Monday, October 17, 2011

The Guardian UK - Debt crisis claims BNP Paribas-DTZ property deal

French bank BNP Paribas's long negotiations with UK property consultancy, DTZ, have been scrapped.
The eurozone debt crisis claimed a fresh victim on Monday when the planned merger between the real estate arm of French bank BNP Paribas and the UK property consultancy DTZ was scrapped.
DTZ's majority shareholder, the French family-run property group Saint George Participations, pulled out of takeover talks to take the company private. It had made a tentative bid in partnership with BNP Paribas Real Estate, which was to merge with DTZ in a deal valuing the company at about £162m.
Tim Melville-Ross, DTZ's chairman, said: "The external environment has contrived to prevent the considerable efforts of many people over the past months to consummate a transaction."
DTZ's chief executive John Forrester added: "BNP's sponsorship of the merger was not available given the pressures they are under … This was nothing to do with DTZ. BNP Paribas Real Estate would have loved to have done the deal, and that's why it went all the way up to the deadline. They were not able to move the deal forward at this time."
He cited the problems faced by the French banking system in the wake of the eurozone sovereign debt crisis. French banks, including BNP and Société Générale, are among financial institutions with the largest exposure to Greek debt, alongside Greek banks and Belgian-French lender Dexia. BNP Paribas Real Estate declined to comment.
BNP Paribas made a €4.7bn (£4.1bn) profit in the first half of this year and has said its exposure to Greek debt, which amounts to around €3.5bn, is manageable.
Bank of France governor Christian Noyer insisted on Sunday that French banks would be able to absorb any losses from a writedown on Greece's debt. He said while they had €8bn of Greek debt on their books, they made combined profits of €11bn in the first six months of the year. So an increase in the writedown of 21% on their Greek debt agreed by Europe's banks in July – which was "probably" needed, he said – would be manageable for French banks.
While DTZ, whose main growth driver is Asia, in particular China, said it was reviewing its strategic options, Forrester ruled out a break-up of the firm. "That would be ludicrous. We have contracts by dint of our international platform. You would destroy very significant lines of business.",

Wednesday, August 24, 2011

The Most Influential People Online

I’ve paid special attention over the last few weeks to the web presence of the people Duke Long ranked his top ten most influential commercial real estate people online.

Being influential offline makes you pretty influential online. For some people simply creating a Twitter account can generate a huge web presence. I’m not qualified to evaluate the online influence of anyone, but I wanted to check out successful blogs in the commercial real estate sphere. Some were too specific to local U.S. real estate markets to hold my attention (I have a barely passing interest in retail rates in California for example). And not the entire list had blogs. I drifted into Twitter, LinkedIn, Facebook… 

Here are my notables,

  • Coy Davidson’s blog, The Tenant Advisor covers U.S. economic news that’s directly impacting the commercial real estate industry and includes specific market cases I find interesting in spite of my geography.
  • A Student of the Real Estate Game is a blog by exactly that. Joe Stampone is a student so perhaps that's why he's yet to become consumed with market statistics and sales figures. He writes about real estate from the perspective of someone passionate about the product and not just the profits attached to it.
  • The Source has guest bloggers with strong industry credibility sharing analysis across topics. The alternating perspectives and styles kept me coming back each week.
Worth mentioning is Bob Schecter - who while he does not have his own blog, is doing a few things that are of value to me as a blogger. He's using other social media tools to create portals to online commercial real estate discussion. And he’s educating the industry on social media best practices along the way. If you're in commercial real estate you'll want to take a look at what he's doing.

Tuesday, July 5, 2011

Value in Blogs

I am not looking to achieve blogging brilliance. I have not in fact blogged at all up to this point.  I post links to things I find interesting.

Commercial real estate is the business I’m in and it’s all about relationships. I link to my blog at the end of my emails and sometimes I post it to Facebook or Twitter.  I don’t get a lot of traffic, but people I do business with or want to, visit from time to time. I think offering a public diary of sorts helps the relationship building process along.

My blog is fairly new and I’m very curious about other blogs that relate to commercial real estate.  There are an unlimited amount of sites that list real estate availabilities. And there is quite a lot of data sharing and commentary in the U.S. but I can’t find many that share my geography.

Yesterday I tripped over this commercial real estate blogvia a Linkedin group that I follow –

Duke has done something I find quite useful – he’s published a link to his top ten industry blogs.

Posting lists is a great way to increase traffic to your site. And since I’m critical by nature I’m going to review each of these sites for my blog. If posting lists attracts traffic then posting lists about lists should get my blog on a list too…

Monday, July 4, 2011

When your home isn't an investment property...

