Watch the video here to learn more about why this website is quickly becoming the premier website for linking owners, tenants and lenders with pre-screened commercial real estate professionals in markets across the country.

In today’s challenging economy, Owners and Investors are seeking out the best values available in commercial real estate and attempting to negotiate the optimum terms to lease or purchase real estate.  In order to achieve such goals and objectives Owners and Investors should utilize a qualified and experienced professional.  Following are ten simple reasons to hire a commercial real estate broker.

Experience: Commercial real estate is not rocket science yet can be complex in structuring advantageous lease or purchase terms.  Nothing in business can replace years of hands on experience.  You may have access to some real estate information via the library, newspapers, Google and the internet but the benefit of hands on experiences is priceless.  A seasoned commercial real estate broker who has lived through the beginning and the end of numerous transactions can offer the benefit of their experiences to your real estate transaction.  This experience is Priceless!

Market Knowledge: As in every industry, market conditions are constantly changing and opportunities are found and lost on a daily basis.  The commercial real estate industry is very proprietary on sharing information unlike the residential real estate market.  A commercial real estate broker processes hundreds of opportunities each day through various sources while filtering out the best for their clients.

Specialization: In most metropolitan cities, commercial real estate brokers specialize in an area such as the office, industrial or retail markets.  As a result, they achieve and maintain expertise in that specialty and utilize this expertize when seeking out and obtaining optimum terms for their clients.

Time Management: A business owner or manager usually has their hands full running the day to day operations of their company.  By engaging the services of an experienced commercial real estate broker, owners and managers can maintain their focus on their business while obtaining the benefits and guidance of real estate professional in quantifying and securing their new facility.

Cost Savings: The most common reason people don’t engage a commercial real estate broker is to save on the cost of a commission.  In commercial real estate the majority of properties are listed by  owners with commercial real estate firms and or have commission agreements with their in house marketing people.  In such cases a compensation or commission is already built into the pricing of the property or space and it is customary to split commissions with cooperating brokers representing tenants.  Thus, no real savings usually are achieved here.  More important aspects to consider are the cost savings that can be achieved through time management, successful negotiations, and proper deal structuring and market knowledge that only an experienced commercial real estate broker brings to the table.

Negotiations: The art of negotiating in a specific industry is honed over years of transactions.  Successful negotiation of a real estate transaction is stressful and in many cases time consuming for those involved.  A commercial real estate broker utilizes their experience in handling negotiations for their client relieving them of that stress by acting as a buffer, and freeing up their client’s time so that the client can focus on their daily business.

Deal Structure: Each and every real estate transaction is concurrently similar yet unique in its structure and function.  Proper structuring of a transaction can save a client hundreds if not thousands of dollars.  An example of potential savings deals with proper structure of “Base Year” in leases for building operating expenses.  Compounding these costs over a five year term can either be a) costly or b) savings to the tenant dependent upon the negotiated structure of the lease terms.

Professional Network: An experienced commercial broker specializing in a specific area has established a proprietary network of resources and informational contacts to assist and support their commercial real estate transactions.  This network of resources can be utilized as needed for your real estate transaction at no additional cost, or time via your commercial real estate broker.

Access to Data and Systems: An experienced commercial broker has established systems to facilitate the process and eliminate unnecessary costs.  These systems, combined with years of accumulated data are available to you via the commercial broker to assist you in the transaction process.  The result is an efficient, cost effective method of securing your real estate requirement on the most beneficial terms to you.

Integrated Services: An experienced commercial broker will be able to provide a client with integrated services relative to their real estate requirement whether they are internal or external consultants.  Securing qualified service providers such as economic incentive consultants, I.T. providers, legal and accounting services to name a few can be a time consuming and costly process added on to the stress of securing the real estate.

The author of this article, Guy Levingston, SIOR is a commercial real estate broker with Intermountain Commercial Real Estate, LLC. based in Boise, Idaho.  Guy’s area of specialization is in office properties and office tenant representation.  You can learn more about Guy by clicking on his name, above.

