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There is a lot to be said for quality. There is a lot to be gained by a commitment to quality property management.

In the world where being grunge is often applauded and rewarded, I remain convinced that being tacky is a cultural statement about one’s point of reference.

Is it just me or have you also noticed some of the creeping influences of grunge within the world of CRE?

Of late, I’m becoming more acutely aware of the relationship between cracked stucco, peeling paint, potholed parking lots, leaking roofs and the level of an owner’s commitment to creating and maintain property value through capital improvements and dedication to property management.

I See Ugly Properties

My recent observations of properties in the metro Phoenix, Arizona commercial real estate market have led me to the conclusion that something grungy is happening. Once pristine properties are now left to the elements. The same grunge is becoming more and more apparent in the Prescott, Flagstaff and Sedona, Arizona commercial real estate markets.

There appears to be a deliberate draw-down on capital commitments and property management. It’s obvious, it’s annoying and it most certainly can impact a commercial property’s actual and perceived value. Capital is tight and owners are hesitant to spend.

In a market with negligible, if any, appreciation, some owners are choosing to tighten their financial belts by commiting the unpardonable sin of withholding capital and maintenance improvements necessary to the value equation. Some of this is being forced on owners under the principle of too much property, too little capital.

More than ever, those scant investors who are looking to buy or exchange are digging deeply into the maintenance history of a targeted property and insisting that value adjustments be made for improvements during the initial 36-month their ownership window.

Tenant Perceptions & the Grunge Factor

Retention is now as important as leasing itself. The most clostly and devestating loss a property experiences is vacancy recovery. In fact, I’m finding that in some cases retention is the only path owners can take to sustain their already threatened values.

Grunge shrinks values and contributes to poor leasing and negative tenant retention rates.

• Grunge = concerned, nervous and even angry tenant.
• Grunge = lower lease price per square foot.
• Grunge = a position of weakness in the renewal process.
• Grunge = refinancing problems reflected in appraisals.
• Grunge = diminished public percention of a property.
• Grunge = all sorts of ugliness…that’s why it’s called “grunge.”

The tenant issues stemming from CRE Grunge are myriad and they create value objections on the front end of the leasing process as well as retention problems. When a property enters a cycle toward physical decline the market responds with like-kind perceptions.

Quality maintenance = perceived and actual value.

Retail tenants are more keenly aware of the relationship between quality properties, price per s.f., NNN charges and more importantly, in their minds, consumer traffic.

We can cheat on maintenance, but not for long. Tenants are shopping the market, constantly looking for an edge on cost, a better location, a cleaner look and an owner committed to upkeep.

Grunge may be a prevailing desease we have to live with during the overbuilt, under-capitalized commercial real estate market. But, rest assured, grunge eventually extracts its toll.

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Donald Teel is a Senior Associate and Principal with Arizona Commercial, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel

The commercial real estate industry has been traveling a windy, dusty road since 2007.

There has been a lot of talk about pent-up demand, cash on the side lines and investors in the wings. So far we have not seen the long awaited collision of reduced prices and pent-up demand.

We travel down the road, wearied and parched, as months go by without our seeing a passing vehicle.

Small and intermediate investors, those most strapped for cash reserves, are running low on fuel waiting for the collision of buying power with what they fear is their last price adjustment they dare make before the notes are called and new refinancing is required. The NOI isn’t there, neither are the tenants or the buyers.

The good news is that we are seeing the dust of approaching vehicles just over the hill. There is the noise of oncoming traffic.

Those of us in the Northern Arizona commercial market are seeing a measurable increase in traffic. We are seeing more tenants, slight increases in rental rates and in general more activity on the retail and industrial fronts.

Although we are not yet ready to pop the corks on the Champaign bottles, we are least sipping some cheap wine in anticipation that perhaps 2011 will bring the collision between lower rates and pent up demand.

Barring any overreaching government intervention and further reluctance of lenders, I am now finally ready to at least acknowledge the prohibited collision is predictably logical.

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Donald Teel is a Senior Associate and Principal with Arizona Commercial, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel

Here’s a photo blog for your thoughts. What impact, if any, will the future changes in lending have on CRE investors and property values? How much control do lenders have on market outcomes?

Note: This post was originally written by Donald Teel for residential Broker-Owners. It is syndicated from REALonomics because of its relevance to commercial brokerages and investors. “REALonomics” is a registered trademark ® of The Teel Group, Inc.

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The real estate industry is not too unlike an organization living in a state of collective schizophrenia. Figuratively speaking, we are hearing voices that are not real.

Our hallucinations are mostly self-induced; the voices we hear are actually our own mumblings and business babblings disguised as forces we do not control.

I’m now convinced the real estate industry is delusional but not in the classic clinical sense of schizophrenia. Rather, we are deluded by the notion that what we are experiencing is beyond our control.

Since we don’t have an alternative point of reference for our dilapidated and dysfunctional (not to mention unprofitable) business models, we willingly succumb to the voices that keep telling us all will be well and in time the market will return to normalcy (whatever that is).

We have come to actually believe there is a quick cure for our collective malady. We have long ago stopped taking the medications of self-reliance that can eliminate the voices and have instead turned to a political pill that only fuels the illness and delays the inevitable.