Renters - from Garth Turner's Blog

Once upon a time when I was still employable I landed a gig in a city half the country away. Looking at houses, we came across a 6,000 square foot, century-old mansion which had been artfully renovated and was offered at $800,000. “Too much,” I said, “but we’ll rent it.”

Turns out the owner was the local newspaper publisher (big man in town) who’d had the place listed for 14 months, and was desperate for cash flow after having been transferred to Toronto (where he lost his job two years later when the chain was sold). So we did. $1,500 a month. Used the extra cash to put a new Bimmer in the garage. Nobbed with millionaire neighbours. Lived like Kate & Wills.

Two years later, new gig. Back to Toronto. Packed and left. The house went back on the market and sold exactly one year later for $475,000. The publisher, now between careers, was crushed.

Today about 11 million families in the States wish they were renters. Currently 27% of all residential property owners there are in negative equity, which means they’re servicing mortgages greater in value than their properties are worth. Typically, this is because house prices have fallen dramatically in their neighbourhoods, not because they borrowed excessively. In other words, victims.

But while paying a mortgage bigger than your house sucks, it’s the loss of mobility which can be the real killer. Most negative equity families can’t afford to sell, since it means giving up the house, walking away with nothing and also writing a fat cheque just to get out. So in a lousy economy, with too much unemployment, an illiquid property can be a financial death sentence if you can’t move to grab a job.

Renting equals mobility. And in this world, anyone who thinks they’re going to nest and stay there for two decades is not paying attention.

But this is just one of the obvious advantages of not swallowing the home ownership Kool-Aid. For many people the greatest benefit is financial. The reason’s simple – as my example above shows – tenants get dumb investors to subsidize them.

This flies in the face of what your mother-in-law tells you, of course. The why-throw-your-money-away-on-rent mantra is repeated endlessly, even when it’s the worst piece of advice possible. If the goal is to become financially independent and build net worth, renting can beat the pants off owning.

A few months ago I used an example from Calgary, where a blog dog was bemoaning the get-a-house-and-be-a-man crap his inlaws were burying him in. Take the average house in Calgary, for example, I said – $454,000. To buy with 5% down requires almost $43,000 with closing costs and mortgage insurance. The monthly at 4% is about $2,100, and with insurance and property tax closer to $2,500. After three years you’d spend $52,000 on mortgage interest, and retire only $23,000 of debt while making $75,156 in monthly payments.

So, the three-year cost of owning the house would be $133,000, and you’d still owe $408,000. To just break even, you’d need to sell for $568,000, factoring in the cost of selling. So to simply avoid loss, Calgary real estate would have to swell in value by 25% over three years.

But Calgary houses have lost about 13% of their value in an equal period. And during that time we’ve had the lowest interest rates since ever (soon rising), the greatest housing bubble in history (now ending), and state-backed mortgages.

So, you can buy with the faint hope of maybe selling and breaking even, with a monthly cost of $2,500, or rent the same house for $1,600. (“Luxury Estate features throughout home, over 2100 square feet with designer finishes, 2 storey 3 bedrooms with, 3 bathrooms, formal dining room & living on main floor, bonus/family room on 2nd floor, double garage, granite countertops, upgraded ceramic/hardwood flooring, designer colors/finishes, maple cabinets, upgraded appliances, master bedroom ensuite with walk-in closet, soaker tub, fireplace, professional landscaped, etc. — $1,595.” Craigslist Calgary).

Over three years a renter would be more than $30,000 ahead, plus still have deposit money of $43,000. If the forty grand had been invested at 8%, it would be $54,000 in 36 months, so you’d have $84,000 in liquid assets.

Most importantly, a renter would have lived in an identical (maybe better) house while building net worth and taking no risk on a seriously wobbly housing market. Zero debt. Total liquidity. Unfettered mobility. Net worth would be greater, not less. Options enhanced.

Now renting is even getting cool. In the last few days the house-humping Toronto Star carried a column headlined ‘Why I sold my house and rent instead’. Words from the 27-year-old author:

Buying a home is the biggest investment most people will make and it can be a life-altering event. It is also an emotional event and when buyers get emotionally attached to a house or condo, here’s what can happen:

• You overpay and stretch yourself beyond your means.
• You end up with an overlay of stress because you didn’t think it through.
• The location may not be what you expected.
• Your lifestyle undergoes a big change.
• You end up regretting the decision.

And not to be outdone, the Globe and Mail published a piece, ‘Why renting can be the right choice for aging boomers.’ The logic is simple: cash out of housing at the top, invest for income, use the income to rent, and live for free – sans mortgage, property tax, maintenance.

