A Very Good Year
CCIMs were well-equipped to face the challenges of 2009.
By Rich Rosfelder |
As many industry commentators have pointed out, 2009 was a year that most commercial real estate professionals would like to forget. Financing was elusive, value was difficult to determine, the buyer/seller gap persisted, and cash was cautious. “We all faced challenges in our markets,” says Brian E. Fratzke, CCIM, principal broker of Fratzke Commercial Real Estate in Bend, Ore.
Despite the difficulties, deals closed. No one was better equipped than CCIMs to meet last year’s obstacles, and most, like Fratzke, stayed positive and relied on skills learned in CCIM courses, STDBonline reports, and CCIM networking connections to succeed despite the odds. These transactions represent not just the participants’ hard work but the efforts of all CCIMs who made 2009 a year to remember.
Judy J. Hatfield, CCIM
Equity Commercial Realty LLC
David P. Wilson, CCIM
Executive Vice President
Cedar Falls, Iowa
“If I have the opportunity to do business with a CCIM, I take it,” says Hatfield, who called Wilson when her longtime client Norman Regional Hospital needed a developer for its new 96-acre campus in Norman, Okla. Four other developers had been interviewed for the project, but most lacked financing. Lockard Development’s needs-based proposal and its access to up to $200 million in funding through another CCIM connection — Rick Steinberger, CCIM, of Servant Investments in Orlando, Fla. — helped it secure the contract.
Though Lockard offers in-house brokerage services, it refused to take the project unless Hatfield was part of the team. “When we can collaborate with a person like Judy who has local expertise, we’re always better off in the long run,” Wilson explains.
Hatfield used her extensive market knowledge to secure contracts with a major pharmacy, two national restaurant chains, and several physicians groups. She also received 10 inquiries after distributing STDBonline’s express hotel/motel report to hospitality prospects. So far, eight of the lots are under contract or have letters of intent, and a planned retail center already is 75 percent preleased.
Wilson, who met Hatfield three years ago when they served on the CCIM Institute Networking Advisory Board, points out that, like all successful relationships, theirs is based on confidence and communication. “Over the years, we’ve built a trust that allows us to freely refer business to one another,” he explains. “And as CCIMs, we speak the same language when it comes to analyzing deals.”
John W. Preiss, CCIM
The Preiss Co.
In 2008, the 150-unit University Village at the Coast student-housing complex in Myrtle Beach, S.C., was only 47 percent leased. With the economy faltering, the owner, CWCapital, wanted to get the underperforming property off its books. “We offered about 50 cents on [the dollar],” says Preiss, who represented The Preiss Co. in the February 2009 acquisition. “Since we paid so little for the property, we were able to drop rents to the lowest in the market,” he adds.
Preiss’ management company embarked on an aggressive social media marketing campaign, utilizing Facebook and Twitter along with traditional methods to woo student renters. More than $500,000 in capital expenditures also bolstered the property’s lease appeal.
These efforts paid off — and quickly. Within six months of the purchase, occupancy increased to 95 percent and the net operating income doubled. Ready for its next challenge, The Preiss Co. cashed out its equity in the property through a non-recourse loan with Freddie Mac at the end of 2009.
Nat Santoro, CCIM, GRI
Kinlin Grover GMAC
“Many people want to buy a property and business together, but it often doesn’t work because they don’t have the money for the down payment,” Santoro says. To minimize the down payment for a 33,976-sf restaurant in Wellfleet, Mass., he constructed a pure net lease/purchase option based on a $1 million sales price. The buyer provided a $20,000 nonrefundable deposit, and the seller financed the property sale and a new $315,000 septic system. “By doing it this way, the seller received a greater yield since money would be collected on the money that otherwise would have been paid in capital gains,” Santoro explains. “One of the first things you learn about in [CCIM classes] is yield and the advantage of cash flow analysis. When you explain these concepts to sellers, they usually are very willing to take on the financing.”
Ian M. Grusd, CCIM
Sperry Van Ness/Richter Grusd
By using STDBonline demographics and mapping studies, Grusd found 36,500 sf of office space in Cranford, N.J., that was perfect for conversion to a new Cerebral Palsy League school. The 50-year, $23.2 million lease was signed in June 2009.
Jonathan S. Wyner, CCIM, CPM
Senior Transit Oriented Development Specialist
Washington Metropolitan Area Transit Authority
When the Washington Metropolitan Area Transit Agency decided to relocate a 50-year-old bus garage in Ballston, Va., The Shooshan Co. was selected to transform the site into a five-building mixed-use development comprising approximately 670,000 sf of office space, 360 multifamily units, and 30,000 sf of retail space. Negotiated in 2007 at the height of the boom, the project started strong. Arlington County donated property; Virginia provided $10 million in funding; the area was successfully rezoned, increasing the property value; and the Defense Advanced Research Projects Agency signed a long-term lease for the first-phase office building.
The momentum waned, however, when Ashton Park Associates LLC sought financing for the purchase of the entire site in 2009. That’s when Wyner stepped in to lend a hand.