The Great Delusional Grip

Franchisors continue to pimp and prescribe, increasing their delusional grip on Broker-Owners, convincing them, mistakenly, that their brands are necessary as a market value proposition and to their survival.

To control the delusions and squelch the voices we pretend our economic survival can be optimized by merely changing the colors of the pills we ingest. We hallucinate about technology solutions that magically produce profitability through Internet lead generation. The voices continue.
Continue reading “RE’s Schizophrenic Desperation”

The CRE market is anything but “normal” in the traditional sense. Lenders are more demanding than ever and there is less capital on the table than in recent memory.

CAP rate pricing strategies are increasingly difficult to pencil-out these days. After we doing the math we are often left shaking our heads. Owners are facing note calls and having some sleepless nights wondering how to score lending. Lenders are insecure and uncertain about what the Feds might do next.

Welcome to “ABNORMAL” where normalcy, whatever it is or was, exists no more. Welcome to normal defined by abnormality. Our CRE world is fast becoming a frenzied marathon that owners discover takes them nowhere, slowly. Yikes!

Enter Legislative Reform and No Risk Lending

President Barack Obama has signed into law a 2,300 page legislative act known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (HR 4173).

Download the Davis Polk Summary of HR4173

Although the bloated document’s proponents claim the new law will right the financial wrongs that created the current abnormal state of affairs in lending, others think it may create more uncertainty in the lending market.

Proponents of the legislation claim it will reduce systematic risk in lending and thus protect the banks and the lenders.
Continue reading “CRE’s Coming Orwellian Abnormality”

When Donald Trump wrote “The Art of the Deal” he became an industry authority figure for knowing or, at least claiming to know, how to make deals…deals that work.

Has anything changed since Trump wrote his 1988 best seller? Yes, a lot has changed. The fundamentals of deal making have not changed and perhaps they never will.

Making deals is one thing…now, however, the renewed skill that is most in demand is how to shape the deals we are making.

Due to today’s unique economic times, I’m discovering there is a big difference between securing signatures and shaping a deal for long term performance.

In fact, shaping the deal may be the requisite skill now in most demand because there are fewer deals to be done and the deals that are getting done require more perseverance and targeted thinking.

Negotiating Breakfast with My Daughter

Almost every day, we are all negotiating something. I did it this morning with my 9-year-old daughter. We negotiated about her breakfast. She wanted chocolate donuts, not one, but two! Once we formulated the premise for the sign-off, i.e., what each side had to have, we then had the core of the deal.

My position was clear. “You cannot have donuts for breakfast.” Her position was, “Donuts is the only way to make this deal work.”
Continue reading “The Art of “Shaping the Deal” – Kid Style”

Here is an opportunity to update your market knowledge via a recent online webcast sponsored by Marcus & Millichap, entitled “2010 Office and Industrial Market Outlook and Investment Strategies Webcast.”

The information provided here is better than the far-reaching and biased reports I have read, while giving some real signals as to where the commercial property and capital markets are headed.

Click the image below to be taken to the pre-recorded webcast.

This presentation is Copyright © 2010, Marcus & Millichap and is used for educational and editorial purposes.

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Donald Teel is a Senior Associate and Principal with Arizona Commercial, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel

Here we are again, with time on our hands to engage in a little Commercial Real Estate Road Kill where we can shoot the breeze about CRE. This is a continuation of my rambling discussion about the current “The Tenant Trough” that is impacting office and retail owners.

This was shot while tooling down Interstate 40 between Flagstaff and Kingman, Arizona. It’s all part of a new feature for this blog entitled CRE Road Kill. Stay tuned for more CRE Road Kill.

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Donald Teel is a Senior Associate and Principal with Arizona Commercial, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel

Michael Lewis says, “People see what they get paid to see.” Wall Street experts, according to Lewis, are paid to not see certain things, as well. Is Wall Street’s bonus culture unsustainable? Has Wall Street been designed to win when it loses?

The following “60 Minutes” interview is an amazing story from the inside of the mortgage securities industry and how experts made money creating a disaster and are now making money cleaning up the disaster. Imagine being paid to run your organization into the ground…watch it.

Watch CBS News Videos Online

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Donald Teel is a Senior Associate and Principal with Arizona Commercial, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel

Driving gives me an opportunity to think about what I am doing, some of the challenges we are facing in the buisness and how my clients can weather what I call “The Tenant Trough.” Rather than simply tool down the long and winding road, I have decided to utilize my drive times by engaging in a little Commercial Real Estate Road Kill.

The following video was shot on a recent drive to Phoenix and is the first of what I hope will be a regular feature entitled CRE Road Kill. In this installment, I am addressing what I call the Tenant Trough, what it is the problems it creates for owners. In Part 2 I will talk about solutions…stay tuned.

Merriam-Webster defines “trough” as follows:

• a long and narrow or shallow channel or depression (as between waves);
• the minimum point of a complete cycle of a periodic function;
• the low point in a business cycle

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Donald Teel is a Senior Associate and Principal with Arizona Commercial, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel