4 Investor Tips

Source: Mitch Roschelle is U.S. real estate advisory practice leader for PwC, New York.
Published in: REALTOR, April/May 2011 Issue


Emerging Trends in Real Estate 2011, an annual investor survey conducted by PricewaterhouseCoopers and the Urban Land Institute, offers these investors tips:


1. LOCK IN LOANS. Don't make the mistake of waiting for loose credit that may be a long time coming. Interest rates are low but will inevitably increase.


2.  HOLD REIT SHARES. REITs are all about yields (forget appreciation) and a solid dividend in an uncertain environment. Even with recent REIT value run-ups of 28 percent in 2010, according to the National Association of Real Estate Investment Trusts, funds with high-quality assets should be less volatile than most stocks.


3.  BUY LAND IF YOU CAN AFFORD TO HOLD IT. Developable land prices are cheap, although the wide bid-ask spread is still a challenge for buyers. Remember, says Rochelle, historically most of the big money is made in land plays.


4.  CHOOSE INFILL. Predicting the direction of new growth is tough, so central locations are somewhat lower-risk investments. Infill offers businesses a more diverse employment base, especially among younger workers who prefer urban living. 


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NAI Rio Grande Valley is a focused commercial real estate brokerage, consulting, development and syndication firm serving the Rio Grande Valley and based in McAllen, Texas. Our mission is to transform real estate opportunities into profits for owners, users and investors.


NAI Rio Grande Valley advises it's customers and clients on how to maximize the value of their assets and utilize real estate to their long term advantage through comprehensive and strategic planning, execution and management.


Contact NAI Rio Grande Valley today to learn more about how we may be of service to your Investment needs. Visit our website at www.NAIRGV.com and Follow our Tweets, Like us on Facebook and Subscribe to our Market Blog.

Construction coming? Permits up across Valley as projects restarted | construction, coming, valley - TheMonitor.com

Construction coming? Permits up across Valley as projects restarted | construction, coming, valley - TheMonitor.com

Buyer or Seller: Who Really Has the Edge in Note Sales?

By: Tim Buss, CCIM, Senior Vice President-Special Asset Solutions at NAI Global


Note sales – more irrational exuberance!?!?  Like most things in a relatively free market environment, prices of goods and services flow through the spectrum of balance and imbalance as the pendulum swings, oftentimes too far to the extreme. This creates opportunities for both buyers and sellers before settling, albeit briefly, in a balanced state.  The note sales environment is firmly in that cycle today. 

But why?  I have seen countless examples where the notes secured by commercial real estate have traded for values that exceed the underlying fee.  Is it because the investor perceives value that is not obvious to the seller, or is it because the seller, oftentimes a regulated commercial bank, is so motivated to shed the asset that it is willing to leave money on the table? Or is it because the capital that has been impatiently sitting on the sideline has now determined that deals must be done regardless of the price? Or is it because, like the market, knowledge also has a market cycle and that knowledge is currently out of balance, favoring sellers over buyers? 

What knowledge could be out of balance?  Perhaps the experience gained through the last few years of working out of or collecting loans, wherein commercial bankers have realized that the time, cost and exposure is far more expensive than a less informed and experienced note buyer realizes.  Several recent studies have shown that the collection, foreclosure and ownership of an asset for the first year of holding title can cost 25-35% of the note value.  So it follows that the experienced lender who is willing to recognize the true collection/ownership/disposition cost is net-selling the note at a  discount of  25-35%. 

But is the less experienced, unsophisticated note buyer aware of the same cost, or is the perception that the note seller is simply coming in line with the market and the spread between bid and ask is finally converging?  The truth is likely somewhere in the middle.  All the market forces extenuated by the recent experience of bankers points to a trend that at least for now, plays in the favor of the note seller; but further, the reality in practice is often what I would call entitlement value.  Like the value creation that is achieved when a developer goes through the entitlement process, taking raw land to the point where it can be sold to a builder or end user, (a process that takes both up-front capital, incremental capital and experience) the collection/workout process similarly presents an opportunity to take advantage of a vision and goal.  For the commercial lender, the goal is to rid the balance sheet of the asset and the bank of the borrower, and oftentimes in the process, lender fatigue sets in.  But for the buyer, the vision and goal is to obtain title as quickly and efficiently as possible.  Where the bank has focused on the broken promise to pay, the note buyer simply wants to gain control.  That difference in vision and goal means that often the note buyer can compress the time and cost associated with “collecting” the loan.  So although there are still costs including attorney’s fees and time value of money, the investor is able to compress both time and cost creating a small positive arbitrage.

