Commercial Real Estate Finance

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Executive Interview:

Carl Dranoff

Dranoff Properties

Civic leader, entrepreneur and urban visionary, Carl Dranoff is president and founder of Dranoff Properties. For over three decades, he has been a leader in creating unparalleled residential destinations that revitalize the urban core. Though based in Philadelphia, Dranoff’s work has gained national recognition and respect, with a portfolio range of historic rehabilitations, ground-up skyscrapers and complex mixed-use projects.

Dranoff earned his B.S. in Civil Engineering at Drexel University and his MBA from Harvard University. He has been awarded an Honorary Doctorate in Engineering from Drexel University and has been named “Entrepreneur of the Year” by Ernst & Young.

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Q: How did you get your start in the real estate development business?

From an early age I knew I wanted to be a builder.  To prepare, I armed myself with the proper education, graduating from Drexel University with a degree in civil engineering and earning an MBA at the Harvard Business School.

I started my career working for Jack Blumenfeld and Company on the 1500 Locust Street apartment project, then under construction.  I’ve always had a strong entrepreneurial spirit, and working for Blumenfeld helped feed my dream of establishing my own company.

Q: What is your favorite part of your job? What do you find most challenging?

I love proving the naysayers wrong, undertaking projects the pundits say are impossible or too risky. Our projects are complex and the coordination and management of all the aspects really separates us from the competition. We go into cutting edge locations, reinvigorate a neighborhood, and deliver an imaginative and high quality project.

Dranoff Properties employs the best and most experienced staff, along with our veteran executive leaderships.  However, we work in a very fast paced industry, and as any successful company can attest, keeping everyone on the same path can be challenging. Honestly, finding enough hours in the day is the biggest challenge I have. We have projects underway, irons in the fire and a strong vision for the future – it’s an exciting time for us.

Q: How have economic conditions affected Dranoff Properties’ strategy? Have you widened or narrowed your focus due to present conditions?  Read the rest of this entry »

Imagine two office buildings of equal size, quality, and leasable space, sitting right next to each other. As far as anyone is concerned, these properties are identical. Now, imagine their landlord sells both properties–but rakes in far more money for one building than for the other. Why would this happen?

Even if these properties are physically identical, there is one essential feature that counts toward an asset’s value more than anything else: tenants. Maybe–and this isn’t much of a stretch, coming out of the Recession–Building A is fully leased, while Building B is completely vacant? Even if these properties have the same capacity for revenue, the fully leased property is the only one with potential, much less certainty, of future income. It all comes down to which businesses and residents reside–or plan to reside–in a particular property.

A dilapidated shanty in the middle of Siberia could sell for 300/SF–if it had a long-term lease with Google.

Also important is the question of what other businesses are located in the area, since these help determine the financial strength of a potential tenant or buyer. For members of the real estate community–whether investors, developers, brokers, capital advisors, or pretty much anyone else–a property’s tenants and neighbors have an enormous influence in deals and decision-making. Up until this point, however, discovering detailed tenant information usually took a bit of digging.

Aziz Akin, an experienced analyst in Manhattan, believes his product can make tenant research significantly easier. This service, Buzzfile, is an online search platform that locates and identifies companies throughout the United States, providing results according to street address, company, industry, city, number of employees, and other specifics.  Read the rest of this entry »

As you can tell from the cheesy clip-art, today we’re talking about gift-giving. Gift-giving of the “ulterior motive” variety.

For many in the business world, gifts play an essential role in attracting business, creating brand awareness, and ultimately completing transactions. This sort of “light bribery” has become a widely accepted practice (unless you’re a politician or NCAA athlete).

Ultimately, gift-giving is about relationships. And relationships, in this case, are about mutual benefits. Casinos comp gamblers’ hotel rooms, pharmaceutical companies give doctors fancy pens (and whatever else it takes), and deal-makers take their clients to nice restaurants, not food courts.

Real estate developers, on the other hand, give dirt. As in ground–acres of it.

Read the rest of this entry »

Sorry for all the ellipses in the title. I had all these extra dots lying around and had to get rid of them.

You’re lucky it wasn’t a surplus of semicolons.

Let me start over.

