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Outside the Box Market Thinking

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Think Outside the BoxMarket thinking is critical to commercial property owners. Thinking small is, well, putting it bluntly, an old paradigm and counter productive in today’s big CRE world.

Network largess is now a central key to lease marketing. Shrinking your exposure is deadly, while opening the marketing floodgates encourages multiple tributaries leading to more tenant activity, more LOIs and more executed leases.

In too many cases property owners have gotten twisted up in the pretzel of narrow representation, carrying the concept of going solo to new detrimental heights.

Learning over Lunch

A few years ago I met with a southern California owner at the Biltmore in Phoenix, Arizona who had invited me to lunch discuss and consider marketing his retail properties in cooperation with more than one broker each having and “exclusive” right to lease agreement.

Initially, the concept short circuited my concept of representation but as I listened to this seasoned owner my thinking began to change. Of course the so called “exclusive” was actually a modified arrangement where more than one listing broker consented to step aside in the event another procured an executed lease. Yes, the devil, as always, was in the listing agreement details and convincing multiple brokers to share a so-called “exclusive” listing seemed more than challenging.

The conversation broadened my thinking and opened me up to new representation blueprints that can help owners and add possibilities to a broker’s inventory.

The notion of broadening exposure in this way included many brokers working on the same property rather than simply one. The model began to have some appeal in an overbuilt market where owners require more, not less, tenant exposure and leasing opportunities.

The Big, Big, Big CRE World

With the advent of websites, blogs, YouTube channels with video sharing permissions, LoopNet, Twitter, Facebook, LinkedIn, Google+ and the myriad of other avenues available to owners, it’s my opinion that the power of the multiplier is already at work…and, therefore, why not harness this power?
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The Nasty World of CRE Grunge

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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.
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The Art of “Shaping the Deal” – Kid Style

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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 wanted, 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.”
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Road Kill: Tenant Trough, Part 1

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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

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

Break from the Pack Marketing Models

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the lone wolf 200Traditional commercial real estate marketing seems to be experiencing erosion.

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’.
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Magnetism – Creating Center Value through more Consumer Exposure

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shopping center magnetI read with a great deal of interest “Bright Ideas for Driving Traffic” in the February, 2010 issue of Shopping Centers Today magazine.

The relevance of the piece was the central focus of creating consumer recognition and value…what else is new in the shopping center marketing game?

What captured my attention in the article was the renewed interest in utilizing events and promotions as a traffic magnet for center impressions in the minds of consumers, tenant recognition and of course, foot-traffic.
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CAP – Coming Under Assault

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Future of CAP Rates
Future of CAP Rates

Posted by Donald Teel, Arizona Commercial

Commercial investors and real estate brokers/agents toss around the term “cap rate” as if it were some sort of tell-all with respect to commercial property value or the measurement of the strength of a commercial property investment.

Hold your horses!

Can a CAP rate determine a property value? Are CAPS an accurate measure of an investment? Can CAP rates be trusted as a true litmus test for investment?

Answer: No, no and no. In fact, CAP rate determinations are now coming under assault.

Brokers often convey value and pricing by dividing net operating income by a purchase amount, such as 125,000 (noi) divided by $1,125,000 (price) equals a cap rate of 11.1%.

CAP rates are simply the measurement of a property value for a given 12-month period “IF” the property were purchased “cash.” CAP rates are impacted when investors utilize financing and the terms of financing, such as interest rate, points, call date, etc., impact “true cap rate.”

Real World CAP Problems. What happens in a market where the actual or contemplated lease rates fall below levels suitable for so-called “adequate” cap rate?

Savvy investors know how important cash flow is and more importantly, how important predictable and sustainable cash flow is in a down market. Real world cap rate problems occur when the strength of rent rates is compromised by a struggling economy or by tenants who vacate properties due to their business failing to perform.

Example: If the prevailing and sustainable (emphasis on “sustainable”) market rents are anticipated to trend downward for more than 12 consequtive months due to a faltering national economy, cap rates may be a less than optimal way to determine purchase price value.

Welcome to today’s real world problem with cap rate valuation! I have a theory that the accelleration of tenant default has now become the single most powerful force in declining commercial property values. There goes sustainable NOI.

The Assault on CAP Rates. Shopping cap rates is usually a faulty initial premise in today’s market since most investors are unwilling or unable to park cash into 100% of the purchase price of a leased property.

Today, long term tenant performance is becoming less stable and the market competition for “exceptional” tenants is heating up. Vacancies are driving down NOI, lenders know this and are now adjusting their cap calculations to include historical property performance perdictions.

Cap rates as a tell-all financial apparatus are under assault and weighted calculations for financing and property segment performance MUST be taken into account by investors more than it has in the past.

A trustworthy cap rate will always be adjusted by the cost of money and the cost of alternative investments measured against real estate investment returns.

The strength of lease agreements, tenant performance, type of business and the cost of money over time (typically 3-5 years) are now more significant than ever.

Want more information about cap rates and the central and northern Arizona commercial markets? Email me or, if you prefer, call me toll free at 877-777-9100.