Miguel de Arcos

Why Internet Marketing Matters by Miguel de Arcos
By Miguel de Arcos - Commercial Real Estate Brokers who don't embrace digital marketing simply cannot effectively serve their clients in today's market. While there are certainly many factors that must come together to successfully culminate a transaction, there is no denying the value of visibility and exposure when selling or leasing commercial real estate. I'm always amazed at the number of brokers who have yet to embrace the internet as a strategic part of their marketing plans.

Given that there is no better way to position and/or present an investment or leasing opportunity to a targeted market, I don't understand why clients don't screen brokers for the strength of their online presence and web savvy. If your broker isn't leveraging a robust online strategy to your benefit then I would seriously question what type of representation you're receiving. If you're a principal trying to determine which broker to hire, you shouldn't care nearly as much about what firm a broker works for, but you should care very much about how aggressive the broker is in his/her marketing initiatives.

If your broker isn't on CRE-Advice.com, Twitter, MySpace, Facebook, LinkedIn, YouTube, and other social networking sites like FREJLink.com then you may want to think twice about who you're using. Want to see how I stack-up on the web? Just Google me and you'll see what I've been referencing in this post...


Miguel de Arcos
www.svnFlorida.com

Lock-In Now! Tenant Representation
By Miguel de Arcos

Historic Market! That seems to be the consensus among commercial real estate professionals regarding our current position. The next 6 months will be one of the most opportunistic buying periods for investors and users. This downward pressure on real estate values and the growing job losses are creating tremendous stresses for landlords and opportunites for those businesses who are surviving and thriving right now.

Is your business predictable(to a certain degree) over the next 3 to 5 years? If so, now is the single BEST time for you in the next 20 years to take advantage. Where is your rent now compared to where it could be if you renegotiated or relocated? We are at the very bottom of a huge dip in the real estate cycle and those businesses that position themselves to take advantage NOW, will save tens of thousands over the long haul. It is my opinion that real estate rents will sky rocket in the next 3 to 5 years; below is my reasoning...

Here are 4 reasons to consult your Sperry Van Ness Tenant Representative TODAY:

1. Population Growth. Expected to double in certain markets over the next 15 years. This will create new demand.

2. New Construction. Has come to a grinding halt the last couple years and will remain well below historic levels for the next year or so during this cyclical downswing. When hiring resumes demand will outpace supply, pushing rents up.

3. Occupancy Levels. Rates were already at all time highs before the bust. Considering the items above, when the economy rebounds demand will quickly outpace supply, pushing rents up.

4. Government Spending. Spending is at historic highs. This will lead hyper-inflation. Landlords will have to raise their rates to new levels not yet seen to compensate.

Conclusion: Assess your leasehold or ownership position now and let Sperry Van Ness consult you on the best course of action for your business over the next 5 to 10 years.

All the Best!

Miguel de Arcos
Managing Director

Inflation and Rising Interest Rates
By Miguel de Arcos - While we are currently in the throws of a severe recession and are experiencing a historically low interest rate environment, these times won't last forever. In fact, I have received numerous questions of late from commercial real estate investors wondering about the likelihood of rising inflation and an increase in interest rates in the future. In the text that follows I'll share a few thoughts on inflation and interest rates as they apply to commercial real estate investments so that you can plan accordingly...

The reason for the up-tick in conversation surrounding the topics of inflation and rising interest rates is simple; inflationary times cause a spike in interest rates which has a direct impact on the state of capital markets supply and pricing. This in turn also has a direct ,and often severe impact on the overall commercial real estate market. So, it's time to answer the questions at hand: Will we see inflation as we come out of the recession? I believe so. Will interest rates rise in the future? Most certainly...Now that I've answered the questions, I'll explain my rationale in the text that follows.

It is important to understand that as economies recover from recessionary periods and capital supply increases that inflation often rears its head. Think about this...according to the Federal Reserve Board, money supply in the US has increased nearly three-fold in the last five months. During this same time period consumer spending, capital investment, and virtually any other measure of investment (other than government spending) has declined sharply. So, where is all the money? Much of it is parked on the sidelines waiting for safer and more stable times to return. While I don't see economic recovery in the near term, it will eventually happen. When it does and the money starts to work its way back into the system, I believe we'll see a sharp rise in inflation and interest rates.

However, if there is any good news to take away from this it is as follows: it is important to note that we are presently in a unique market which is being heavily influenced by a severely constrained capital and credit market. In fact, many of the market characteristics typically caused in an inflationary market (which I'll describe below) are being experienced in today's low interest rate environment...just for different reasons. What I'm trying to convey here is that while the market is likely going to get worse before it gets better, we are experiencing much of the pain earlier in the cycle than is normal. The net effect of this is that the markets are already well into the weeding-out process, causing consolidations to occur now that typically wouldn't take place until later in the cycle.

