000.  I’m sure the bidders are starting to salivate!

This article published on Friday, February 26th, 2010 is quite possibly one of the worst articles you will ever read discussing the merits of a sale/leaseback transaction.  I feel sorry for the brokers quoted in the publication.  It feels like the author chopped up their quotes and used them where she thought best rather than where relevant (60 Minutes tactics).

Joking aside, any article discussing sale/leasebacks, especially when touting benefits to the end buyer/investor is lacking without LOUDLY calling out the fact that sale/leasebacks are financing vehicles for the tenant.  The tenant is using the money from the sale to fund some other portion of their business.  In this day and age, it is a safe bet to assume that any tenant offering a sale/leaseback is doing so to generate cash to stay afloat.  Why would you lend an operator money to say afloat at 7.50% – 8.50% (capitalization rate)?  This type of loan request seems more like it should fit into the hard money category and carry much more onerous terms.  To be fair, the article does mention a tenant’s possible uses for the funds generated through a sale/leaseback but stops far short of calling out that the process of structuring a sale/leaseback is nothing short of providing a corporate financing vehicle.  This is why so many people who purchase sale/leaseback investments get smoked.  I wrote an article about this several months ago which you can read here.

The above being said, not every sale/leaseback is a bad one.  My company for instance is selling a property in Marina Del Rey, California under a sale/leaseback structure.  The difference with our offering is the real estate is 2nd to none in terms or asset quality (regardless of the tenant), the tenant has been operating at the site for almost 20 years, the tenant has a proven history of massive sales figures and the rent offered under the sale/leaseback is infinitely replaceable.  I’m not touting our opportunity as being without risk.  I’m merely pointing out that not all sale/leaseback opportunities are created equal.  If we agree to take on a sale/leaseback deal you can rest assured we believe it to be solid from both a real estate fundamental standpoint and an operational standpoint.

I’m not sure I have the words to describe this.  I will say that I am constantly amazed at how many people operate in our industry that have absolutely no clue what they are doing.

WTF?  In 19 weeks the property should be free!

How exactly does this headline help get this property sold?  Way to create a sense of urgency and spark that coveted biding war.

We really need governance of minimum aptitude levels in the CRE industry.  First Fresh & Easy’s real estate director and now this guy.  This is getting ridiculous.

This is a quick (7 minute) video by Carmine Gallo outlining why Steve Jobs is such a captivating speaker.  There is nothing earth shattering here but sometimes it is the simple things that make all the difference.  I could not help but think about how this relates to how I present to both sellers and buyers.  I am often told that I am very enthusiastic about selling, often speaking quickly and using “wow” words like amazing and awesome.  Enthusiasm and excitement about the product you are selling is contagious.  If you are presenting to another broker, you don’t want anything to be lost in translation when they present to their client without the benefit of your presence.  Make sure you convey exactly how you feel about the property you are selling each and every time, no matter how monotonous it may become.  I firmly believe that each time you recite your pitch on a property, it gets more and more refined and more and more clear.  Don’t underestimate any lead that comes into your office – sell with enthusiasm at all times.

I just had to post this.  I just closed a Fresh & Easy ground lease that was purchased by Fresh & Easy on 12/31/09.  Earlier today, we sent out an email blast announcing the sale of the property.  I received the following email (with his attorney cc’d as well) from UK transplant Tom Scorer, Real Estate Director for Fresh & Easy at 3:25 PM this afternoon:

Chris,

I have received your email blast directly and from many other sources.

The executed PSA contains a confidentiality clause, which clearly prohibits the publication of any details of the deal without our express  permission, which was not sought and is not given.  See below the relevant extract from the agreement:

Please be advised that your publication breaches the recorded agreement.  We are considering the action we will take.

Kind regards

Tom

Tom Scorer

fresh  & easy Neighborhood Market Inc.

Real Estate Director

310-867-0418

———— Disclaimer ————–
This is a confidential email.
Fresh and Easy may monitor and record all emails. The views expressed in
this email are those of the sender and not Fresh and Easy. Fresh & Easy
Neighborhood Market, Inc. 2120 Park Place, El Segundo, CA 90245

Naturally, I could not resist responding to such foolishness.  Here is the email I sent back to the bloke:

Tom,

This is one of the most ridiculous emails I have received in my career.  Your claim is a joke and without merit.  I don’t really think I need to explain why but I will do so anyway.

You (on behalf of Fresh & Easy) went out of your way to circumvent my involvement in this transaction, specifically refusing to include language in the purchase and sale agreement protecting my position and specifically refusing to have brokerage representation in the purchase.  As a result of your efforts, I am not a party to your purchase and sale agreement and am therefore not bound by its terms.

The property was marketed for sale for well over 1 year prior to your purchase.  The terms of your lease agreement are widely known.  The date, purchase price and identity of the purchaser are public knowledge.  If you take a moment to read the language of your PSA that you so kindly provided to me you may notice that particular phrase stating "to the extent reasonably practical."  I would think that information that resides in the public domain would fall outside of this clause, don’t you?

Lastly, I would think that any claim you may attempt to make would need to be based upon actual damages.  Do you have actual damages?  You may want to brush up on your US law.  Your attorney is a very good one.  You should consult him before sending out emails like this again in the future.

At this point it seems like you may just be wasting your company’s cash on unnecessary legal fees.  Maybe I should copy your superiors in the UK.  I’m sure they would love to hear how you are spending your time these days.

Thanks for the new blog content.  I haven’t written a post in quite some time.  This one should be up shortly.

Cheerio!

Chris

P.S. – As a point of clarification, I did not consult any person or entity which was directly involved in this transaction in preparing my email.  I did not, nor am I required to, seek approval from anyone prior to sending the announcement.

Tom, instead of threatening brokers with lawsuits, why don’t you focus your attention on opening stores that actually attract customers?  Don’t you think that might be more productive and beneficial to the bottom line?  Just a thought.

For the record, the property was a ground lease.  The leased fee interest (land) was purchased by Fresh & Easy on 12/31/09 for $2,650,000 which was equivalent to an 8.49% CAP rate on the in-place ground rent of $225,000 / year NNN.  If you are a seller negotiating with Fresh & Easy to sell them your property I would think this would be a pretty good comp for you to reference when they submit their 9.50% CAP offers.

I love citizen journalism.

Enjoy.

(HT – Calculated Risk)