Earlier today, Rick Davidson(CBC President and COO) met with the Benchmark Team at the World Golf Village in St. Augustine Florida. Rick Davidson joined G.G. Galloway just a few weeks ago to Climb Mt. Ranier and Mt. Hood in the annual CBC Climb for Kids Sake.

Rick Davidson was joined by Greg Sexton and Jason Silfies. Sexton is the Senior Vice President Franchise Sales, and is responsible for the growth of the CBC brand throughout the United States. Silfies is the Vice President Marketing & Technology for CBC.

Benchmark had 35 professionals in attendance, in an incredible show of faith from Davidson by attending an individual CBC affiliate meeting. Rarely do we see directors of major real estate companies granting this kind of access to its agents. Davidson covered his thoughts and perceptions of the current market conditions, as well as pointing out some great opportunities for CBC professionals in these amazing times.

This was the first of what will be monthly meetings in St. Augustine to allow more collaboration between the Ormond Beach and Jacksonville offices of CBC Benchmark.

Today you can lease industrial, flex space, and warehouse properties in the Daytona Beach area for roughly half the asking rates of one year ago – I spent this morning negociating a lease for $4.50 per square foot – GROSS – he current advertised price on this building is $7 triple net, which equates to $8.90 gross – nearly HALF off. Our Team here at Benchmark leased 4,000 SF of flexspace last week for $4.20/FT gross.

Surely in this economic climate, deep discounts on commercial property will yeild some benefits, and help small businesses take chances on expansion? Here is a building that is $5 gross – asking price 10,000 SF Warehouse for $5/FT gross

by Tim Davis

There are many news reports about the status of the commercial real estate mortage market – we have even reported on them here on Real Estate Jokers – The Mortgage Crisis May Have a Second Act? – but what is uncertain is exactly how much debt is on the books, and how much is going to mature or come due as the five year notes expire? I read an interesting article on Zero Hedge a while back that estimated the total commercial debt at over $1 trillion:

“Banks have $1.1 trillion in core commercial real estate loans on their books according to the FDIC, another $590 billion in construction loans, $205 billion in multifamily loans and $63 billion in farm loans. The precise maturity schedule for these loans is not definitive, however bank loans tend to have short-term durations, and the assumption is that all will mature by 2013, exhibiting moderate increases in maturities due to activity pick up over the last 2-3 years.”

So with this information we can make some assumptions: Like always, every year thousands of commercial mortgages come due. We are going to see a moderate increase in the number needing renewal in the coming years, based on the fact that investors were buying and selling more property in the last few years – or at least more than they were in the late 1990’s. So my point here is that the real problem, still, lies in the negative equity positions of the properties financed in the last 5 years, not in the structure fo the loans themselves. These are the  properties that were sold ( and financed) in the last 2-3 years for 30-40% more than they are worth in today’s market. So if you property is cash-flowing, and you have some positive equity – you are a much more attractive customer to the banking industry.

You could be like Jared Kushner, and have a $1 billion dollar building in your portfolio, that you paid nearly $2 billion for in ‘06 – financed it 100% with debt by the way…and now it is 40% vacant….ouch.

by Tim Davis

So you own a television and a computer – and every time you turn one or both of them on, they instantly spew forth ideas that you should sit tight and keep leasing space for your business. Vacancy rates are on the rise, rents are dropping, banks are foreclosing on properties, distress sales are on the rise still, etc, etc. Well maybe your computer doesn’t “spew” this info – but your fax machine probably does.

The basic point is in order to by in business, you have to have space to conduct that business.  Like it or not, you unless you are drop shipping infant toys you sell on ebay, you most likely need a traditional space to operate your business. This could be an office, a retail store, or a manufacturing or industrial space for your going concern. Rent is expensive, possibly the most expensive piece of your overhead after labor and of course the cost of goods sold. While there are no guarantees and I certainly have no crystal ball here in my office, There is a good chance of you being able to recapture some of that expense from the eventual sale of the real property at some point. This is when you decide to cease doing business at that location (for whatever reason).