About the author

Tim Buss, CCIM is Senior Vice President-Special Asset Solutions at NAI Global...

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Industrial Trends – Q1 2011

As is typical, the industrial segment will lead the industry out of the real estate doldrums. The asset class is fairly less sophisticated then multi-family and office and retail remains a conundrum.

B-class assets and incubator vintage infill will be the first to lease as service companies and ancillary support companies will be buoyed by the improving economy.

Retailers, in anticipation of a recovery, albeit a marginal one, are currently analyzing and re-engineering their logistical schemes.  Supply chains are being closely monitored to determine where economic buying trends might break first. The larger retailers will continue to have the strength to locate distribution centers where ever they want. 

However, the discount stores and the dollar stores will be under pressure to determine best locations for replenishment, which are more costly, versus several small supply depots closer to store density.

About the author

Scope of Service Experience As Executive Vice President-The Americas, Paul Waters is responsible for business development and client relationships among major corporate end users of office and industrial space. He works with clients to identify opportunities to achieve significant cost savings through strategic occupancy programs and portfolio optimization. Education Bachelor of Science, Boston College Master of Business Administration, University of Phoenix, Background & Experience Mr. Waters possesses more than 20 years of experience across multiple disciplines within the commercial real estate industry, with extensive expertise in the industrial and office representation sector. Prior to joining NAI Global, he was a Senior Managing Director of CB Richard Ellis’ (CBRE) North American Industrial Services and was responsible for the direction, development and operations of CBRE’s national industrial tenant representation practice.

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The Uniqueness of Site Selection for Call Centers

As compared to typical office and industrial site selection, call centers demand more information about the availability and cost of labor than about the buildings. Call centers evaluate potential state, county and city incentives that are available based on the number of employees and the wage levels of its employees. The reason for this focus is the economic impact of the employee’s salaries over the term of the lease on the local community. 

For Instance:

400	Employees
X $12.00	per Hour
$4,800
		40,000	RSF
X 2,080	hrs/year/per employee	X $20.00	per RSF
$9,984,000		$800,000
X 10	year lease term	X 10	year lease term
$99,840,000	economic input	$8,000,000	real estate cost

Thus, if you can complete a site search for the correct city, or in part of a city, where you can get the same quality and quantity of labor for $1.00/hour less, then theoretically you can offset your annual rental costs.

About the author

Van Power is Chief Operating Officer of NAI Global's Contact (Call) Center / Site Selection Services Worldwide, and is Chief Operating Officer of NAI Robert Lynn's Corporate Services Divsion in the Dallas and Fort Worth, Texas metroplex, He specializes in representing corporate tenants in the site selection, acquisition and disposition of corporate call centers/contact centers, service centers and back-office operations centers worldwide. During his career, Power and his team have completed site selection assignments on over 7 million square feet of contact center space. Power combines comprehensive office, industrial and build-to-suit market knowledge with integrity, resourcefulness, tenacity, and 25 years of negotiation experience to represent the best interests of his corporate and business clients. He was honored as one of The Dallas Business Journal's Commercial Real Estate "HEAVY HITTERS" every year from 1991-2004. NAI Global named Van to the NAI Global Elite, a group comprised of the organization’s top performers and top producers. Power qualified as a Top Performer at the Elite level based on production in 2009. His transaction experience includes representation of tenants both large and small clients, in assignments ranging from negotiating office, industrial, office-flex and build-to-suit leases to major corporate relocations. 

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NAI Global Launches Suite of Green/Sustainability Services

NAI Global, the world’s premier global network of commercial real estate firms and one of the largest real estate services providers worldwide, today announced it is launching NAI Global Sustainability Solutions. This new business unit provides a comprehensive suite of “green” services for corporate clients and property owners delivered by some of the most experienced “green” experts worldwide.