In a couple recent posts, I’ve pointed to certain asset classes–hospitality, retail, office, and especially single-family–as ways to gauge the overall economic recovery. Since these sectors saw a sharp decline in the 2008-09 economic fiasco, their improvement, however gradual, signals an overall improvement in the country’s employment growth, consumer confidence, and lending markets. The frenzy of multifamily activity in recent years has been a positive side effect of the recession, but certainly not a sign of general economic recovery.

I can add one more asset type to the above list of crucial property types: condos.

Since the recession began, the term “multifamily” has typically been used as short-hand for “multifamily rentals.” The abundance of high-end condo developments left under-leased, vacant, or even unfinished has left this property type on the fringe of the CRE recovery and impossible to finance.

One sure sign of a strengthening local economy is an increase in multifamily buyers. Nashville, Tennessee is one of the metros enjoying an uptick in this generally challenging sector. Read the rest of this entry »

As college students approach the end of their school year, let’s take a look at CRE’s role in higher education by exploring student housing.

Here, Jim Smith of Campus Apartments talks to Llenrock Group’s Andrew Benioff. They discuss growing competition and other conditions in this unique sector. (This is Part I of our interview. Check back next week for the conclusion!)

Read the rest of this entry »

I know. It’s a stupid name for today’s post, but I couldn’t think of anything better.

It’s the weekend. Gimme a break.

We talk a lot about sustainability issues when it comes to office, hotel, and some high-end residential developments, but it’s far less common to hear issues of energy efficiency or sustainability enter discussions about retail, industrial, or the many other asset classes in commercial real estate. To a great extent, such progressive designs (often recognized with LEED certification for commercial properties or Emerald Certification for residential) presents the same opportunities and challenges for every market and asset class. Like other recent innovations (or fads, to the cynics), sustainable design is an appealing idea with ambiguous financial benefits.

Because of its high cost, not every building will be developed to meet the criteria for LEED Platinum certification, except when the builders/landlords are sure they can entice tenants who will pay the higher rents. Green buildings–particularly the “net zero” projects designed to exist with no carbon footprint whatsoever–are largely in the prototype phase.

Like Tesla sports cars, not everyone gets to drive them, as much as some would like to. The technology is still a luxury.

While typically less glamorous than a 60-story office tower, retail properties are beginning to receive the sustainable design treatment as well. Drug store super-chain Walgreens (NYSE: WAG) is leading the charge. Walgreen’s recently announced it was developing a net-zero store in Evanston, Illinois, attempting to promote sustainable retail properties while proving they don’t have to look like the sort of place a Hobbit would live.

Read the rest of this entry »

Last fall, in one of our Executive Interviews, real estate attorney Jerry Kline discussed how members of the real estate community are prone to overreaction. Regardless of market, asset class, or real estate cycle, this industry (as a whole) tends to go overboard in its investments and developments. Mr. Kline explains,

Real estate suffers from what I might call the “Three Bears” phenomenon, i.e.,  market reactions tend to be disproportionate to the conditions that cause them, so nothing is ever “just right.”

Prior to the 08/09 financial crisis, office, retail, and especially single-family residential were areas of substantial expansion. Thanks to the market’s overall confidence and availability of financing, projects were springing up all over the country–until the recession left them in distress, unfinished, or canceled before a shovel even hit the ground.

While the market may be bearish toward those assets most associated with the recently burst bubble–single-family, in particular–this isn’t to say the real estate industry has learned its lesson–at least, not the more general lesson. The tendency toward over-development/over-investment has simply shifted to other product types.

I had a professor in college who always said, Humans are chronic underestimators. In this case, we seem to be underestimating the likelihood of a shift in fundamentals.

Consider multifamily. Obviously, this asset class has outperformed its peers in the wake of the recession, and continues to stand out as CRE’s most valued property type. Though multifamily demand began to level out last year as sentiment toward the single-family market improved, it remains a major target for investors. In the near term, the abundance of multifamily developments is a very good thing. In Philadelphia, Natalie Kostelni writes, Read the rest of this entry »

Mensch:

Noun, informal. A decent, upright, mature and responsible person.

Schlemiel:

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.