Speaking of selling the property in the future, this is an important issue the owners of small businesses in particular. Whether it is a sole proprietor, partnership, family business, or other – when these people do decide to sell the business, retire, split the partnerships, etc – The real estate can often be a great revenue stream going forward for those owners. I know I have listed several solid investment properties in the last couple of years that were owned by people who operated businesses in those buildings for many years, and either sold the business itself and kept the real estate, or simply retired and were now using the building that they had paid off(or down considerably) as a new source of income going forward.

While it is concerning to talk about how much the market is off, and how prices are down 30-40% from the highs just a few years ago, the reality is they are still up a great deal compared to 10 years ago. Most experts say that the 10 year rule is king here – if you think you can operate your business from this location for ten years – it is a better deal for your business to buy the building than to lease. These fluctuations in value that are so widely reported in the media are short term remember – if you average any given 30 year span of the American economy, you will still see a 3% gain annually at the worst. Commercial real estate has long been an excellent hedge against inflation for this very reason. It is no mistake that the the largest Real Estate Investment Trusts (REITS) in the WORLD seem to buy and sell trillions of dollars of commercial real estate every year.

Speaking from personal experience, I know the idea of spending money on commercial real estate right now is not at the top of any business owners list. I also know that everyone keeps saying that this is the time to buy – and to be honest with you I don’t know if this is the time, or if there is an even better time in the near future. What I can say with certainty is that for smaller businesses, owning the real estate you operate from has some compelling benefits. And the prices are back down to the 2003 prices – its like someone hit the reset button on the Nintendo – time to play?

by Tim Davis

As we all know, unlike residential mortgages, commercial paper is ammortized over a longer period of 20-30 years, but they have terms or balloon payment dates. Most popular commercial loans are for 5 year terms. If you calculate backwards and figure when the commercial market was at its peak, from mid-2006 to mid-2007, those notes will be coming due in 2010-2011.

It is foreseeable that the financing in place on that commercial property will be difficult to renew, as the rents(income) for those properties have fallen dramatically in the last 24 months or so. High loan balances(relative to current income), higher vacancy issues, unavailable credit for many borrowers, and trillions of dollars of real estate with loans in need of renewal…things could be interesting.

Further Reading from Kevin Hall at McClatchy:

April 30, 2009 – Two years after fissures in the residential housing market gave way to a national collapse of home prices and sales, experts warn the next shoe to drop is the commercial real estate market, bringing more woes to the battered economy.

Thousands of commercial mortgages valued at hundreds of billions of dollars are approaching a renewal date. By some estimates, two out of every three will no longer meet the original loan conditions and won’t be able to refinance. And with prices for commercial properties expected to plunge, a vicious cycle may unfold much as it has in the nation’s housing market.

“It’s the next wave to hit. It’s the next round of bad news,” said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a trade group for big banks and other financial institutions who are collectively concerned about the coming problems.

A commercial mortgage meltdown is likely to prolong the nation’s economic recovery. The falling prices in commercial real estate will lead to additional bank losses at a time when banks are sapped by home mortgage defaults and soaring credit card defaults. This could lead to future additional taxpayer assistance for the banks.

The reality is already on display. On April 16, the nation’s second-largest mall developer, General Growth Properties, filed for bankruptcy protection. The Chicago-based company owns more than 200 malls across the U.S., and was unable to renegotiate its debts as they came due.

Six days later, a 40-story office tower on New York’s Avenue of the Americas was seized by its creditor, a Canadian-owned pension fund. The tower’s owner, Macklowe Properties, couldn’t meet loan terms.

“On the street, the rumor is it is coming and it’s going to come fast and furious. Some people are predicting September,” said Paul Waters, a New York-based executive vice president of brokerage operations in North America for NAI Global, a top-five commercial real estate brokerage with operations across the globe.