When the onset of multi-screen cinemas began to take hold in San Diego, this particular theater went out of business leaving a 25,000 square foot, single purpose building with a sloped floor. What to do?  As a retail broker for a large national commercial real estate brokerage firm at the time, I was able to experience this creative recycling process first hand as the landlord was able to remodel the building and lease it to Bookstar (I believe they are owned by Barnes & Noble) and keep the theme of a classic movie theater intact.  The landlord and tenant kept the design of the sloped floors while creating level aisles as the floor sloped toward the former screen, enabling customers to slowly browse the bookshelves as they worked their way from the old entrance to what was once the first row of seats.  The theater concession lobby was remodeled into the checkout area.  The end result was a very impressive looking building that was one of the first mega-bookstores in Southern California.

The commercial real estate industry has an even larger challenge these days as we try to come up with creative ideas to recycle larger, less architecturally significant buildings such as anchor tenant spaces in regional malls, multi-tenant office buildings in suburban office markets, former call centers, industrial buildings in downtown locations and even theme parks and recreational facilities.  We are seeing interesting ideas emerge and landlords not only face the challenge of convincing tenants to “buy-in” to a new concept but must convince lenders to do the same.  Recycling buildings can be an expensive proposition, as can be seen in some of the examples in the attached article from the Wall Street Journal.  However, the alternative which is trying to re-lease these buildings for the same use as that which previously occupied these buildings, may just be akin to putting a band-aid on a gun shot wound.

We are going to see some interesting ideas emerge in the next few years.  Auto dealerships leasing space in vacant department stores within regional malls, hotels going into former office buildings and jails, and others that have yet to be thought up will reshape our landscape.  Please read the article, Entrepreneurs Make Use of Odd Spaces, as I think it is well written and provides some real life examples of how the country is dealing with this re-emerging opportunity.

After reviewing literally thousands of websites over the last 12 months we (Zoliath.com) can say that the best websites in our opinion are the ones that combine key information and “flavor.”  Every Friday we are going to highlight one of these websites.  Sometimes the company who owns the highlighted website will be one that advertises on Zoliath.com but this will not always be the case.  Our goal with Innovative Friday is to make our readers aware of websites that are both informative, creative, and fun.  After all, isn’t advertising by its very nature supposed to leave the viewer with a positive lasting impression?  Just like memorable commercials aired during the Super Bowl, websites can impart a positive message in each of us if presented correctly.  We hope you find these websites as visually pleasing and flavorful as we do!

Our pick for the first website to be displayed on Innovative Friday belongs to Legend Retail Group in Denver, Colorado.  This is a site that is laid out extremely well.  It combines all of the elements of an informative website and does so in a way that engages the visitor to navigate far longer than one would on a more traditional industry website.  Cheers to Legend Retail Group for being the first to make the grade with Zoliath.com.  Legend is an advertiser on our website and can be found under Commercial R.E. brokerages.

If you would like to submit other commercial real estate industry websites for inclusion in Innovative Friday please send us a link and we will be sure to take it under consideration.  The only qualification is that the website must fall into one of the categories listed in Zoliath.com.  Have a great weekend.

Link to article in Retail Traffic

To say the least, these past few months have been interesting for all involved in real estate.  Residential markets have taken the brunt of the value hit, and professionals involved in that segment of our industry—contractors, Realtors, appraisers, home inspectors, mortgage companies and the like—have seen their ranks considerably thinned.

In the commercial arena, the impact has been blunted by having started later, and by virtue of having shallower declines.  Nonetheless, for investment properties, vacancies are up, asking rents are down, cap rates are climbing; capital is hard to find unless a deal or a borrower is exceptional; and the mentality is one of bottom-feeding, predominantly.  For owner-occupied properties, more strength is indicated because by and large, buyers are buying with purpose (acquiring agents of production to run a business, not as an investment per se), rather than doing so opportunistically.  Yet they are not immune from the influences of the commercial investment market (as it sets expectations and impacts the supply of substitutable options).  And the commercial real estate sector is clearly impacted by the residential market (which is directly tied to job growth or losses, consumer confidence and effective demand).

Toward Reliable Valuations

How then does an appraiser estimate market value when the typical indicators are in retreat, and the data is scarce or non-existent?  There is no single answer that addresses the issue, but rather, a series of steps a diligent valuation consultant can employ to come to a reasonable and defensible opinion of market value.