NAI Global Sustainability Solutions provides energy & sustainability services to property owners and users worldwide through NAI staff and a strategic alliance with GreenPoint Partners. NAI Global also is working with Environmental Resources Management (ERM), a leading global provider of environmental, health and safety, risk and social consulting services. The new unit is led by Fred Tuck, NAI Global’s head of Project Management.

“Sustainability Solutions is an important addition to our global service offering,” stated NAI Global President & CEO Jeffrey M. Finn. “This initiative provides a unique opportunity to help our clients save money and demonstrate corporate social responsibility.”

NAI Global Sustainability Solutions provides a broad array of services to commercial real estate clients throughout North America through a strategic alliance with GreenPoint Partners. Working together with local NAI offices in North America, GreenPoint helps clients achieve profitable sustainability by delivering energy audits, solar and wind renewable energy, efficiency retrofits and LEED certification.

“We are thrilled to work with NAI Global,” stated GreenPoint CEO Dustin Gellman. “With NAI’s powerful network and broad global footprint, we can deliver increased value to thousands of clients that occupy hundreds of millions of square feet.”

NAI Global is also working with ERM, which provides environmental due diligence, site investigation and remediation services to NAI clients worldwide as part of its core Sustainability Solutions offering. With 130 offices in 40 countries and approximately 3,600 staff, ERM helps business and government clients understand and manage their impacts on the world around them.

“ERM is extremely excited about our working relationship with NAI, and look forward to the opportunity to provide key environmental services on a wide variety of projects for NAI and their clients” stated Tim Strongman, Partner, ERM UK.

“Through our relationship with ERM we are able to deliver a global “turnkey” real estate solution to our clients, which enables them to optimize their physical assets while at the same time meet their corporate social responsibility objectives” stated Paul Danks, NAI Global’s Senior Vice President-Corporate Solutions with responsibility for the management of the relationship with ERM.

Headquartered in Princeton, New Jersey, NAI Global manages a network of 5,000 professionals and 350 offices in 55 countries. NAI firms complete over $45 billion in transactions in a typical year, and manage more than 300 million square feet of commercial space worldwide.

NAI Rio Grande Valley is a focused commercial real estate brokerage, consulting, development and syndication firm serving the Rio Grande Valley and based in McAllen, Texas. Our mission is to transform real estate opportunities into profits for owners, users and investors.

NAI Rio Grande Valley advises it's customers and clients on how to maximize the value of their assets and utilize real estate to their long term advantage through comprehensive and strategic planning, execution and management.

NAI Rio Grande Valley professionals arrange the sale or lease of land, office, industrial and commercial real estate. We have a proven track record and have considerable expertise in envisioning how to convert raw land into revenues.

NAI Rio Grande Valley is also a service bureau for data gathering, research assistance, interpretation, and expert analysis on a variety of regional, economic and demographic issues. It seeks to provide an array of other services including market research, feasibility studies, project management, and real estate entitlements.

Because of our proximity to the Mexico border, close ties to the business community in Mexico and a proven understanding of the unique economics of the U.S. - Mexico border area, NAI Rio Grande Valley is able to provide services to both international and domestic clientele.

Grant will help STC and partners create, upgrade 236 regional jobs

McAllen Economic Development Corporation

South Texas College has partnered with a consortium of Rio South Texas businesses to provide job training using a $512,079 Skills Development Fund grant from the Texas Workforce Commission. The business partners include Azteca Milling L.P., Doctors Hospital at Renaissance, EMMSA Co., McAllen Medical Center and Metal Processing International.

“This is a great day of celebration for not only the college, but the entire region,” said STC President Shirley A. Reed. “TWC has invested millions of dollars in our region to provide skill training that creates opportunities for employers and employees. We are very thankful for their continued support and the faith they place in us to keep innovating and producing results that fuel Texas’ economy.”

On April 14, TWC Commissioner Representing the Public Andres Alcantar presented a check to South Texas College President Shirley A. Reed and representatives from the partnering companies at a special ceremony at the college’s Technology Campus in McAllen.

“The training programs made possible using these grants will build marketable skills,” said TWC Commissioner Representing the Public Andres Alcantar. “The number of Texans working in these jobs earning good wages will be a great economic boost for this region.”
Several regional dignitaries were in attendance to help ...

