There are mixed reports that we are on the cusp of an economic recovery, and I believe that what will get us over the edge is the strength of individual and collective leadership. Nowhere is this more evident than for women in commercial real estate.
The economic circumstances today have created opportunities for women to make the field more diverse, but it will require fortitude, mentoring and a certain amount of “stepping up to the plate.”
Working with our excellent partner, Studley, CREW Network has throughout the year been offering training to our members through the 2010 Leadership Series. The program has several subsets:
• University Series: A series of calls and panels that focused on the refinement of professional content in commercial real estate through the use of credible university professors in specialties that impact many of our members
• Local Chapter Leadership: Training sessions focused on skills associated with leading a CREW chapter; using proven leaders who could help potential and current committee chairman strengthen their abilities. We believe that chapter leadership is excellent training for leading teams in the workplace
• Industry Associations: In the fall, CREW will begin a series of webinars and calls with other associations within commercial real estate. It is critical to share knowledge, insight and skills with our industry partners, if we are to develop a truly integrated, diverse universe of commercial real estate
This is a truly cross platform effort throughout CREW and the entire industry, with a very clear goal and mission – develop leadership skills that are necessary to further lift the economy out of the recession and be ready to seize and maximize every opportunity when conditions truly improve.
Gail Ayers is CEO of Commercial Real Estate Women (CREW) Network.
http://www.crewnetwork.org/
With real estate values down in all sectors across the nation, tax appeals are climbing to record numbers. In many cases, taxing jurisdictions cannot support or defend the values that are placed on those properties under appeal.
As municipal revenues run thin and state governments cut programs to balance their budgets, those governments understandably want to avoid returning significant amounts of money as tax refunds.
As a result, many taxing authorities are exploiting technicalities in state laws to seek dismissals of valid appeals. That makes it critically important that property owners stay abreast of all state requirements that may bear on tax appeals, and rigorously follow required procedures.
New Jersey’s Chapter 91 statute provides a clear example of the kinds of technicalities state’s employ. The statute requires the assessor to send a request to the owner of income-producing properties and ask for financial data related to the asset. The owner then has 45 days to respond to the demand. If the owner fails to respond in that time, he or she forfeits the right to challenge that year’s assessment.
In a recent New Jersey case, a municipality moved to dismiss an appeal for a failure to respond to the income and expense request. The property owner had designated an agent to receive property tax notices and correspondence. Although the agent received the request, the agent failed to file the form with the municipality.
The owner argued that the strict words of the statute required the assessor to serve the owner directly. The court held that the only address on file was that of the agent, however, and reasoned that the owner was bound by the statute. On those grounds, the court dismissed the case.
The simple lesson to learn from this example is that a number of procedural hurdles exist in each state’s tax law. Taxpayers must become knowledgeable about all applicable procedural rules and create failsafe, redundant systems to guard against the needless loss of their tax appeal rights.
Philip Giannuario is a partner in the Montclair, New Jersey law firm Garippa Lotz & Giannuario, the New Jersey and eastern Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. Phil Giannuario can be reached at phil@taxappeal.com.
With the recent increased activity in the distressed asset market, I find myself thinking back to before 2007 and 2008 when the purchase of an asset was performed with little money down and was highly leveraged. There was little in the way of equity and purchases were made with the anticipation of a quick sale and profit. This changed in late 2007 and 2008 as borrower’s started to default and there was no interest to purchase these securities anymore, and lending all but dried up. Distressed Assets and the management of these assets were now the concern, as it was assumed the banks were coming immediately as logic dictated that banks in financial trouble could get back into the black by repossessing and selling these properties
The perception was that, like Distressed Asset funds and departments were being advertised daily with access to the lenders in order to gain an opportunity to purchase or manage these assets that were top of mind.
Instead of repossessing and selling, the banks decided to allow the borrowers to hold onto these assets. If you happened to be the Property Manager of one of these properties on a life line taught, to provide all lease required services, while at the same time reducing costs (but not to the bare bones), you were in a very precarious situation. Having managed vacant and partially vacant properties under extreme financial hardship over my 20 plus years in the business, I have had the experience of balancing these constraints.
