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.

Why?

Because many of the old models don’t work well in an increasingly collaborative world where people want to have a relationship and role in the creation of their investment outcomes, that’s why.

How is your property being marketed? How quickly can you turn the message and communicate change to thousands of people in a moment of time? These are huge questions for property owners.

In the marketing of your property are you running with the big dogs or licking with the pups? How can you break from the pack in 2010 and beyond enabling you to run with the big dogs?

Meet the Puppies Lickin’ and Playin’ on the Porch

When it comes to commercial real estate marketing, there are pups on the porch lickin’ and there are big dogs in the fields runnin’.

High failure rate marketing models such as cards, letters, complicated brochures, mindless spreadsheets that don’t cut-to-the-chase, ugly property signs and costly networking meetings are increasingly being replaced with lean and quick, impactful, attention-getting, direct and digital marketing models. Interactive, please.

In today’s commercial real estate marketing game slow is bad…speed is good; actually, speed is essential. In a competitive environment, slow is costly, while speed, agility and message delivery creates economic margins and a more responsive audience.

Big, old-line marketing is expensive, complicated and difficult to control, modify and monetize; the message is mostly, non-repetitive with a single impression that yields lower results. Message renewal is necessary for property owners, but old models make its delivery expensive and its recreation clunky and difficult.

A large factor in effective marketing is the ability or inability to edit our message on the fly…THIS IS HUGE IN TODAY’S FICKLE MARKET. Minutes and hours can make the difference in deal-making. Speed counts. Reaction time is money.

Break from the Pack…Lone Wolf Marketing

Ask yourself why Twitter, MySpace, YouTube, Craig’s List and Facebook have hundreds of millions of global viewers daily. Why do companies like Exxon, General Electric, Hollywood film makers, resorts, news networks and national retailers have Twitter accounts?

Why did candidate Barack Obama choose online, digital “speed marketing” as his primary message channel resulting in his raising more money than any candidate in history with the end game being his election as President? Uh, let me see…because it works? Why does it work?…uh, let me see…because, at the end of the day, people like it?

Lean, new straight-line marketing via hard-hitting and informational emails, digital brochures, property websites, video, blog content, RSS feeds and narrated PowerPoint presentations are, at the end of the day, a lower cost marketing approach per impression, editable and evolutionary and can deliver a higher and measurable result for property owners.

There are more reasons commercial property owners should take a careful, studied look at how they create, broadcast and control their message. Let’s start with “people” and how they currently gather information in general.

We’ve become tired of direct mail marketing…we don’t like to read all the crap that is thrown at us…we’d rather get the message first hand in a form we like and can access at any time, 24/7/365. In short, people want to control the marketing message they receive not have it shoveled upon them.

The old line “rapport” building is still valid…we are just going to have to build rapport faster and more effectively in order to succeed in the commercial real estate marketing game. We have to earn rapport faster than “power lunching” and meeting attendance.

Prospect rapport isn’t always fostered by eating with them, running around from place-to-place, engaging in never-ending phone tag or flying from airport to airport. I and owners earn prospect rapport by how well we communicate, the speed of our communication, its accuracy, style and ever changing content delivery.

Frequent, Fast, Evolving and Affordable

I’ve become the Chief Operating Officer for frequent, fast, affordable real estate communication models. Such models are easier than ever to create and their potential for audience and monetization are better than every. The upfront cost creates a digital magazine that can be edited constantly…example…look at this commercial real estate blog!

I am asking all of my substantial clients, i.e., those with multiple properties or large office complexes or retail centers to do the following, do it soon and to pay the freight now for a marketing infrastructure that will accelerate their communication and create a basis for an ever-changing property message:

• Create a Commercial Property Website (I can help)
• Communicate features, themes, and lifestyle benefits (I can help)
• Deploy video, podcasts and narrated presentations (I can help)
• Increase digital communication, links and downloads to gain audience (I can help)

We are entering a period of time when many properties are going to get drowned out in the ocean of similarity in the minds of a shrinking pool of prospects.

Owners who can attract users, separate them from the masses and hold their attention will be those who break from the pack. Owners who do not adopt new marketing methodologies will continue to see their properties languish, sadly.

Collaboration through real estate blogs and social media channels, coupled with powerful presentation marketing that attracts and hold eyeballs on your property is becoming the central marketing challenge for owners and, for that matter, commercial real estate brokers.

Remember this, the spreadsheet analysis means nothing if no one sees it. A great CAP rate doesn’t sell if the marketing fails to perform. In a market with increasing vacancies and volatility, sustained attention created with speed of message becomes paramount.

If you need a more effective marketing platform, consultation, an action plan, a property website or just some free advice…call or email me.

Yet, in this case the endorsement is a necessary and complimentary one that serves the interests of commercial real estate investors in the greater Prescott, Arizona market area.