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Regal Beloit Corporation a new manufacturing plant in McAllen, Texas

McAllen Economic Development Corporation 

McAllen, Texas – Regal Beloit Corporation held today the official ribbon-cutting ceremony for its new 125,000square feet facility. The McAllen, Texas plant joins a 54 other international manufacturing and service/distributionoperations throughout the United States, Canada, Europe, Asia, Australia and Mexico. The purchase of the newlyrenovated facility producing metal components for rotors and stators will create 150 jobs.

The company CEO and executives, along with City of McAllen, Hidalgo County, and State of Texas officials joined inthe factory’s ribbon-cutting event on Thursday, April 7, 2011.

“We are extremely pleased to be here in McAllen, our journey started a couple of years ago and encompass abouta 10 million dollars investment, a lot of hours of preparation and working with McAllen Economic DevelopmentCorporation, the City of McAllen, the County, and the State of Texas, all that work was worthwhile when we lookat where we are headed here.” said Henry Knueppel, CEO & Chairman of the Board of Regal Beloit Corporation.“We are the last North American owned motor company of any substance so what we do in the world matters.“What our employees will do here will impact a huge percentage of our products, the quality and on-time deliverywill make a big difference in the success of the company.”

Regal Beloit is a Fortune 1000 leading global manufacturer of a broad range of products, from heavy industry tohigh technology. Their manufacturing plants produce ...

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WNDM Signs $1.5M Multiyear Regional Distribution Agreement with McAllen Company

McAllen Economic Development Corporation

Wound Management Technologies, Inc., (OTCQB: WNDM | WNDM.PK) a leader in advanced wound care solutions, today announced that the Company has signed a multi-year agreement with Omni Medical Products of McAllen, Texas to distribute CellerateRX® gel products in select states in the southwestern U.S.  To maintain the distributorship, the agreement calls for 1st year sales of at least $650,000 and additional sales each subsequent year.

According to Deborah Jenkins Hutchinson, President of Wound Management Technologies, “We are pleased to have Omni Medical Products distributing Wound Management’s gel products in select states.  This agreement is part of our broader campaign to establish CellerateRX® as the standard of care in wound treatment.”

Ron Mathis, Senior VP of Sales stated, “I am optimistic that as our sales increase we will continue to find broad distribution channels for the product. This new relationship along with our recent television campaigns should help to provide the exposure necessary to grow the company.”

Scott Haire, WNDM CEO was quoted, “It is exciting to watch as our revenues continue to grow, partnerships like this with Omni along with the recent announcement of our Middle East orders are all very encouraging signs that we will achieve meeting our 2011 revenue projections.”

For additional news and information concerning the CellerateRX® line of wound care products, please visit Wound Management Technology’s newly re-launched product websitewww.CellerateRX.com.

About Wound Management Technologies, Inc.

Wound Management Technologies, Inc. is an emerging commercial stage company with its primary products in the $5B worldwide advanced wound care market. Wound Management’s primary focus is the distribution of its unique, patented collagen product, CellerateRX®, which is FDA cleared and reimbursable under Medicare Part B. Wound Management has other advanced biotech products in development including a patented resorbable bone wax line that is in late stages of development, as well as a subsidiary focused on technology for secure healthcare data collaboration and storage.  More information can be found on the company’s web sites: http://www.wmgtech.com andhttp://www.celleraterx.com.

Master planning begins for Rio South Texas research, education park

McAllen Economic Development Corporation

A research and education park for the Rio South Texas region is becoming a reality now that the master planning process is underway.  Broaddus Planning of Austin is expected to complete the master plan by fall 2011.

The park will be located on 400 acres of public and private land near the McAllen Foreign Trade Zone. Located across from Reynosa, Mexico, it is one of the nation’s most active trade zones.

The driving force behind the park is a subcommittee made-up of affiliates of the North American Advanced Manufacturing Research and Education Initiative (NAAMREI).  Sixty business, education, economic development, industry and government partners form the initiative, which was launched as a result of a U.S. Department of Labor investment. NAAMREI partners are focused on transforming the region into a world leader for advanced and rapid response manufacturing.

