You’ve heard the expression, “When the only tool you have is a hammer, everything looks like a nail.”  When you have one formula for capitalizing on commercial real estate investments, you try to make your deals work one way.

A broker called to ask how we sold a building he had competed against us to list. We sold the property for 35% more than he estimated based on his review of the property’s financials.  It didn’t add up.

He took the owner’s gross income, subtracted the vacancy/credit loss and operating expenses to derive the net operating income.  He applied a market cap rate to the deal, derived the property’s value, made his recommendation and hoped to be hired for the listing.

They didn’t like his price.

Here’s why his hammer didn’t work:

• The owners were debt-free.
  
• There were 3 stakeholders hoping to sell for an above market value.
  
• Cash flow was important to one because she was retiring during the sale.
  
• The debt market was frozen and deals were difficult to finance.
  
• One of the owners sought to pay off a primary residence mortgage with the sale proceeds.

After our stakeholder interest analysis, we presented a solution to the owners that allowed them to convert their equity to cash flow with an installment sale.  To achieve above market value, we sold the property with below-market financing terms that gave the new owner ample cash flow to operate the property, pay his annual debt service, and time to secure new financing once the property was stabilized at its highest and best use.

The recurring cash flow supported the owner looking for a retirement income.  We bypassed the debt market because the sellers carried the paper.  And we required the new owner to make a 17% down payment, which extinguished the other owners mortgage obligation and paid for the cost of sale.

If you haven’t done a deal lately or are having trouble finding the “right” opportunity, start by looking at the deals you’ve done.  Is there a pattern in your deals that could be your hammer and nail?

To get different results, you have to try different things.  Put your hammer away and ask questions in the deals you’re considering. You may find new information and new opportunities that will become new ways of making your investment goals come to fruition.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

You call investment property brokers in your market, tell them about what you’re looking for, and meet with a few.  It feels like you’re making progress. The word is on the street, you’re looking to buy an investment property with great cash flows, upside potential, and at distressed prices.  Everyone knows.  You wait by the phone and check your email for the wealth building deals to roll in.

Here they come….the emails you’ve been waiting for.  You open them. You see a pattern emerging.  These listings are all the same.  You chock it up to the fact that you contacted everyone at the same time and they’re sending you what’s available on the market.  A few weeks go by, and the investment property sales lists dwindle and no one’s calling. What happened?

You’re everyone’s business and no one’s responsibility.

Rewind a few weeks. You’re a broker. You receive a phone call from an investor who’s looking for a good deal in your market. He wants you to send him something good, so keep your eyes open and start hunting. You want a commission right?

Well, sure. But here’s the catch.  You get at least one phone call like that every day.  You’re asked to find a good deal for this investor, maybe go hunting for him, and start sending him listings.  He’s probably not a hot horse who’s going to buy a property off the first list you send him and he’s likely having the same conversation with other investment property brokers.

He’s everyone’s business and no one’s responsibility.

You add him to your database. Maybe you put him in your email distribution list and figure that something might happen, but if not, you may get a call one day when he has a property he needs to lease or sell.

After a few weeks, you stop sending him lists of properties for sale because you’ve also been asked by 15-20 other investors in the same period of time to do the same activity.  Somehow, they think you’re out there working for them, too, because they’re getting the same listings as everyone else.  What they don’t know is that no one’s out there hunting, they’re just entering a search and clicking the send button.

You’ve been selling investment properties long enough to know that most of these calls are a fool’s errand.  The promise of a commission looms on the horizon, but you know you’re going to have to spend more in time and resources to maybe get that commission than you’ll likely earn, plus you have no commitment from anyone that they’ll honor your commission if you bring them a deal.  Pretty risky if you’re a broker. You decide you’re better served investing in those who have hired you to help them acquire and dispose of property.

Ultimately, as an investor, ask yourself, when you repeat the same behaviors as everyone else by calling a bunch of brokers to tell them what you want, should you expect an outcome that’s different than everyone else who’s doing the same?

The next time you’re on the phone with a broker, try asking him how many calls he’s had from investors “looking for a good deal” in the last 30 days.  Then ask him how many of those investors he’s spoken to after the initial conversation. Chances are you already know the answer.