“The original agreement called for the sale of the entire property at a price determined by the floor area ratio times the square foot value for each property type (office, residential, and retail) times the proportionate share of the land owned by WMATA to the entire assembled site,” Wyner explains. However, the credit crunch forced APA to postpone all but the purchase of the preleased, 355,530-sf Founders Square office building. Wyner renegotiated the agreement to allow for a phased $28 million sale, with the $12.8 million first-phase closing in November 2009. But here’s the kicker: The land value agreement, which had been negotiated two years earlier, was preserved. WMATA would receive additional fees based on the remaining purchase price so that the net present value remained the same — a boon in a market that bore little resemblance to the glory of 2007.
Brian E. Fratzke, CCIM
U.S. Bank in Bend, Ore., was searching for significant tax and accounting advantages and “only wanted a ground lease when virtually no ground leasing was taking place,” says Fratzke. He conducted feasibility analyses for five sites, identifying one owner — Century Center Property LLC — that could benefit from a ground lease. Century Center would incur significant zoning and tax issues if it sold off a half-acre portion of an 11.5-acre retail development parcel. Fratzke’s analysis proved that a ground lease would provide the owner with a 40-year cash flow and improve demand for the adjacent shopping center.
Impressed with Fratzke’s attention to their financial goals, Century Center asked him to represent it in the negotiations. The more than $9.3 million ground lease was signed on June 24, 2009.
David J. Brightwell, CCIM
“The Georgetown Apartments site is 164 acres of waterfront land in the heart of what is considered the best commercial real estate market in Florida,” Brightwell says. “It’s an example of a trophy property that was acquired at the right time: when prices are low.”
How low? Brightwell’s partnership, which included Avanti Properties, DeBartolo Development, Christian Tyler Properties, and Validus Group, purchased the site from Bank of America in September 2009 for $30.5 million — nearly $100 million less than the property’s 2005 price tag. Despite the deep discount, the transaction still ranked among Tampa’s largest last year.
Jason E. Capitani, CCIM
Executive Vice President
L. Mason Capitani Corfac International
In less than four months, Capitani and a partner listed, sold, and closed the $7 million sale of the 750,000-sf Cadence Innovation plant in Chesterfield, Mich. “It took three times as long to sell the property four years ago,” Capitani says. As an added time constraint, the buyer required the construction of two on-site rail spurs and had only 45 days to complete due diligence. In that time frame, Capitani worked with the buyer, CN Railway Co., and four other property owners to negotiate the railway easement agreement that kept this deal on track.
David H. Johnson, CCIM
Radius Commercial Real Estate
“The public sector has a lot of underperforming and nonperforming real estate locked up without the expertise to turn it around,” says Johnson, who completed the more than $4.6 million, 26,000-sf Leadership in Energy and Environmental Design-certified office building in Denver for the Colorado State Land Board in March 2009. The downturn having stalled activity in the private sector, Johnson and CCIM candidate David Wells of Wells Springs in Denver used their skills to expedite a government project. Nevertheless, the project faced a hostile financing environment: “We used a ground lease structure to obtain a leasehold mortgage to finance the development,” Johnson explains. In fact, their quick work — and a little help from Mother Nature — allowed them to overcome the challenge of winter construction and effectively save the deal. “If we had closed on April 30, we would have needed to bring money to the closing because the valuations had changed so much,” Johnson says. “We benefited from a mild winter in Denver.”
Pam R. Krug, CCIM
Last spring Krug represented a buyer group that needed financing for the $15 million purchase of Pebble Place Business Park, a two-building, 51,878-sf office property in Henderson, Nev. “This was a solid gold transaction,” she says. “We had significant liquidity, the three partners’ real estate assets, a joint liability offer, a good development and investment track record, and the sellers’ $1 million cash deposit and guarantee of 95 percent occupancy for nearly two years.” Plus, the buyers offered to put up 10 percent of the loan amount in an offsetting securitized deposit.
At first, Krug thought it would be relatively easy to secure financing for this attractive deal. Lenders recently had received Troubled Asset Relief Program funds, and many local banks were advertising “money to lend” via television, radio, and newspapers.
But for Krug — and virtually anyone else who was combing the Mojave for financing — that money was a mirage. Over a three-month period Krug approached 33 banks to no avail. “One senior loan officer said if our transaction was not going to qualify, he was going to call 35 other applicants and inform them that they were wasting their time,” she says.
Finally, after a chance meeting at a charity event, Krug received a loan commitment from the private wealth division of a Midwest bank with one Las Vegas branch. The transaction closed in three weeks.
Sure, it was a victory. But the frozen loan market worries Krug. “Hundreds of billions of dollars of commercial mortgages are coming due in 2010 and 2011,” she says. She told her story to Nevada’s Senator Harry Reid and is encouraging her CCIM colleagues do the same before it’s too late. “The government can work to solve this problem,” Krug says. “If it doesn’t address the issue of commercial market liquidity, the economic impact will be devastating.”