Although oxymoronic, please meet my “cooperating competitors.”

The Prescott Area Commercial Group (PACG) is a non-profit real estate (is “non-profit real estate” an oxymoron) consortium that promotes investment, training and networking of property information among central and northern Arizona commercial brokers and agents.

The Power of Disciplined Focus

PACG represents a disciplined focus on commercial real estate investment and property performance among perhaps the most experienced and highly trained professionals who know and understand the fundamentals of investing in real estate.

PACG was originally formed as a commercial networking group that met to discuss Prescott, Arizona’s commercial real estate market, properties and opportunities. Now PACG is more than a quiet group meeting over coffee to exchange listing and sales information.

The commercial real estate market demands a disciplined focus in order to stay on top of the rapidly evolving trends.

Risky Business or Cooperative Competitors?

PACG is now the most prominent and perhaps “connected” group of commercial specialists in the northern Arizona real estate market.

Having met with most of the PACG Members and interacted with them, I can state without reservation that they are a qualified and trustworthy group that any owner or tenant can call on for assistance. PACG members know their stuff and they work hard to consistently improve their skills and knowledge in order to meet the needs of each client.

Introducing competitors may be regarded as a bit risky, however, in today’s volatile market I believe having a network of trusted colleagues who can provide a kind of “brain trust” is an asset that can be called upon and tapped into for solutions.

Sounding Rusty and Eroded

At the risk of sounding old or, at least rusty, dated and eroded, I’m going to reach back in time and drag an old principle forward. In decades long gone the industry where I have made my mark and enjoyed my gains (and honestly, some losses too) was one built upon trusted associations where business resulted largely from shared information gained from a trusted network of professionals.

Yes, some of this has been eroded over time, which is why I find my association with PACG PACG members refreshing, non-threatening and beneficial to both me and my clients.

I don’t mind if you meet my trusted competitors.

Posted by Donald Teel, Arizona Commercial.

Jones Lang LaSalle Americas CEO Peter Roberts, CEO of Jones Lang LaSalle Americas, discusses the commercial real estate rebound and what investors are doing to prepare for it with FOX Business.

Posted by Donald Teel – Arizona Commercial

Everyone, everywhere, is talking about the real estate market. Even people who do not know anything about the real estate market are talking about the real estate market.

Understandably, much of the discussion remains negative. After all, some estimates tells us that the net value of all commercial real estate in the United States has plummeted by as much as 30% since 2006. I would like to address the shiny side of this very ugly coin.

As we come to the end of 2009, how can we successfully invest in commercial real estate?

Many small to intermediate investors have been discovering that buying was the easy side of commercial real estate investment coin…the shiny side! Managing and turning properties in the volatile environment of 2009 has proved to be the tarnished side of our coin.

With respect to the fundamentals of investment, nothing has really changed. Yet, we all know much has changed and continues to change, especially with respect to the acquisition and cost of capital and sustained values. For the purpose of this article, I would like to place a market spin on what I think are the 10 most important principles for small commercial real estate investors to follow in 2010 and beyond.

Property Type. Who could have predicted that the multi-family sector would be where it is today based upon our assumptions ten years ago. We must remind ourselves that our assumptions are merely momentary conclusion based upon ever-evolving data and that the moving data is almost always something over which we have most likely, no control.

Type-casting isn’t just a Hollywood phenomenon, it’s imperative with every real estate transaction these days and in the case of multiple tenant revenues each lease will need to be sifted and ground down in order to determine its viability and value going forward. There are “leases” and there are “Leases” and there are “LEASES.” Nothing works well if the tenants don’t!

Inventory, absorption rates and occupancy rates and CAP rates are imperative to the investment equation. There is no negotiating these issues and they are deal breakers.

Still, it’s Location. It appears that the newest and perhaps safest strategy for small to medium investors is to get big by investing small all over. Just as mix of property types is essential to a sound investment strategy, so also is the principle of multiple locations based upon regional economic dissimilarities. Atlanta’s medical office values and projected demands will be different than those of Seattle and it would be ridiculous to compare Phoenix multi-family to say Manhattan multi-family.

Within macro locations there are micro locations and micro product. For example, if one really must invest in multi-family in Arizona, it would be wise to see investments with 4-8 tenants, under $2 million and perhaps not in the dense market of metro Phoenix but perhaps in central or northern Arizona communities of Prescott, Sedona, Payson or Flagstaff, since these markets are more self-contained.

Sound commercial investment thinking must go beyond the local to the national and even, when qualified and warranted, an investor can think international.

Commercial investment is about the cash flow and it is the cash flow that will ultimately determine the investment property value.