To get different results than everyone else, change your approach. Ask your investment property brokers how many investors they’re representing.  The ones who have clients are getting deals done, while the ones who aren’t….well, just check your email box.

By taking a different approach and employing an investment property broker to execute a search and acquisition on your behalf, you may be delighted that when you become someone’s responsibility, you’re everyone’s envy.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

Few investors succeed when they make fast decisions, based on little information and gut instinct. The odds may play in your favor, but the lack of a plan that includes due diligence, market intelligence, timing, decisiveness and massive action will mean that your outcome be survivable.

Take a lesson from U.S. Army sniper school.  When you undergo training, you are taught to stalk a target for days and that you may or may not ever get a shot.  You have to be willing to walk away from your mission without ever taking out your target, without being emotionally invested in the outcome such that you would endanger your life or those around you.

You learn that your window of opportunity may last for seconds and that if you are distracted, you may miss your chance.  You rely on your spotter to assist you in identifying your target and helping you research the field as well as time your shot.  You don’t shoot off mission.  If your target does not present itself, you walk away.

Here are some tips to help you slow down your investment decision making to create fast results for your portfolio:

1.  Define your target. What are you looking to acquire and why?

2.  Take the high ground.  Use available resources to scout out the market, gather intelligence, and get the information about where the flow of opportunities in your market.

3.  Use a spotter.  Consider hiring professional advisors to source, qualify, and confirm that your target has been acquired.

4.  Be willing to walk away. If the deal isn’t right for you, don’t do it.  You’ll often make more on deals you don’t do.

5. Don’t get distracted.  Other targets will present themselves. If they aren’t a match, don’t invest in them.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

An investor asked us to give him a rental rate that would quickly lease his vacant space.  The problem with this question is that it’s only half the problem. The other half of the question should be:

“At what rate would you recommend I quote in the market to lease my space quickly while maintaining my debt service coverage ratio and building a long term positive cash flow?”

The first half answer to the question is to lower your rent until tenants start making proposals, being aware not to fix a discounted rate because it could eliminate or trap your equity investment in the property.  The second half answer asked for the following pieces of information: your existing leases, your prior year’s operating statement, your mortgage, your note, and any additional information regarding the property that you want us to know.

Then you create an analysis of your investment as it operates today followed by the lease up assumptions from the first half answer.  Next, you build your proforma including your lease up assumptions and annual debt service information from your mortgage and note.  Once you’ve generated a cash flow before taxes analysis, you can see how your investment will operate based on the first half answer.  The second half answer will give you the next 3 steps:

1. What are the required rate escalators to maintain your debt service coverage ratio?
2. If new and existing leases are signed at lower rates, what’s the lowest rate you can accept without defaulting on your loan?
3. If you’ve paid down the principal on your loan, run an analysis on what a new loan payment would be based on the reduced principal balance at today’s interest rates.  Would it make sense to call your lender to discuss a modification or refinance?

Upon completion of the following 3 steps, you should have a clear, 5 year plan for turning your property in a conforming, positive cash flow producing investment. You’ll know exactly what to do to achieve your goal, and it doesn’t look promising or you don’t think you can make it happen, you can always consider your other options.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

Two weeks ago, I met with a couple to discuss the market value of their property that they had owned for 60 years.  When they heard that their value was off 25% from 3 years ago, they almost kicked me out of their office.  In 2007, they had refused 3 cash offers for 25% more than the number they were hearing today.

Instead of looking at their gains over the past 60 years, they couldn’t see beyond the 25% correction over the past 3.

If the Zell maxim is true, “If you’re not selling, you’re buying,” then they bought their property back for 25% more in 2007 than they would get today.  They believe that selling for 75% of their 2007 value would result in a loss for the following reasons:

1.  They refused higher offers. Therefore the property’s market value has been proven to be higher than today’s number.

2.  They were raised to buy low and sell high, not buy low and sell for less than high.

3. As long as they hold on, they may hit that peak again.

Unfortunately, they’re focused on the wrong priorities.  Sure, 3 investors were willing to pay a higher price. But when they turned down the offers, they refused to accept the peak value and bought the property back at its highest value instead of seeing the big picture–”this is more than we ever paid and more than we think it’s worth.” They believe the value will return.