Properly Identify Market Value Sales.

To understand what makes a good sale, one must first have an operating definition of the term “market value”.  We won’t recite the entire definition here, but will set forth the components of relevance to the discussion at hand per the FIRREA definition employed by federally-regulated lenders (with emphasis added):

“Market Value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title form seller to buyer under conditions whereby:

• buyer and seller are typically motivated;
• both parties are well informed or well advised, and acting in what they consider their own best interests;
• a reasonable time is allowed for exposure in the open market;…”

Perhaps the best way to consider the proper identification of market value sales (or more accurately, identification of sales that meet the market value definition) is by way of example:

If a seller was under threat of foreclosure or was behind on his payments or was otherwise under duress, that sale would not generally meet the definition of market value.

Similarly, if the seller had to buy the property due to some contractual obligation, needed it for assemblage, or for some other reason it fit a particular need and there were no substitutable options, that sale might not pass the test of a market value sale (it could be a use value sale, or an investment value sale, but probably not a market value sale).

If a lender’s borrower defaulted, that lender took the property back, and then quietly marketed the property to some of its more solvent customers and one of them bought it, absent any open market exposure, the result is more likely a liquidation value sale than a market value sale.

If the typical time it takes to sell a 40,000-square foot manufacturing building is 6 to 12 months, and one sold in 2 months, that might not be a market value sale (the offering may have been underpriced).  This could go to the 3rd point in the market value definition on the page preceding as to market exposure; or it could go to the 2nd point, as to whether the seller was knowledgeable and acting in his own best interest.

If a bank asks an appraiser for an appraisal or a broker for a broker price opinion for a “disposition”, “liquidation” or “quick sale”, such as a sale in 6 months for a commodity that may take 24 to 36 months to sell under normal circumstances (e.g., a sizeable parcel of commercial or industrial development ground), then by definition that is not a market value premise.  Market value (what the property would likely sell for under a normal and typical market exposure) would likely be the starting place for an opinion, but from there discounts would need to be considered to move the property to the top of the list options for the available buyers active in the marketplace, and for the suspension of the normal course of due diligence required for a “quick sale”.

These are but a few examples, and as the reader can ascertain, they are not necessarily black and white.  Decisions as to whether or not a sale is a market value indicator must be made on the totality of available information.  Atypical or unusual situations should serve as red flags to appraisers and brokers contemplating a sale as a comparable, which is why it is imperative that appraisers and brokers alike understand and report the circumstances surrounding the sale, the motivations of the parties, and take the time to comment in their database record of the transaction as to any unusual circumstances that may affect its reliability as an indicator of market value.

It’s been said that something is worth what someone is willing to pay for it.  But obviously, that is not necessarily true.  Some buyers get good deals because sellers sometimes have atypical motivations making them need or want to sell quickly.  Some sellers pay too much, because they have a business goal that necessitates acquiring a specific parcel or being in a specific location.  Thus, to have a meaningful analysis, one must have enough data to sort out the outliers.  From this comes another saying that is worth remembering:  “One sale does not a market make.”

Talk to the Market Participants.

Over a year ago, one of the major players in the commercial lending arena came out with the following requirement in their appraisal bidding and ordering process:

“Due to concerns with changing market trends and conditions, we are requiring your analyses to consider:

Market Participant Interviews: Discussions with real estate market participants (buyers, sellers, property managers, real estate agents/brokers). Reference these interviews in a dedicated section, and report and analyze the most pertinent comments and how they impact the subject value.

Comparable Listings: In addition to consummated comparable sales and leases, listings should be considered, with the most pertinent ones reported and analyzed, and incorporated within your market data.”

More recently, other national and regional lenders have implemented this requirement, or expanded upon it, some requiring that the interviews have a specific minimum count, and be about some specific aspect of the specific property being appraised.  Another requires the analysis to consider expired, cancelled and withdrawn listings.

The evolution of this type of requirement is a direct reaction to the fact that the volume of sales has decreased dramatically, and many (arguably most) of the sales that are taking place either don’t meet the market value definition, or stretch its limits considerably.