“There are more than 200 manufacturing companies in the McAllen area alone,” said Keith Patridge, president of the McAllen Economic Development Corporation (MEDC), and chair of the subcommittee that hired Broaddus Planning.  “Another 250 companies are located in Reynosa.”

With the region becoming the North American hub for advanced manufacturing, Patridge said NAAMREI partners recognized the need for a research and education park.

“Today’s manufacturing product life cycle must respond rapidly to the needs of the customer,” he explained. “By having research and development facilities close by, our companies will be able to speed up the time it takes to go from concept to consumer.”

U.S. Congressman Ruben Hinojosa, working with MEDC and the City of McAllen, championed the efforts to secure funding for the park’s master plan.

The proposed park has a lot going for it even before groundbreaking.

“We have 20,000 to 30,000 acres of business, entertainment, housing and other amenities already built around the park site,” Patridge said.

It’s close to the McAllen Convention Center complex, downtown McAllen, McAllen Miller International Airport, and numerous hotels, restaurants and residential communities. The 6,000-acre Sharyland Plantation, a master planned community with schools, businesses, restaurants and homes, is adjacent to the site. The South Texas College (STC) Technology Campus, home of NAAMREI’s corporate headquarters, is also next to the park site.

“STC, the University of Texas-Pan American and Region One Education Service Center are our lead education agencies,” said STC’s Wanda Garza, who serves as NAAMREI’s chief executive officer.  “Our school districts and colleges are already recruiting and training the skilled workforce needed for the region’s advanced manufacturing infrastructure.”

 With so many amenities already in place, Patridge said the park will have a live, learn, work and play environment before it even opens.

There’s more good news for prospective park occupants. Its McAllen address, part of the McAllen-Edinburg-Mission Metropolitan Statistical Area, is one of the fastest growing metros in Texas and the nation. Its solid housing market, relatively stable employment and enviable cost of living also landed McAllen as seventh in the nation among Forbes’ Best Bang-for-the-Buck cities. And in March, Forbes named McAllen as the cleanest city in America.

For More Information about the Research Park in McAllen, Texas contact us at McAllen Economic Development Corporation Click Here

A Perspective on the “Value of a Sale-Leaseback” on Hospitality Properties

Sale leaseback transactions have been an excellent tool for businesses to leverage the equity in their real estate while maintaining operational control of their property.  Typically, an investor bargains for a long term passive income stream from the property in exchange for purchasing the real estate at a price that reflects both the underlying real estate value as well as the quality of the income stream that is created by the lease.   With today’s challenging real estate climate, this financial tool has a new application that is gaining interest in the hospitality industry.

Operating performance from hotels has generally decreased substantially from the peak in 2007 as a result of the economy.  Additionally, property values have decreased further with the cap rate decompression that resulted from the capital markets issues.  In many cases, this created untenable situations for otherwise credible and capable hotel owner/operators.  Many a lender has found itself in the untenable position of being upside down in a hotel loan and needing to move the loan/property out of its portfolio in a very difficult market.  Although the current borrower may be the best alternative for maintaining or turning around the asset, they are in no financial position to buy back their loan.

Here is where the sale leaseback fits in.  An investor acquires the property from the bank and leases it back to the current owner.  Unlike a more traditional sale-leaseback, this is a distressed situation.  Therefore, the risk adjusted returns for these investors may be substantially higher than traditional debt costs.  However, the heavy discounting in pricing that may occur in acquiring the property from the bank may more than offset the higher costs in the eyes of the troubled borrower.  To illustrate how this might work, the following is based on a recent negotiation:

• A limited service hotel was acquired in 2007 for $2.3M
• The owners place a $1,750,000 mortgage on the property
• The borrower defaulted and the property ended up in special servicing;
•  The borrower is still operating the property
•  The current property appraisal is $1.1M
•  The Lender has indicated that it will sell the property for $750k all cash.

 An investor has proposed to acquire the property from the bank as proposed and cover transaction costs plus limited cap ex funds; in total investing $800k.  In turn, they propose to lease the property back to the former owner for a term of five years at a rental rate that provides an absolute net 10% return to the investor.  Additionally, the tenant will have the right (and does have the intent) to buy the property back from the investor at a price that yields the investor an unleveraged 15% IRR.