For other individuals that may have only managed Class A Trophy Properties, who in the past were typically owned by financially stable corporations with tenants paying high rents, having a top support staff was to be expected as compared to Class B and Class C properties where rents are less and net operating income not as great as a trophy property. Therefore, many Property Managers had to learn to provide the same services making due less would not be out of their environment in having to manage a distressed asset.
With the recent sales of properties on Madison Avenue and Lexington Avenue exceeding expectations along with pent up demand and cash on hand to buy, banks are now looking at taking back these assets.
There will be an estimated $750 Billion dollars of commercial real estate that will most likely be taken back into the lenders hands, needing management by those experienced in distressed assets like myself. The wave appears ready to take place, a few years later than anticipated, better late than never.
What are your thoughts?
Jack Terranova, PE, RPA, LEED AP
Senior Vice President-Cassidy Turley New York
By: James DumarsWe’ve not seen a recovery in the multi-family rental market but values have increased dramatically. It’s easy to draw the positive correlation between lower interest rates and falling cap rates for multi-family.
Multifamily owners have a significant advantage over owners of all other types of commercial real estate as they can access government guaranteed debt from Freddie Mac and Fannie Mae. As I understand it, the investors who buy this debt on the secondary market are rewarded with higher yields than standard US Treasuries but receive the government’s guaranty on the bonds. Consequently, recent Freddie Mac securitizations have reportedly been very successful as fund managers snap up the paper. �
�
A case in point: A specific property would have traded for a 6.25% cap rate a year ago. The property recently went under contract at a 5.25% cap rate, which is approximately 20% more than it would have traded for a year earlier, despite the fact that rents have not increased. The buyer obtained an agency mortgage with a fixed rate of 4.93% based on today’s closing treasury yield plus a spread of 197 basis points. The buyer competed with 20+ other investors for the deal and was selected from a best and final of the top three. The buyer, like many others, recognizes that the replacement cost of the Class A asset is $125,000 per door and he would likely have to go to the outskirts of town to build a similar property. Buying the asset in the $90k per unit range provides him with upside in value and future rents once the oversupply is eventually absorbed. He also locks in a very attractive interest rate on a fully assumable mortgage that can be increased in the future through supplemental funding.
I’ve seen this market transition from vulture buyers looking for multifamily to buyers who have raised funds and intend to build a presence in Phoenix. The vultures have gone quiet as the opportunities they were waiting for have not materialized, thanks to the very competitively priced capital available from the agencies.
James DuMars, managing director/senior vice president for NorthMarq Capital’s office in Phoenix, has more than 20 years of experience resolving complex commercial financing issues. Contact James at (602) 508-2206 or jdumars@northmarq.com
Rental income has always been the touchstone for calculating real property values and is a key element in determining taxable value for ad valorem property taxes. Because it plays such a crucial role in the property tax valuation, paying attention to what rent includes can result in lower tax bills.
Rental income for properties such as multi-family residential is closely associated with real estate usage and is easily capitalized into an indication of taxable value. That is not the case, however, for properties used by service-oriented businesses, such as full-service hotels or stores in high-end retail malls. In those situations, the stream of income generated by the facility may represent both a return to the real property as well as to franchises, branding, or a trained and assembled workforce.
In most states, these non-realty rights and assets are not subject to property tax. If local tax assessors calculate assessments using income that includes a return on non-realty elements, the property owner will overpay property taxes.
Similarly, in those situations where landlords participate in their tenants’ revenues through percentage rent, taxpayers should determine whether those rents represent a return solely to real property or if they also allow the landlord to share in profits that the tenant generates from customer services and branding. This situation frequently arises when private companies operate in government-owned facilities, such as public airports with privately run concessions.
So, what should investment property owners do? First, determine whether service-oriented businesses are operating in the property or whether percentage-rent arrangements are in effect. If either is the case, contact the local tax assessor and learn the basis for the property’s tax valuation. If the assessed value is based on property income, the property tax may be based in part on non-taxable income. In that case, the property should receive a reduction in taxes.