Just like the housing meltdown, the commercial real estate crunch is likely to begin as a slow bleed that gains momentum. It is likely to be spread evenly across the nation, in large part because of an outgoing economic tide that’s spared few companies anywhere.

“There’s going to be a lot of trouble on Main Street with some of these commercial and industrial buildings. The biggest impact will be on some of the smaller owners,” Waters said. “The smaller local regional players that are stretched thin may have some great difficulties with their mortgages.”

How bad it gets will depend on speed of economic recovery. Office space and multifamily apartments, two huge components of commercial real estate, are highly dependent on employment. Even if the economy begins growing again late this year as forecast, the number of unemployed is expected to keep rising well into next year.

“The translation is that office vacancy rates would continue to rise until mid- to late 2010,” said Christopher Cornell, an economist specializing in commercial real estate for Moody’s Economy.com. He added that “it’s a drag on the recovery” well into next year.

The last crisis in commercial real estate – which includes office space, malls, industrial parks and multifamily apartments – came in the early 1990s. The problem then was an oversupply of new properties. Today, the driver is a deep economic downturn, with the economy contracting by more than 6 percent in each of the last two quarters.

As in the housing meltdown, weakened lending standards are a big part of the story for commercial real estate. Unlike housing, however, the ill effects from weakened commercial lending standards have been camouflaged to date because they’ve had a longer horizon than housing did over which to implode.

“If you take a look between 2005 and 2007, the underwriting standards on both the consumer side and the commercial side were spinning out of control,” said Kevin Blakely, the president of the Risk Management Association, a Philadelphia-based trade group for financial risk managers. “I think it is a bigger issue than we like to admit.”

In housing, many of the loans with poor underwriting went bad within two years, when adjustable-rate mortgages were due to reset to higher interest rates and raise monthly payment costs for homeowners.

However, commercial properties carry mortgages with lives of five years or 10 years. And these loans issued from 1999 to 2007 are coming up for a rollover – refinancing under similar terms. Today’s economic downturn and credit crunch makes that unlikely, however, as credit standards have tightened.

As in housing, many commercial properties have mortgages that were bundled together in pools, sliced and diced and instead of being held by banks were sold to investors as bonds and securities. Thousands of these commercial mortgage-backed securities, or CMBS, are reaching their maturity dates over the next three years. Ten-year mortgages issued in 1999 and 2000 start coming due late this year, and five-year loans issued from 2005 to 2007 come due early next year.

“If you stop and think about what is coming up for maturity over the next couple of years, either on the banks’ books or CMBS, there is going to be a day of reckoning as those loans mature and they have to be rebalanced and reset to today’s underwriting standards,” said Blakely, who worked 17 years as a bank regulator followed by 17 years as a bank executive and risk officer.

A March study by the Wall Street arm of Deutsche Bank, Germany’s largest financial institution, points to this day of reckoning. It found that the number of U.S. commercial loans that hadn’t refinanced within a month of their end date had tripled.

Refinancing usually happens months ahead of the end date. Since October, commercial refinancing has dropped from a pace of more than 400 mortgages a month to fewer than 100 a month, the bank said.

The report, “Commercial Real Estate at the Precipice,” said that under lenient underwriting standards, 56.8 percent of existing commercial mortgages wouldn’t qualify for refinancing. Using conservative standards, two thirds won’t make the grade.

That suggests that lenders will have to extend loans, much like they’ve tried to freeze adjustable-rate residential mortgages at their original lower rate to avoid a foreclosure. Even if the commercial loans are simply extended for a year or two, however, commercial real estate prices are forecast to keep dropping so the time bomb will be delayed not defused, the report concluded.

“In our view, much of these losses are unavoidable, even in a mass (loan) extension environment,” wrote Richard Markus, the report’s author.

Forecaster Moody’s Economy.com expects $375 billion in losses on the $3.5 trillion in commercial mortgage loans and securities outstanding. That a loss rate of about 11 percent, nearly twice the rate of home mortgage foreclosures, and the forecaster thinks that about $200 billion of those commercial losses are still ahead.