Mensch of the Week:

The Other Trumps

Unlike the other super-developer named Trump (no relation), Eddie and Jules Trump don’t seem especially interested in fame, notoriety, or relentless self-branding. Even so, the two leaders of the Trump Group have established themselves as preeminent developers of high-end residential properties in South Florida, becoming synonymous with luxury even without stamping their names on everything they touch. Since the ’80s, the Trump Group has been developing luxury hotels and condos in Miami and surrounding communities, their high-rises attracting super-high-net-worth residents with their unparalleled views and amenities.

At risk of getting all Robin Leach on you, I have to say a bit about their latest project, the Mansions at Acqualina. The planned 47-story condo tower in Sunny Isles Beach will include a Turkish spa, movie theater, and outward-projecting swimming pool with see-through bottom (for those bold enough to swim in mid-air). Oh yeah, and the two-floor penthouse alone is priced at $55 million, complete with $5 million of furniture–all set for Tony Montana to move in.  

Keep in mind, the Miami area was one of the worst casualties of the housing bust and financial crisis of 2008-09, and has since experienced a lending market far chillier than its subtropical climate. Even though the Trump Group builds for a niche clientele–who are not just wealthy, but ultra-wealthy–a new luxury property in Miami has been too speculative for most lenders.

Yet the developers managed to close on $160 million in construction financing to make the project possible (a decent chunk of that amount earmarked for the see-through-swimming-pool-in-the-sky, presumably).

The consortium of lenders that provided this amount weren’t convinced by the developers’ reputation alone. The financing agreement stipulated $320 million in presales, reports the Wall Street Journal, as well as downpayments from the buyers.

It’s usually difficult to find $160 million in financing, but not when the project being financed has already been sold. The Trump Group made this deal a no-brainer. Ultimately, the developers’ greatest achievement has been in drawing interest and commitments from the wealthiest clients out there. This clientele is a small and extremely desirable group–attracting these buyers no doubt came with an enormous amount of competition. Read the rest of this entry »

On average, an American spends over $8,000 per year to own and operate a car. Well over a quarter of that sum is simply for gas. 

This alone demonstrates the need for more efficient transportation solutions in today’s communities, a need many urban planners and developers  are trying to address. As communities evolve to better accommodate the movement of its residents, real estate of all kinds will be forced to keep pace.

The Urban Land Institute, which is all over stuff like this, recently published a piece on its UrbandLand website discussing the growing appeal of dense urban communities and strategies for suburban communities to replicate this appeal.

After nearly 60 years of sprawl, economic and demographic changes have reignited the urban consolidation of the early 20th century. There are a number of reasons for this, beyond the cost of long-distance car travel:

•  Thanks to the recession, and perhaps the experience of growing up in the ‘burbs themselves, many post-baby boomers are opting to rent in the city rather than own in the suburbs
• Increased environmental consciousness has made cities appealing for their efficiency (which ties into the whole car thing, of course)
• Generally speaking, the cultural/lifestyle differences between downtown and suburban areas makes urban living attractive to college grads uninterested in the white-picket-fence option Read the rest of this entry »

And when I say MOB, I’m talking about Medical Office Buildings. It’s an acronym.

This blog has no affiliation with the mob.

Let me start over. The idea for this post came from a great CoStar Group article published last month. In it, Randyl Drummer points out the uptick in medical office deals that’s resulted from changes in medical care, technology, demographics, and healthcare regulation (i.e., the Affordable Care Act).

Mr. Drummer explains,

Continued health-care employment growth, combined with the expected increase in demand for medical crae [sic] services from the aging population is expected to continue to drive development of medical ambulatory care facilities, including MOBs, surgery centers, urgent care clinics and diagnostic lab facilities.

The healthcare industry is the largest job creator in the country, and one of the largest drivers of economic activity in cities big and small. Healthcare, of course, is also extremely complicated, affected by large private interests, government agencies, and ever-changing rules. The fact that investors and developers are pursuing opportunities in the highly regulated healthcare sector–despite the layers of bureaucracy that often make medical establishments onerous for business interests–shows a great deal of confidence in the sector’s overall growth.

There’s no denying the demand for healthcare real estate. This is a product of both an aging population and increased availability of medical coverage (courtesy of Obamacare). But the additional capital demands this will create (for insurance companies, the government, employers, and individuals) will also result in greater demand for less expensive medical options. This is why the MOB–Goodfellas connotations aside–seems an especially promising niche in the healthcare real estate sector. Read the rest of this entry »