They belied the lessons their parents instilled in them.  In 1950, they bought low.  In 2010, they can sell high.  True, the price has fluctuated over time and they missed the peak of the market, but in the long-run they will sell for a profit and will enjoy a healthy gain.

As long as their equity remains invested in the property, they will place their personal priorities on hold.  They have plans for the cash that will enrich their personal lives. Those plans will wait.  And they will miss the advantages of owning investment property because they have no interest deduction, their equity is unleveraged, and the property is depreciated to a 0 basis, so they’re receiving no tax advantages.

Let’s face it, unrealized gains are unrealized gains. Let go of the past and move on.

If you’re holding out for another market peak, be prepared to wait.  While it’s comforting to peer into the the rear view mirror at what your property was worth (N.B. there’s a reason why the mirror says “objects in mirror are closer than they appear”), take it all in and see your long term gains for what they are–profits.

And ask yourself, are you building wealth waiting on another hot market, or just missing opportunities because of your insistence on what could have been?

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

Here are 10 insights I can offer you after completing a consulting assignment on an 850,000 SF portion of a $1B distressed CMBS portfolio sale.

1. The news on the street is not necessarily what’s happening with the borrower and his property.

2.  To fill vacant space, discount your rents significantly.  Be the best place for the best price.

3.  Plan to renew at lower rates. Once your in-place tenants see what you’ve done with rents to fill the building, they’ll likely want the same deal.

4.  When the borrowers stop paying, it’s because they realize they’re chasing losses. Paying to keep the property is worth less than letting their equity go.

5.  Property values are less than the debt owed. Find motivated lenders willing to cut a deal.

6.  Some properties are worth more as land sites than empty buildings.

7. Do your due diligence.  Lenders don’t like to foreclose on Phase II and Phase III assets.  Make sure you’re not buying a liability.

8.  Plan to carry an asset for 1-2 years to reach stability.

9.  Once stabilized, it may be 36-48 months before you recover your investment.

10.  Don’t bet the farm on your exit cap rate.  Cash flow will likely still be paramount when you dispose.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

MANSARD Commercial Properties is pleased to announce the addition of Navaneeth Conjeevaram to its growing investment sales and leasing team. Navaneeth Conjeevaram advises corporate and private investors and users of commercial real estate and prides himself on his careful and detailed approach to understanding his clients’ needs to deliver pragmatic solutions that create value and sustainable relationships.

Navaneeth has worked for Insignia, holds his BA in Business Administration, has over 7 years of commercial real estate experience.  He has leased 600,000 SF of office space on behalf of clients such as Tata Tele Services, Sierra Atlantic, Google, Monster.com, Aztec Software, Pizza Hut, and GE Motors.

Navaneeth is a CCIM Candidate and may be reached via telephone at 617-674-2043 ext. 205 or by email at Nav@Mansardcre.com.

If you still own your commercial real estate and you have tenants with net operating income to pay your debt service, congratulations. You’ve made it half-way through the downturn.

The second half may be uglier. While it may look like you’re successfully wading through the weeds, when was the last time you checked the terms of your mortgage agreement?

Some owners who think they’re in good shape today, may technically be in default or facing a maturity default. Your debt service coverage ratio may be out of alignment with your mortgage agreement. You may have depleted your reserve accounts below the required amount. Or your property’s value may have declined up to 40% since you originated your debt 3-4 years ago. More on this topic here.

If you haven’t done so yet, read your commercial mortgage agreement. You may find that you are in default, or worse yet, headed toward a deadline that may require you to invest more equity into your building that you don’t have.

Values have declined. Your loan to value ratio may need to be reset when your loan matures. If you don’t have the net operating income to support a higher valuation than today’s market will support, or the willingness to buy down your loan, you may run the risk of a maturity default. Owners are losing their buildings to maturity defaults today.

Look at your mortgage and make preparations to protect your building for when your loan comes due.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

Investors are finding value in their commercial real estate investments in 2010.  They’re capturing tenants that add value to their properties through lease-up, low vacancy, and renewed appreciation.  One investor, considering a new direction for his property, called us looking for guidance on how to take his empty building and realign it with market demand in today’s commercial real estate market.