“This is significant, but small compared to the more than $1.1 trillion losses ultimately expected on residential mortgage loans and securities. Commercial mortgage losses will be a significant problem for many mid-sized and small banks,” said Mark Zandi, the chief economist for Moody’s Economy.com. “In fact, most of the banking failures that occur in the next several years will be due to losses on commercial mortgage loans.”

Earlier this year, the Treasury Department and Federal Reserve announced a program in which they’ll lend to investors willing to purchase the safest, top-rated commercial mortgage-backed securities. The Fed is trying to use its power as a lender of last resort to help keep some credit flowing into commercial real estate markets. This effort, however, is of limited importance because it targets the safest of commercial mortgages and won’t address all that ails this important sector.

Additionally, pools of commercial mortgages are expected to be included in the auction of so-called toxic assets being readied by the Treasury Department through a public-private partnership.

Still, commercial real estate brokers are bracing for protracted hard times.

“There will be a re-engineering of the culture of the real estate business,” said Waters, the NAI Global executive, who expects few new development projects until the mortgage problem runs its course. “All the avenues to dispose (of bad commercial loans) are going to be utilized.”

© 2009 McClatchy-Tribune Information Services; Knight Ridder Washington Bureau. Distributed by McClatchy-Tribune News Service.

by Tim Davis

Finally, after much to-do the liquidation of the Crane Cams property in underway – just two hours ago the intellectual property rights were sold at auction for $1.2 million. The purchaser is undisclosed at this time, but they were a group of 4-5 men with highly a highly organized plan of attack, each guy had volumes of printed material, one of them had a laptop running with an air-card, etc. The actual buyer was undisclosed, but several members of the group seated together bidding were identified to me as former directors of Crane Cams in the pre-Mikronite era. After purchasing the intellectual rights, this same group of gentlemen purchased all of the current inventory on hand, as well as the raw materials, and work in process. The then began purchasing equipment, very selectively I will add, and were the high bidders an every item they bid on with what seemed to be no regard to price. They did not purchase any of the older cam grinding equipment, but did pruchase most of the precision equipment that was selling in the early lots.

Also of note: Representative of Scorpion Performance were on hand, and after much press online about aquiring Crane Cams they ended up bidding $1m for the entire contents and assets of Crane Cams. That bid was defeated as the very next lot # was the intellectual rights alone, and those sold for the previously mentioned $1.2m. The Scorpion reps departed the bidding area shortly thereafter.

More details to come as the auction continues… You can see below that much of the equipment is in sad shape… like aging dinosaurs and museum pieces…

Click HERE for the previous report on Scorpion’s alleged purchase efforts.

Click HERE for the full report form Daytona Beach News Journal reported Bob Koslow.

UPDATE:

Following the disappointment that reports of a possible rescue of Crane Cams had not materialized, S&S Cycle has announced that it has stepped in to acquire some of the assets of the Daytona, Florida based manufacturer.

The deal involves the inventory, intellectual property and trademarks for all Crane automotive and motorcycle electronic products, and for Crane’s motorcycle valve train products.

The intellectual property portion includes designs, drawings and cam profiles. Crane automotive valvetrain products are not included in this acquisition. “Crane Cams was founded in 1953, and, like S&S Cycle, which was founded in 1958, it has become a respected and iconic brand in the high-performance industry”, said S&S in a news release of April 23rd.

S&S says it intends to continue to sell Crane products through the same distributors and dealers who have sold them in the past, and that they will establish a new facility in Daytona Beach, Florida, to manage the business and provide customer service and technical support.

This new facility will be staffed by many of the same personnel that Crane customers have worked with in the past, providing as seamless a transition as possible. S&S says that “while there may be some shortages of product in the near future, the Crane/S&S team will be working hard to fill back orders and meet future demand for Crane ignitions and motorcycle valvetrain components.”

Since the acquisition does not include the existing Crane facility at Fentress Boulevard, Daytona Beach, or any of the equipment there, manufacturing of valvetrain products will be moved to the S&S manufacturing facility in Viola, Wisconsin.

