This year I will remember as the year of our extended “Spring & Summer Tour” to visit with our most valuable clients, and to nurture future client prospects. So far, it has stretched from New York, Boston, Hartford and Washington DC to Los Angeles, San Francisco, Dallas, and with colleagues joining me in Chicago. In addition, I personally re-visited Abu Dhabi and Dubai and made a first visit to Oman and Kuwait.

The atmosphere at all the meetings was filled with a common thread of “braving the current storm”. The combined investment of these clients represented hundreds of billions of dollars worth of commercial real estate portfolios. Each agreed they have not experienced similar conditions since the early nineties. All had a clear focus of the challenge for their respective organization, but also articulated, with real ingenuity, how they remembered the transference to wealth making opportunities during the time period from 1995 to 1999. Nearly all of the discussions centered on the need for new sources of debt to replace the stagnant CMBS marketplace; the challenge of $1.4 trillion of debt maturities in the next five years, and how to be positioned to take advantage of the inevitable distressed assets that will work their way through the system.

As I reviewed the six month report from Real Capital Analytics it is a sobering realization that a 2009 home sale in Lake Forest, at $7.5 million, exceeds most commercial “investment sales” in our Metro.

There is an insatiable need, from your clients for a return to a real pricing model reflecting current valuations, and an exchange of market perspective.

As I reflect back on our “Tour” it reminded me of the classic United Airlines commercial, that many of you will remember, with the opening line “I heard from a good friend today”, as the executive hands out flight tickets to his employees.

Creative thought, working more closely than ever with friends and clients, will help to identify those inevitable opportunities.

 Is the bottom of the market approaching? Is it already there, and we have been submerged for too long to avoid the effects of the storm, and for too long we have been drifting just off the bottom without realizing we could navigate to improved waters?

As the residential market preceded the commercial market decline, it now seems evident that the residential market, in all but the most depressed locations, is evidencing an uptick in the sales of existing homes. What does this mean? It is in my viewpoint the first and necessary step of infusing some money into the hands of the consumer; it also supports a belief that the economy is about to become active once again.

The innovators have already “got going”. These are the individuals that saw opportunity to position their companies in a downturn, to take advantage of a slow but gradual recovery, assisted by the effects of economic stimulus provided by our government. I do believe we are now exiting from that period of time that bred shock, dismay and inertia. Now we realize we are in a very different environment and we need to take actions that adapt to this new “norm” and these calculated strategies can actually realize growth and profits, as we emerge from recession.

In most instances, companies have curtailed unprofitable operations, streamlined their expense structure, and now are poised to be more nimble and innovative.

I read with interest today at how Playboy’s shares are trading for about 5% of their pricing of just over a decade ago. However, a close look at the company’s assets identifies that the Playboy mansion alone is probably worth 25 times its recorded book value. This offers great asset value to someone looking to buy this company or for the company to realize that gain.

In the 1990’s, during the last “great” recession, my company at the time was asked to address a relocation analysis for a transportation company, whose restricted means of access was affecting the company’s ability to operate, and more seriously was affecting company profitability. Through this single real estate exercise we noticed that many of their national locations had, over time, become inner-city rather than transportation friendly, and the conclusion resulted in their having the ability to sell the existing properties at way above book value, and relocate to less expensive, more operationally efficient new locations.

This is again a great time to evaluate your real estate, which is probably an undervalued asset on your balance sheet, affording you an opportunity to increase your earnings by the potential for sale, and secure the added benefit of increased earnings as profitability of operations recovers, and just like the transportation company, potentially create a more modern and efficient base of operations.

Tamara Kos, a colleague in our office who specializes in leasing representation for owner clients in downtown Chicago, shared with me some interesting recent observations as follows.

As we all know and as we are all aware, the recent events in the capital and financial markets have drastically impacted businesses and their decision making process. What has been unusual about the recession of 2008/2009 has been its significant impact on virtually every industry, and we are seeing very high levels of workforce job losses so early on in this business down-cycle.
 
As a result, many businesses have been delaying earlier plans to expand, relocate or upgrade the location or image of their facilities. At present, both the investment sales markets and leasing velocity has slowed considerably as a result of corporate America “treading water” during these current uncertain economic times.
 
This has created an interesting dichotomy however, for owners of commercial office buildings. With many tenants delaying their plans for long term commitments, they are seeking instead to renew in existing locations for shorter terms of one to two years, to give them time to better evaluate their longer term need for space while the market is in turmoil. For landlords of existing buildings with reasonably high levels of occupancy, this has actually been a boon to net revenue generation. The short term renewals that are being consummated are typically at the full asking rents in a building, but with minimal to no concessions such as tenant improvement allowances or rental abatement. Interestingly, from a bottom line perspective, these short term leases are favorable given their lack of costly concessions although they do not add to the long term value of the building.
 
On the flip side, owners of properties looking to add tenants are in the position of competing for a smaller pool of tenants who will actively consider a new location and longer term lease commitment, and as a result, the concessions necessary to secure these tenants has increased measurably. Until more confidence is felt in the overall economy, this cycle will likely continue.
 
So despite the challenging times, the current economic trend has lent an unusual benefit to the owners of those buildings that are well leased and positioned, where many tenants are committing to renew, although for shorter lease terms in many instances.