His building is about 100 years old and has been home to Boston Baked Beans, a curtain factory, a top-secret World War II dummy equipment manufacturer responsible for D-Day invasion preparations, as well as home to an innovative high-tech silicon technology manufacturing company.  Today, the building has had renovations completed inside, has been empty for a few months, but has some redeeming improvements that make it somewhat unique.

Over the years, the owner installed 2 clean rooms, a wet lab, power to handle heavy manufacturing equipment, and interior common area renovations that bring out the building’s historical appeal, while offering amenities such as a fitness room, wired meeting spaces, and flexible office options.

In our meeting, we discussed the viability of the small to mid-size life science, high-tech, and bio-tech companies in Massachusetts and how they face a major dilemma–access to capital and the difficulty in securing and building out space to specs that suit their research and development requirements.  Most can’t afford to build clean rooms and wet labs and consequently moonlight at the offices of other companies that lease their rooms and labs at a discount. Additionally, many companies prefer the inner 128 market because of access to public transportation, Victorian homes, and ability to walk to restaurants, hiking trails, banks, boutiques, and cafes.  This building’s location matched all of those requirements and offered easy access to Cambridge and downtown Boston.

We conducted a market analysis using geospatial information systems, demographic, and NAICS analysis and concluded that the solution to meeting this location and space demand was to offer a flexible office solution that provided a collaborative work environment where these companies could forgo the cost of building their own clean room and lab space. They would lease offices and then purchase time on an as needed basis in the building’s clean rooms and lab space to run their experiments and conduct their research and development activities.  Then as the companies grow, they have the option to expand in the building while drawing on its resources until they’re large enough to move into larger spaces and have the capital to build out their facilities. What’s more, they would pay more dollars per square foot than a single user and provide the owner with a hedge against future high vacancy risk.

To position the building, we’re naming it.  We’ve built a story around the innovative successes that companies have experienced  throughout the building’s 100 year history as well as communicated a founding value that expresses the belief that through collaboration and flexibility, we reach greater success. To boot, an exterior renovation will be done to reskin the building and add new signage branding its new image and name.

One challenge this owner will face will be the added management of a multi-user building where tenants have access to more common areas than conventional research and development buildings provide.  But instead of trying to locate a single tenant for the entire building, where competition is strong and other buildings offer better functionality of access, parking, and construction, this building competes in a class of its own by repackaging its space to meet the demands of today’s start-up and high-growth focused market.  We’re looking forward to filling it and watching its community grow.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

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To get top dollar for your property, you market it to the world.  A recent MANSARD Commercial Properties survey of over 1,000 investors revealed that broker to broker networking is believed to be the number one activity a commercial real estate broker undertakes to fill vacancies or sell property.

Yet owners continue to hire brokers who market their property to an exclusive list. If you choose that route for confidentiality, read no further.

Others, I’ll ask you, ” Who’s really getting top dollar? You or your broker? ”

Commercial real estate brokerages developed to represent owners of real estate. Offices competed for listings and worked to lease or sell their inventory to their buyer and tenant prospects. Over time, some offices chose to cooperate with one another, share fees, and collaboratively sell or lease a property because it helped them perform faster, saving their clients money while delivering results and the dollars they desired.

The more people who worked to lease or sell your property, the better your chance of success.

Other companies believed they possessed the complete list of tenants and investors.  They maintained that they had the best channel to market and as long as they did, owners would come to them to promote their opportunities, keeping 100% of their fees and controlling their slice of the action.

Old habits die hard. Some companies continue to cooperate, others do not. The ones that don’t, send your opportunity to their market and tell you they’re exposing it to the world.

Here’s why this matters to you: your commercial real estate advisor’s responsible for placing loyalty to your interests above his own.

This means exposing your opportunity to the largest possible audience to generate a deal.   And if you stand to make more money on a deal going in one direction vs. another, your advisor’s obligated to give you the best advice to suit your needs, not his own–even if that means he makes less and you make more.

The next time you’re meeting with your broker, ask him whether he cooperates with other brokers and markets openly.  It may mean a faster, more lucrative transaction for you.

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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

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