S&S CEO George Smith says that “the addition of this product line is a natural fit for our current in-house cam manufacturing capabilities as our equipment and processes are state-of-the-art. We’re also excited that the highly successful Crane motorcycle and automotive electronics line is included with this acquisition.

“This will further strengthen S&S Cycle in the electronics field by providing additional expertise to improve our product offerings in late model ignitions, among other things.”

S&S CYCLE
La Crosse, Wisconsin, USA

Keywords: warehouse industrial space lease purchase rent office Daytona Beach realtor realator commercial real estate Daytona Beach, FL, real estate, listings, business buying, commercial property selling, Realtor, land for sale, industrial property, real estate agent, broker, relocation, land, commercial, retail, warehouse, showroom, lease to own, property, use, properties, multiple listing service, mls, moving

by Bill Davis

General Contractor of Industrial Pre-Engineered Buildings

“Surviving the current economy – An Analysis of bank lending practices of 1979-1983 “

Investment Alert! Warning bells were going off and a sense of déjà vu when I received my second phone call from a commercial real estate investor having problems renewing his commercial loan.

The year was 1983 and the number of bank failures was rising steadily and commercial real estate demand was falling. I had a credit line with Mercantile Bank for $50,000 which was real money back then and I was suspicious that the bank was going to leave me in the middle of the night stealing all my valuables like a disgruntled redhead.

The fact that my loan was current was not in play——-

Today, Mercantile Bank is out of business and Billy Davis is still in business.

2009 once again

The fact that your loan is current is not in play———-

Apparently, some banks think that when an investor’s building is half empty the bank decides that the building owner should pay down the loan making the payment equal to the half empty rent.

The fact that your loan is current is not in play——–

Having no law degree, no business degree, and nothing but scar tissue and gristle on my buttocks, (kicked in the butt, bit on the butt, etc. for 70+ plus years), here is my recommendation; It is 3 phase. Like the electric we install in our Plain Jane buildings.

1) Thank the bank profusely for pointing out the fact that the building is half empty and you need to rent the other half. A business principle you may have overlooked.

2) Take all your lose change out of the bank, checking, savings, CD, your kids Christmas club. The bank can sweep your account causing your wife’s beauty shop check to bounce, which immediately violates a “sex rule”. This matter will come to your attention immediately. No good, really no good.

3) Tell the bank if they don’t like the loan, they should foreclose. Foreclosing on a current loan is good for the bank’s image?

See if your bank doesn’t meet “the standard” the bank examiner yells at the banker “BAD BANK, B-A-D B-A-N-K-E-R”. If the bank forecloses on a current loan, the examiner yells “BAD BANK, B-A-D B-A-N-K-E-R, then rubs the banker’s nose in the loan documents.

No banker wants his nose rubbed in the loan documents. Trust me on this.

According to federal statistics I have survived 11 recessions and 22 banks.

Bill Davis is an industrial develper in the greater St. Louis Missouri area – for more information, visit www.billdavisinc.com, or contact Mary Jo Everhardt at maryjo@billdavisinc.com

]]> http://realestatejokers.com/2009/139/feed/ 0 http://realestatejokers.com/2009/is-this-the-bottom-of-the-daytona-beach-commercial-market/ http://realestatejokers.com/2009/is-this-the-bottom-of-the-daytona-beach-commercial-market/#comments Thu, 09 Apr 2009 22:27:17 +0000 admin http://realestatefools.wordpress.com/?p=126

by Tim Davis

Someone asked me today if I thought this was the bottom of the market. The tone in which he asked me reminded me of a story from my youth:

Once a regular customer of my father’s building supply store posed him the question, “Hey, what can you sell me here real cheap that I could take to the flea market on the weekend to sell and make some money on?”