As a baseline for a deeper analysis, it is useful to have a macro-economic understanding of what happens to asset level supply and demand drivers, and the resultant impact on Net Operating Income (NOI) in a rising interest rate environment. As a general economic principle, when inflation occurs and interest rates rise, the cost of new construction increases thereby slowing the number of construction starts and depleting new supply of product coming online. This scenario in turn causes an increase in overall market absorption rates and creates a "landlords market" environment. The market dynamics which favors the landlord creates an opportunity for property owners to increase rents, thereby allowing NOI growth to keep pace with any escalation in interest rates. While this scenario is favorable to existing property owners, making the rise in interest rates less of a concern to owners of existing assets, the impact to developers and tenants is clearly detrimental, and can have a negative overall impact on the economy if a high interest rate environment lasts for any length of time. At a more micro-level, some of the major issues surrounding the impact of increasing interest rates on commercial real estate are addressed below:

Flow of Funds: In a typical low interest rate environment (note: the current market is certainly not typical) commercial real estate provides a reasonable investment alternative to other low yielding asset classes. However, with rising interest rates the supply-side availability of capital marked for commercial real estate will constrict. The aforementioned contraction will be due to a combination of reduced demand for new supply as weaker developers are weeded-out of the market, and alternative investment opportunities in other asset classes begin providing a better yield while being perceived to have less risk when contrasted with commercial real estate investments.
Cost of Funds: The overall blended cost of capital will increase dramatically during an inflationary period. This increase will come not only as a result of rising interest rates across underlying indices, but moreover, as a result of lower advance rates in the senior debt position, which will shift a higher percentage of the capital structure up in the leverage curve. This reduction in LTV and LTC advance rates will cause a borrower to rely more heavily on mezzanine and equity financing resulting in a higher cost of capital to borrowers (mote: we are experiencing some of the same issues in today's market, but for different reasons).
Investment Sales: Sales of investment grade properties will slow rapidly as many of the buyers that typically exist in low interest rate environments will move to the sidelines. Default rates will climb and more distressed property will come onto the market as investors who leveraged-up on floating rate debt during the low interest rate environment will have a hard time keeping control of property as their debt service obligations increase.
The bottom line is this...Since capital is already constrained and the cost of funds is low, buyers should take advantage of bargain shopping now by looking to acquire low leverage, value added investment opportunities. I would specifically look for assets with upside potential for NOI growth through improved management and upside pop in leasing opportunities.

www.svnFlorida.com

Acquiring Non-Performing Assets

by Miguel de Arcos - Much of the attention surrounding non-performing commercial real estate assets tends to focus on the complexities associated with sell-side discussions. That being said, my advice is not to overlook the buy-side opportunities currently presenting themselves. While all investors yearn for a buyer's market, not all sponsors have the risk profile to dive into this market. Even for those that do, they may not be well positioned to take advantage of deeply discounted troubled assets.

While money can be made many ways in commercial real estate, most people tend to focus on the profit that is booked from successful dispositions. The simple fact of the matter is that you really make money on the buy-side. Those commercial real estate investors that bought into the top of the market are now watching the market value of their assets erode rapidly in the face of this market decline. Patient investors who stood on the sidelines during the frothy market run-up refusing to acquire assets at cap rates that could not be economically justified were able to preserve their capital for just a time such as this.

Investors who either possess organic domain expertise in deal restructuring, work-outs, or the value added repositioning of troubled assets, or who can avail themselves to the necessary third party professionals with the required skills should feel like the proverbial "kid in a candy store."

It's said that one man's trash is another man's treasure, and nowhere does this axiom hold more truth than in today's commercial real estate market. The potential gap between acquisition and disposition cap rates that this type of market can generate for investors who have the ability to buy into a declining market and who have a long-term focus can be truly significant.

Distressed assets offer the savvy investor the opportunity to capitalize on the mismanagement of the asset and/or hardships created by the severity of current market dynamics. Distressed assets are often disposed of for a deep discount from their original market value in an attempt by the owner to recoup as much of their original investment as possible while at the same time removing the responsibility for the debt service obligation associated with the asset.

The disposition of these distressed assets offers commercial real estate investors the opportunity to purchase what were once considered prime commercial properties in all areas of the country at a cost much lower than they would have paid even a year ago. The stress placed on owners courtesy of the economic recession, and the resultant tightening of the commercial capital and credit markets has forced many owners to dispose of what would otherwise be prime property because their portfolios can no longer afford to wait for an economic upswing.

Distressed assets in fast growing cities with a strong industrial base, diverse employment pool, and access to necessary resources are almost certain to become profitable properties when the economy picks back up, and astute commercial real estate investors are lining up to take advantage of that. With focused attention and diligence in your acquisition efforts, distressed properties can be purchased for prices that can be anywhere from 20- 80% off the market highs. Investors who have the capital to buy into this market and reposition or add value to a distressed property will reap significant rewards in the future. This is not a market conducive to short-term speculation. Investors diving into this economy need to realize that it is likely to get worse before it gets better. They need to buy with a long-term vision and focus with regard to their acquisitions.

Greeting real estate practitioners. Happy New Year!

If you have an interest, please take a minute to view the first video in a new monthly series that we have created to help tell the "story" of our firm. Who Sperry Van Ness is and what we do.

http://revver.com/video/1367928/miguel-de-arcos-lake-mary-florida-commercial-real-estate/

We actively work all areas of Florida and will work on a generous referral basis with your commercial clients. We are allowed to practice ONLY commercial, so your client referrals are protected.

Feel free to give me a call.

Regards,

Miguel de Arcos