From the Lender’s standpoint, they sell the asset all cash and exit the deal.  From the investor’s perspective, they are acquiring desirable real estate at below replacement cost on a passive basis.  The lease provides for certain covenants to protect and preserve the asset.  If there is a default, the eviction process is deemed desirable by this investor to a foreclosure process.  The yield is attractive to the investor.  Further, they intend to place 50% leverage on the property post acquisition to substantially increase their yield and are covering their acquisition costs in the transaction.  I should point out that part of the underwriting included an assessment of the risks of becoming the operator should the tenant default.  A careful review of the operator and certain limited guarantees accompanied the proposed lease.

Finally, from the current owner’s perspective, they resolve their distressed debt situation.  They maintain operation control of the property with the potential to benefit from upside in net cash flow in excess of the lease payments. Additionally, they maintain their management fee income.  Their buy-back provision enables them to get back into the property at a substantially lower basis than their original investment.  Lastly, little to no underwriting is involved as they know the property and are perhaps in the best position to assess the risks.

NAI Hospitality is finding the sale leaseback to be of significant interest to our investor clients and a creative and credible solution for our owners/operators.

By: Paul Reitz

NAI Global Blog

About the author

Scope of Service Experience Paul's real estate expertise includes brokerage, equity & debt financing, development, and investment of office, industrial, retail and hospitality properties. He has serviced his client's real estate needs throughout the United States, Canada, Latin America and the Caribbean. He has been featured speaker & panelist at major real estate conferences including The Global Property Forum- Toronto Canada 2007 & 2008 ; Eiendomsdagene -Kvitfjell, Norway 2009; Queen's University Executive Seminar on Corporate & Investment Real Estate, Toronto, Canada 2009 and The Nordic Business Arena-Stockholm, Sweden 2009. Education BS & MS degrees The Pennsylvania State University Background & Experience Paul has been in the commercial real estate business for 26 years. His transaction volume includes over $1 Billion of leasing, sales, development, financing & investment of commercial real estate. Paul has been a principle in the DFW broker member of New America Network (predecessor to NAI Global), and a founding partner of its first Mexico City broker member in the 1990's. He has been a past Chairman of NAN Investment & Industrial Councils and has served on the network's national advisory board. ... Click here to read more about Mr. Reitz

View the 2011 Market Reports for the Rio Grande Valley!

The McAllen-Edinburg-Mission and Brownsville-Harlingen 2011 Market Reports are available on our NAI Rio Grande Valley website.



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Edinburg's The Shoppes at RGV moving to grow to about 1/3 the size of La Plaza Mall

Shoppes could reach comparable size

April 15, 2011 8:06 AM

Dave Hendricks

The Monitor

EDINBURG — The Connecticut-based developer behind The Shoppes at Rio Grande Valley has announced plans to build a 90,000-square-foot expansion next to J.C. Penney.

First Hartford sold land to McDonald’s for a restaurant along Trenton Road and will build the expansion west of J.C. Penney, said Paul Rappaport, the development’s general manager. Anna’s Linens, GNC and Petco will occupy the new space, which should be open for business during 2012.

“These things, the way they work, once you start building momentum, they build themselves,” said Pedro Salazar, executive director of Edinburg’s Economic Development Corporation.

With the expansion, the Shoppes will have 428,000 square feet of retail space anchored by J.C. Penney, Academy Sports + Outdoors and Burlington Coat Factory. Together, the three anchors occupy 78 percent of existing retail space, according to First Hartford’s most recent annual report filed with the Securities and Exchange Commission.

At one time, concept drawings for The Shoppes showed a pedestrian-friendly outdoor mall with an urban feel, resembling a condensed version of Palms Crossing in McAllen. A more recent design show stores arranged in a huge loop around a massive parking area.

First Hartford eventually plans to build 1.1 million square feet of “gross leasable area,” an industry term encompassing everything from retail to office space, according to a company brochure. With less than a third of the project completed, the development’s final look ...

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Photo:

Nathan Lambrecht | nlambrecht@themonitor.com 

Juan Mata, left, and Roy Cantu, of Eberle Materials out of Donna, look over plans Wednesday morning, April 13, 2011, while working on a site that will become a McDonald's next to The Shoppes at Rio Grande Valley in Edinburg.