The Pace of Personal Risk. Too much, too fast is what I saw occurring from 2000-2006. Investor appetites were often out of control, money was easy and many believed the returns were going to be sustainable. Not so, we all know now! Pace of investment, especially where the investor is relatively new to commercial real estate is sooooooo important. It’s advisable that a new investor look at one property every 18 months for three years, as a basic formula. There is just too much to watch, more to know and the risks are greater than at any other time in history.

A partnership buffer can help with personal risk. It’s not advisable to put all of your eggs into one basket and it is less than optimal to do so alone. It looks like partnership are becoming more attractive to a lot of previous Lone Rangers who are now mortgage heavy and cash light. On most properties I have owned, there has been a partner behind me, beside me and in front of me and it always helped with both risk balance, capital demands, mortgages and in the end divestiture.

Going slow and not going slow alone is the new formula for smaller investors.

Demand Analysis. I have watched many small investors purchase a property with limited or no demand analysis. Demand analysis looks at the next owner who will step in at year 5 and it looks at the numbers that can indicate current and future user demand.

Questions to ask might be: Who wants the property today and why? Who will want it tomorrow and why? Who are today’s buyers and why? Who are tomorrow’s users and why?

I have never been fond of Las Vegas and I am not a gambler. Dice and I don’t mix well and cards are even worse. Slot machines emanate noises that frighten me. Gamblers eventually fold and there is really no place in commercial investment for risky speculation. Demand analysis can minimize some of the crap shooting that became all too inherent in real estate investment during the first decade of the 21st century.

Earlier in this piece, I talked about inventory and absorption rates. In many cases, investors complete ignore these trend lines and make investments solely on attractive CAP rates at the time of purchase. Understanding the demand cycle past, present and future will tell you a lot about an investment and give you some comfort that tomorrow’s market will serve your interests.

Ask Vs. Bid Strategy. Spread is everything. Spread forms the initial basis and our capitalization model should strengthen it further. We are seeing an incredible amount of stress regarding what owners say they must sell or lease for and what smart buyers are willing to risk. The ask value is no longer valid when risk is high. What an owner paid is almost irrelevant to today’s informed investor and nothing is worse than extremism on both sides of that negotiating equation.

In the past year, more than ever, I have heard buyers talk about things like “we need to adjust our offer (bid) in a way that we are protected for 36 months in case the market continues its decline. Buyers are bidding with a calculator set, not to appreciation, but rather to depreciation. Buyers are actually betting on losses!

The ask vs. bid spread creates a huge set of psychological negatives in a transaction and traditional lenders are taking hard and long looks at projected appreciation based upon property actuary tables, the life cycle of performance.

Better than half of all small to medium sized commercial property owners have seen more than 25% decreases in their property values. This is disrupting lease values, tenant negotiations and ultimately the asking price.

Crafting (another work for Brokering) the transaction involves a lot more patience and skill with respect to coaching the competing interests of the Asker and Bidder so that there is a reasonable expectation of a meeting of the minds. Tilting the transaction to one side or the other can lead to serious financing problems, not to mention ROI issues. Owner who ask too much attract buyers who offer too little. In the end a good commercial transaction will be empirical, not emotional.

Creative Capitalization. Risk is always a function of the market conditions and the cost of capital or, I might say the “capital plan.” These days, I am becoming a big fan of creative capital sourcing, i.e., partnering the capital requirement through partnerships and other structures including, LLC and Sub S corporations (see your legal and tax advisors for input).

The lending streams are parched and institutional lenders are increasingly favor stronger partnerships that can personally and severally guarantee. However, there are other capital marriages that can include down payment partnerships that provide a down payment partner with 30% interest in a single asset commercial LLC in exchange for a 20-20% capital requirement. Today’s numbers need to look very good and provide 12-15% cash-on-cash return. In addition, the exit strategy must be rock solid at the end of a 3-7 year model and will most likely need at least one round of new financing.

Shifting or spreading risk is a good way to think. Formation of partnerships, joint ventures, LLC and corporations that involve multiple players is what I call creative capitalization. Do not over-leverage a property just so you can buy it. In fact, never over-leverage.

Management. Property management for small and medium sized investors is a much larger factor than is admitted. The value of maintenance, attention and presence can create substantive value increases to an investor. Yet, many smaller investors attempt to manage property without management services. This is almost always a mistake. Professional property management services have been known to hold value and in some cases protect owners from factors that can destroy return.

Property Management can be the eyes, ears and sense of touch and taste for a small investor and the cost of management should be rolled into the performance analysis.

A simple rule to follow is that if you do not have to manage your own investment, do not attempt to do so. The marginal savings will not be worth the effort. Typically, if a small investor has more than 4 units to manage or more than a $300,000 investment the management should be placed in the hands of trained Certified Property Manager.

Let me remind you that bad management can also contribute to the decline of property value and selecting, reviewing and correcting property management is a part of the investment model.