I was no more than 10-12 years old, but I instantly realized the idiocracy of this question. And the same can be said for the question of “is this the bottom?” Who knows… I could spout back some answer loaded with industry lingo – cap rates absorbtion rates, vacancy rates, total inventory of product, blah, blah, blah. But took a new route, and told the person that I had no idea if this was the bottom of the market, and if I had some kind of superior empirical evidence that it was in fact the bottom, I would be selling off my baseball cards, stamp collection, beanie babies, and anything else that would raise two dollars so that I could buy the property myself.

But here is the reality:

• Material costs can only go so low
• People can only work so cheap.
• Material cost and labor are the major cost factors in new construction
• The cost of new construction dictates lease rates of new space
• Lease rates of new space dictates the lease rate of old space
• The value of commercial property is determined by how much revenue it can produce for its owners

So if material costs are at all time lows, and the supply of labor is increasing readily – following the above list of conditions should lead to a stabilization of commercial property values.

Now where are those baseball cards….
Keywords: warehouse industrial space lease purchase rent office Daytona Beach realtor realator commercial real estate Daytona Beach, FL, real estate, listings, business buying, commercial property selling, Realtor, land for sale, industrial property, real estate agent, broker, relocation, land, commercial, retail, warehouse, showroom, lease to own, property, use, properties, multiple listing service, mls, moving

By Tim Davis

The prolonged slump in the commercial real estate market is leading to some fantastic deals to be had on existing buildings with extended periods of vacancy. Several examples of buildings in the area that are now being offered at radically reduced base rents… (as much as a 50% reduction for the first year) and landlords are making increasingly more lucrative offers to prospective tenants with respect to Landlord funded Tenant Improvements. I have leased industrial space in the last 90 days at base rents that are 30-40% below rates we were asking just 12 months ago. One such deal saw an advertised rate of $7.20 triple net($9.20 gross) end up leasing for $5.85 gross for the first year, and $7 gross for the third and last year of the the 3 year lease term. That is a whopping 37% reduction at the front end of the lease, and 28% of the last year.

The important thing for landlords to remember in this market is that a tenant for 12months at $6, is the same as a tenant for 6 months at $12 per foot. Cash flow and occupancy in these times are king – and deals are being made. As for tenants seeking space, get aggressive, make offers…you may be suprised at how willing property owners and managers are willing to work with you.

Keywords: warehouse industrial space lease purchase rent office Daytona Beach realtor realator commercial real estate Daytona Beach, FL, real estate, listings, business buying, commercial property selling, Realtor, land for sale, industrial property, real estate agent, broker, relocation, land, commercial, retail, warehouse, showroom, lease to own, property, use, properties, multiple listing service, mls, moving

What Does Triple Net Lease Mean?

A lease agreement that designates the lessee (the tenant) as being solely responsible for all of the costs relating to the asset being leased in addition to the rent fee applied under the lease. The structure of this type of lease requires… the lessee to pay for net real estate taxes on the leased asset, net building insurance and net common area maintenance. The lessee has to pay the net amount of three types of costs, which how this term got its name. This type of lease can also be referred to as a “net-net-net lease” or a “hell or high water lease”.

For example, if a property owner leases out a building to a business using a triple net lease, the tenant will be responsible for paying the building’s property taxes, building insurance and the cost of any maintenance or repairs the building may require during the term of the lease. Because the tenant is covering these costs (which would otherwise be the responsibility of the property owner), the rent charged in the triple net lease is generally lower than the rent charged in a standard lease agreement.

Generally in the Daytona Beach area, we quote most office, industrial, and retail space at a triple net rate. For smaller spaces, and for shorter term leases, we will often simplifiy the rate to a gross rate, which is inclusive of all the expenses that are excepted in a triple net rate.

Keywords: warehouse industrial space lease purchase rent office Daytona Beach realtor realator commercial real estate Daytona Beach, FL, real estate, listings, business buying, commercial property selling, Realtor, land for sale, industrial property, real estate agent, broker, relocation, land, commercial, retail, warehouse, showroom, lease to own, property, use, properties, multiple listing service, mls, moving Tim Davis GG Galloway