Cris K. O’Neall specializes in ad valorem property tax matters as a partner in the Los Angeles law firm of Cahill, Davis & O’Neall, LLP. His firm is the California member of American Property Tax Counsel, the national affiliation of property tax attorneys. Mr. O’Neall can be contacted at cko@cahilldavis.com.
For those with children, depending on their age, the cry from the backseat “are we there yet?” can invoke either wonderful memories of years gone by or dread with your summer vacation nearing. However, most recently, this cry is not heard from children, but from some of the most intelligent and respected real estate industry experts and analysts, who are much more intelligent than I with respect to Capital Markets and rental numbers.
With the national office vacancy rate edging up from 16.4% in the fourth quarter of 2009 to 16.7% in the first quarter of 2010, this rise in vacancy was described as being positive, as this was “the fifth straight quarter of decelerating declines.” This is good news in many ways, as we are all searching for the next run up in real estate values and rents, which of course translates to higher profits, commissions and salaries. For simplicity, business cycles typically consist of 4 components, and having gone through an extreme contraction, it would appear we are in the trough and ready for expansion.
Over the past few months, we have seen the sale leaseback of 452 Fifth Avenue, the purchase of 417 Fifth Avenue, 125 Park Avenue, 600 Lexington Avenue and most recently 340 Madison Avenue. 340 Madison sold for $570M or $760/square foot. Comparing this price to what was paid only four years ago ($550M) does not show that large of a drop off in base price but a closer look reveals that today the building is 92% leased as compared to 4 years ago when 340 Madison was only 40% leased. Though it should also be mentioned that four years ago, a building with pending turnover or even vacancy was looked upon as increasing value positive and not a negative.
Have fundamentals returned? Economic principals of real estate value may indicate that scarcity and supply and demand may have contributed to the cost not having dropped even further, but a positive capitalization rate for one would/is nice to see.
What does the sale of 340 Madison have to do with Property Management? Simply, many who are in the profession of property management forget it is our responsibility to help increase value by reducing costs and continuing to educate ourselves on the fundamentals of what constitutes value. The industry has evolved and has entered the “trough.” Many owners have lost properties and or gone into foreclosure due to many reasons, namely timing, but they also strayed from the basic fundamentals. These investors have learned, and will not make the same mistake. It is my belief that unless all team members responsible for managing an asset can help in increasing its value, then they may need to find another line of work. What do you think?
Jack Terranova, PE LEED AP
Senior Vice President
Cassidy Turley, New York
As President of CREW Network, I am honored to represent an organization whose goal is to advance the success of women in commercial real estate, but I am even more proud that our Network has led the way to pioneering research that not only helps to more tangibly monitor the trends we note anecdotally, but also to debunk the misperceptions that are so prevalent in the real estate workplace.
The groundbreaking survey CREW Network conducted in 2005, “Women in Commercial Real Estate” was the first study of its kind to provide a true benchmark that answers industry questions which had long gone unanswered. During the last five years, women have gained notable success on the national stage, including holding positions as Secretary of State, Speaker of the House, being nominated for Supreme Court Justice and candidate for vice president, however many barriers still exist in the field of commercial real estate.
CREW Network’s follow-up study, which will be released at the association’s convention and marketplace in October, will highlight the progress that has been made during the last five years, as well as illustrate the ways in which we can drive positive change in our workplaces. For example, we have learned that compensation has trended toward a higher weighting of base salary, but that a major gap still exists between men and women’s salaries, regardless of age or experience.
It’s important to track trends and make true measures of best practices and identify whether perceptions are in fact the reality. I hope you will join me in San Francisco this fall to learn about how the newest report can be used as a tool to further all of us as we continue our advancement of women in the complicated field of commercial real estate.
Kristin Blount is the 2010 President of CREW Network and Senior Vice President, Brokerage, at Colliers, Meredith & Grew in Boston
For more information about CREW Network, visit http://www.crewnetwork.org
