Creating a Commercial Real Estate Tool Box
Economic, demographic, and psychographic changes affecting the demand for commercial real estate product types continue to present new and exciting opportunities for developers, municipalities, users, investors, and citizens alike. These changes, combined with the natural evolution of cities and other markets, also present new and unique challenges.
Like politics, commercial real estate is still a local business in many ways. Understanding local dynamics and disseminating the components into manageable pieces that can be further analyzed are critical steps to the success of every real estate project.
Despite the location, some problem solving methods are universal for most real estate projects, such as performing site analyses and market studies or conducting highest-and-best-use, adaptive reuse, alternative use, redevelopment, or ground-up development analyses. Based on the scientific method, the process is straightforward: Gather facts and assess the real estate situation; analyze the collected data; recommend key courses of action based on the client’s goals and objectives; and execute the client’s selected course of action.
Sources of data generally vary from project to project and, more often than not, are based on local market factors. However, the types of analyses that projects require often fall into three categories: financial analysis, economic/demographic analysis, and market analysis. Financial analysis tools were discussed in Commercial Investment Real Estate’s November/December 2005 Tech Solutions. Below are programs that have helped me in the other two areas.
Economic and Demographic Analysis
By far the most valuable tool in my toolbox is STDBOnline. I use it practically every day. If you are not familiar with it, it is well worth learning. Take the classes, experiment with it, and learn to incorporate it into your analyses and presentations. There is no better investment and no better return on investment.
Economic Profile System and Economic Profile System Community
Economic Profile System and the Economic Profile System Community are two Excel-based programs developed by the Sonoran Institute in partnership with the Bureau of Land Management. These programs use U.S. Census data to produce socioeconomic profiles for user-defined locations. Originally covering only the Western states, these free programs were expanded to national coverage. They require Microsoft Excel 2000 and approximately 1.7 gigabytes of hard drive space for the databases.
MapInfo Professional is a Microsoft Windows-based geographic information and mapping application. While it offers more advanced features than STDBOnline, this program is not designed for beginners. It is a great program, but the learning curve is fairly steep; however, Mapinfo allows the user to create highly complex models with intricate filtering criteria that conform to user-specified criteria. Evaluating the demand medical office building, for example, requires an unusual mix of rooftop growth and retail expenditures. These variables are been traditionally examined when evaluating development potential for residential and retail, exclusively. But Mapinfo allows the user to develop criteria based on these factors and create statistical models that include the influence of traffic patterns and location of existing or competing facilities based on correlation or a number of other applicable statistical techniques.
The availability of market data varies considerably. There are numerous sources of subscription-based and one-time purchase services available that are far too numerous to list or critique. In many secondary or tertiary markets, information may be available through the local chamber of commerce or economic development agencies. Often, the only way to compile market data is to conduct surveys.
Center for Community Economic Development
This University of Wisconsin extension program has a number of resources available for collecting data in small markets, particularly under the Tourism Business Development Toolbox and the Business and Downtown Market Analysis. The latter includes a Microsoft Access building inventory database developed by the Wisconsin Main Street Program. This is a good program for compiling data in small markets that are not covered by any of the national research firms.
Currently the database is unavailable but examples of the inventory forms and instructions on compiling such a database are available at www.uwex.edu/ces/cced/dma/2.html.
All the tools that I use for market analysis are proprietary Excel-based models. I do not know of any commercially available products that perform market analysis. However, CCIM course instructors, who are experienced commercial real estate professionals, have developed several very good models for CCIM Institute that are simple to use and can serve as a basis for more complex analysis. Models that I have found particularly helpful are:
City Toolkit, developed by Todd D. Clarke, CCIM;
Economic Base Analysis, developed by Karl B. Wagner, CCIM;
Market Feasibility, developed by Robert L. Ward, CCIM;
Location and Site Analysis, developed by Robert L. Ward, CCIM; and
Financial Feasibility, developed by Robert L. Ward, CCIM.
In addition, there are a number of great Excel-based business forms developed by Gary Tharpe, CCIM, Robert L. Ward, CCIM, and Robin R. Dyche, CCIM, that are available on CCIM Institute’s resource toolbox atwww.ccim.com/resources/toolbox/busforms.html