The requirement to talk to market participants—to move beyond trying to time-adjust historical sales for changed (declining) market conditions, and to try to ascertain what buyers and sellers are looking for in today’s market (what they are doing, what they aren’t doing, and why)—is a matter of common sense.  We should not need a lender to tell us to talk to market participants; we should have been doing this all along.

As useful and well-intended as this type of ongoing interaction is, it has its limitations and pitfalls.  One is that there are only so many brokers and agents who are actually leaders in their respective specialties.  Calling on those same people multiple times a month to get their opinions about the potential of a specific property would surely wear out the appraiser’s welcome.  Thus, the temptation is to begin to interview them more generally and less frequently, about a neighborhood or a property type, rather than about the specific property being appraised.  Or, alternatively, to begin to call second- and third-tier brokers and agents who are more willing to field the appraisers’ calls, when times are slow.  Oftentimes they are as anxious to hear what we are seeing, so they are to some degree, more open to the interaction.

Caution must be exercised in the consideration of opinions solicited in this manner. Particularly when times are slow, brokers and agents can offer a very bleak forecast and low opinion of sale or rent potential in a conscious our unconscious effort to generate some activity.  With so many buyers and tenants out there falling into the opportunistic (bottom-feeder) category, and so many sellers and landlords remaining optimistic about pricing, they reason that the story needs to get out that lower values (lower rents, higher concessions, higher cap rate requirements) are the reality, before sellers (and landlords) will accept this “new reality” and begin to sell (lease).

When markets are rapidly appreciating, broker (investor and developer) opinions tend to be overly optimistic; and when markets are in decline, they tend to be overly pessimistic, to try to create a mindset conducive to getting some deals done, to try to set the tone for some acquisitions of their own, etc.

Consider Substitutable Options.

Market value is estimated using one or all of the three classic approaches to value:  cost, sales comparison, and income capitalization.  To one degree or another, all three approaches are premised on the economic theory of substitutable options.  The cost approach considers the value of a site relative to the option of acquiring an alternate site of similar utility for less money.  The replacement cost less accrued depreciation (the improvement component of the cost approach) considers the option of buying an existing, partially-depreciated property relative to building a new one).  In buying an existing property, the premise of the sales comparison approach, properties sold in the recent past are compared to the subject, and are adjusted for material differences.  In the income capitalization approach, rental comparables are compared and adjusted to the subject’s rent potential.  Expense loads are compared to those of the subject, and rates of return for competing real estate and non-real estate investments of similar risk and liquidity are weighed in the selection of a cap rate for the property being appraised.

As the lender requirements previously cited would indicate, many lenders want a summary of the most relevant properties in a market that could compete with the property being appraised.  They simply want to know that, if the analyst concludes the subject property would sell for $120/SF, there is not an equally desirable property that could be bought that is openly listed for $100/SF (that will likely sell for even less).

The advantages of the listing summary are 1) it addresses the expectation that before a knowledgeable buyer buys a property, he would look to see what else is on the market that might meet his needs, or might shape his thinking in terms of value; 2) the information necessary to compile such a comparison these days is readily available on the web sites of more sophisticated brokerages, and/or subscription services like Loopnet and CoStar (it is not an intrusive process dependent on the cooperation of others, as compared to broker interviews or tracking down the details of closed sales).  The disadvantages are 1) properties generally sell for less than their asking prices, sometimes considerably less; and 2) despite all the evidence of a decline, many sellers have yet to get realistic in their pricing, indicating that their desire to sell is not that great, or they have not properly educated themselves as to the economic climate in which their property must compete.

In summary, historical sales can set a high end, a low end, or a reasonable indication of value, depending on the application of a credible (and these days, a multi-tiered) time adjustment, and a good understanding of the motivation of the parties involved (to weed out distress sales).  In a declining market where transaction volumes are off, broker / agent and other market participant interviews tend to set a low end on potential.  Listings, on the other hand, tend to set a high end; market value cannot be any greater than the lowest cost of acquiring a truly comparable substitute.  With these sidebars properly developed and considered, a relatively narrow range of reasonable, logical and defensible market value potential can be opined, even in a slow market.