Reserve Resources. Capital reserves are as valid for the $200,000 investor as they are for the $15,000,000 investor. In fact, the stakes may sometimes be higher and the risk ratio more dangerous for small investors who do not create and maintain capital reserves as a part of the investment formula.

Capital reserves are something your Broker can assist you with and a factor in property management analysis that helps owners manage for the long term by having funds available for those pesky, yet often expensive “surprise” capital requirements.

One of the key reserve resources is adequate property, casualty and catastrophic insurance, including, when necessary, flood insurance. In addition, a percentage of cash flow should be allocated to a capital reserves account, monitored by your Property Management Company.

Air conditioning, heating, parking lot surfaces, roofing, glass, pools, common areas and other expenses can destroy property value and place capital demands on an owner that are unsustainable. When you invest always, always…let me say it again, always create a capital reserve analysis commensurate with the property and make the property performance fund these reserves.

Reserves can also be in the form of personal wealth or lender commitments. The principle is a simple one; if you are a commercial real estate investor you WILL need a source of capital funds and having access to capital can serve as a hedge against the market. Survival can sometimes be dependent upon having access to affordable funds.

Holding and Folding. There is that popular country western song with the lyrics, “you’ve got to know when to hold ‘em, know when to fold ‘em” that has as much wisdom as it does rhythm. Knowing when to hold and when to fold is a skill, not just an impulse. This skill is true not just in the game of poker but in a commercial real estate investment model as well.

Many investors who were advised to “fold ‘em” waited too long. They should have sold when advised to do so by their Broker but they refused to do so and now they hold properties that are highly devalued in the market.

There are many rules to follow when holding and folding and each property, its location, the objectives of the owner, market trends and the availability of financing all play a role in determining when it is time to sell and walk.

Pay attention to trends. Study the trends. Know the trends. Especially important to the hold-n-fold tension is your knowledge of capital and lending trends. These are often ignored in favor of market analysis. Capital markets are often ahead of broker analysis of market trends. Lenders are typically a cycle ahead of the market and therefore knowing when to hold and when to fold is largely a function of lending strength and the availability of affordable financing.

Let me say one more thing about this subject. If you have a property that is free and clear and the leasing trends are in a downward spiral for that property type, it may be best to fold and carry back the financing for as long as you can in order to offset value losses created by market declines. If you can be the bank, be the bank.

Rotation, Rotation, Rotation. Exchange rules are not such an easy game to play today; however, exchanging property is a key fundamental to building long-term wealth. Once you are in the game, it is not so much about location, location, location as it is about rotation, rotation, rotation.

Flipping property by means of tax deferred exchanges should be built into your investment plan and model at the time of your first purchase. The key to this is that sales are taxable events in the eyes of the Internal Revenue Service, while 1031 exchanges are not immediately taxable events.

The 1031 tax deferred exchange is an IRS approved model for selling one “qualifying” property and from the proceeds acquiring another property of like kind within an IRS approved length of time. The transaction of selling and re-investing is treated as an exchange and not as a typical sale where capital gains are taxed.

Property rotation under the IRS rules of exchange is the most lucrative long term method for building wealth through real estate investment. There are specific rules and processes that must be followed for rotating in and out of properties but a qualified Broker or what is known as an “Intermediary” can explain those rules to you.

With each investment, we must ask ourselves the questions, “When will I sell?” and “What will I do with the capital…pay taxes or, invest again to increase your wealth?”

Ours has become a business culture and climate often made up of the lack of economic appreciation for many things and it seems there is a growing unwillingness to recognize the value of expertise, service and product quality and to mistakenly perceive that all things are open to negotiation. Or, worse yet, there is often a perception that all things are of equal value.

With a declining real estate market there is a mistaken notion that the value of commercial expertise is somehow diminished when instead its inherent value is increased due to the complexity of the market.

Often, when a client attempts to negotiate the cost my expertise downward, there is a corresponding decrease in my desire to commit resources, creativity and indeed the labor necessary to accomplish a stated objective. Accomplishing a client’s objectives is difficult in good markets; in bad markets the required disciplne is often excruciating.

Watch the humor but catch the economic drift of this YouTube video produced by Scofield Editorial, Inc. and entitled, The Vendor Client Relationship.

Copyright © Scofield Editorial, Inc., sydicated from YouTube.com.

Warren Buffet, considered by some to be the consumate investor, was interviewed on CNBC on June 24, 2009, and indicated that he believes we have not seen the end of the economic decline.

Email Donald Teel for Prescott, Arizona Commercial Property information or, if you prefer, call him, toll free at 877-777-9100.

Often, owners can become complacent with respect to ensuring long term property performance and that is why Arizona Commercial recommends an annual Property Performance Analysis (PPA).

Listen to the following PPA podcast by Donald Teel, then call Arizona Commercial for a FREE analysis of your property or your targeted investment.