When the inevitable comes, renting will connote financial acumen.

But your mother-in-law still won’t get it.

Monday, June 13, 2011

Marisa Manley, President of Commercial Tenant Real Estate Representation Ltd. for the Harvard Business Review

The first thing to understand is that when you negotiate an office lease, your landlord probably has the advantage. If you’re like most tenants, you negotiate a lease once every five or ten years and you put rent into the same category as other routine, current business expenses, weighing the monthly payment versus your cash flow.

The landlord is in a different position. Its business is leasing space, and buildings are its major asset. The landlord is highly motivated to plan for the long term and to write conservative leases that maximize the return on their assets.

A good real estate lawyer can help protect your interests, but often isn’t equipped to advise on business points. Legally acceptable arrangements can be bad business deals.

Here are some general points about the most important lease provisions that protect landlords at their tenants’ expense. (click here to read the whole article - Harvard Business Review)

Common rent miscalculations

Office space priced per "rentable" square foot often turns out to be much more expensive than tenants expect because landlords may include space that tenants consider unusable.

Rentable area is sure to include a portion of elevators, janitors’ closets, lobbies, stairways, and more.

Normally, you’ll be able to use only 75% to 90% of what you pay for. This difference, the loss factor, depends on three things: the physical configuration of your offices, your landlord’s method of measuring rentable area, and, increasingly, your landlord’s whim.

On lease renewal, the tenant may also find that the landlord has "remeasured" the space and now claims it’s much larger.

Operating expense lease clause

An operating expense clause lets your landlord recover normal out-of-pocket costs of running a building.  Operating expenses listed in your bill should correspond directly to benefits you gain under the lease, and they ought to meet an objective standard such as GAAP (generally accepted accounting principles), not conventions particular to your landlord.

Landlords sometimes use the operating expense clause as a profit center.  If you approve a catchall  clause it can become a blank check.  You may be billed for charges that have little to do with running a building such as penalties incurred because the landlord fails to pay taxes on time.
Hidden costs in the alterations, maintenance & repairs clause

Alterations. The alterations-and-improvements clause may give you a false sense of security. It may say that you can make whatever nonstructural change you like so long as you get your landlord’s permission, and that your landlord will be "reasonable."  If you and your landlord disagree about what’s structural, it may declare you in default even if you think the changes you've made are reasonable. Consequently, you may be presented with the unpleasant option of paying a big bill at the end of your lease term or restoring so-called structural changes.

How best to resolve disputes with your landlord

Provide for dispute resolution in the lease. Here are a few guiding principles:

*  Arbitration may be the best method to resolve disputes like disagreement over the fair market rent or whether a tenant’s use of space has caused more damage than normal wear and tear. Real estate experts are more qualified than the lay public to say who’s right.
*  In certain disputes the tenant should have the right to withhold operating expenses – for instance, if the landlord fails to provide essential utilities or repair services.
*  The tenant should have convenient access to documentation supporting the landlord’s bills and should be given reasonable time to audit the operating expenses. An independent CPA, not the landlord’s nephew, should prepare the statement.
*  The landlord should share certain audit costs with the tenant.
*  If it prevails in a dispute, the tenant should get a prompt refund with interest, plus reimbursement for out-of-pocket expenses and attorney’s fees.
An obvious but essential reminder: once you agree on a way to resolve disputes, follow the procedure to the letter. Paine, Webber, Jackson & Curtis, Inc. (the financial services company that was Paine-Webber’s predecessor) took its landlord to court over a dispute about operating expenses, but the case was tossed out by a judge without even a hearing. The company had neglected to start the proceeding within 30 days, as the lease required.

Wednesday, June 8, 2011

Commercial Lease Transactions Up Strongly in May

The Toronto Real Estate Board Commercial Members reported 936,769 square feet of leased space in May 2011, up 98 per cent from the 472,278 leased square feet reported in May 2010.

By category, TREB Commercial Members leased 814, 144 square feet of industrial space, up 131% percent from 352,009 square feet leased in May 2010. There was 42,436 square feet of commercial space leased during the month, a 32% per cent decline from the 62,767 square feet leased in May 2010. Finally, 80,189 square feet of office space was leased, up 39 per cent from the 57,502 square feet leased in May 2010.

Industrial space in all size categories leased for an average of $3.72 per square foot net (sfn), a 24 percent decline from the average of $4.87/sfn recorded in May 2010. Commercial space leased for an average of $22.35/sfn, up 37 per cent from the average of $16.29/sfn reported in May 2010. Office space leased for an average of $12.62/sfn, almost unchanged from the average of $12.63/sfn in May 2010.