Real Insight. Real Estate.

Posts Tagged ‘developers’

Medical Office Buildings, commonly referred to as MOBs, are one of the few darlings of the current real estate finance industry.  They garner low rates, great terms, and even bankers’ whose commercial loan portfolios took a drubbing want to lend in that space. Need proof? I was at lunch with a banker a couple weeks ago who said that they simply were not doing any construction lending of any kind, period.  When I followed up that comment asking him about medical office buildings, his response was “Oh, well, yeah.  We’d definitely make an exception there.”

While many real estate insiders expected a slow down of the medical office frenzy once Scott Brown’s surprise victory in taking Ted Kennedy’s vacant Senate seat potentially swayed the fate of the healthcare reform bill, it has simply delayed the inevitable.  The popular belief was that the future growth of the sector was going to be fueled only by the 30 million plus currently uninsured people the healthcare reform bill would have added to the system.  But when you figure demand will generate supply, you better make sure to look at the whole picture. Read the rest of this entry »

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I recently read this article about possibly the greatest real estate turnaround EVER.  Instead of paraphrasing the story (I’ll let you read that on your own), I’ll quickly summarize it and get to the more interesting commentary on the lessons this deal story has for the future of urban redevelopment. Especially when you consider the plight and blight of a place like this. Read the rest of this entry »

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To continue on this week’s political trend, I wanted to take a moment to share an extremely insightful book with all of you having to do with real estate, specifically, land use and zoning.  Most developers are familiar with the acronym NIMBY, which refers to the phrase “Not In My Back Yard.”  What many developers do not seem to realize, however, is that all ground up development is as much, if not more, an exercise in politics as it is an exercise in real estate. P. Michael Saint, Robert J. Flavell and Patrick F. Fox of the Saint Consulting Group in Boston have done a tremendous job not only of exploring the dichotomy between the two, but exploiting the process in favor of the developer.  Regardless of whether you want to develop an urban infill location, a brownfield, or an environmentalist-heavy rural sprawl, there are do’s and don’t’s during the approval process.  Failing to follow certain procedures can kill your deal and make it  exponentially harder to resurrect. Play the game the right way and you can win over even your most ardent opponents. Let’s take a look at some of the book’s finer points… Read the rest of this entry »

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The Hotel Industry has battered developers, and nobody worse than your favorite hospitality magnate…The Monopoly Man.

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It seems that everywhere you turn today, another real estate company is raising a “distressed debt” fund.  The logic of course is simple.  People are trying to reduce their illiquid investments, and property is illiquid. Why buy new property, which carries with it all sorts of unknowns (including value) when there is seasoned, mature and rated product available in the form of distressed debt? Many property operators seek “loan-to-own” scenarios, in which they buy debt with the hope that the current borrower will default, thus triggering their ability to foreclose on the property, as a potential way of acquiring desirable product super cheap.  If they never have to foreclose on the asset, then at least they are making a known return.

Even operators with a historical penchant for development are forced to investigate the world of distressed debt.  After all, with property values having plunged over the last 18 months, its not as if the cost of building new product will look attractive anytime soon when you can buy existing product vastly below replacement cost. Thus, even developers must get involved as their traditional model has been rendered ineffective, at least in the short term. Read the rest of this entry »

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Real Questions…

…. and Unintended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

These questions succinctly sum up the entire commercial real estate market. Other statements examine facets of the problem, but they all revolve around this problem we’ll call, “The Bid/Offer Spread”.

Every day, the fund managers who still have jobs wake up, read the Wall Street Journal and say to themselves, “If I’m going to buy a property, I deserve a discount.” Any possible ‘green shoots’ notwithstanding, unemployment is high, the economy is in recession, global icons are getting destroyed (or taken over by the government), and the banking system as a whole is only viable because the Feds have stepped in with HUGE assistance programs. You can also throw in the fact that recent liquid market action (rally in gold, commodities and TIPS while the 10yr notes sells off ) is telling us we might even have an inflation problem in the not-so-distant future. Read the rest of this entry »

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There was a time when a commercial real estate owner had to worry more about losing their tenants to new competing developments than they did to bankruptcy filings. Depending on what area of the country you reside in and how battered the commercial real estate market is there, one thing you likely haven’t had to worry about is a glut of new construction adding to increased stock, and increased vacancy concerns. After all, while construction costs have come down quite a bit from their highs in early 2007, the inability to finance construction projects has crippled most developments, even in areas with little other barriers to entry. Sure, perhaps you’ve had to make a concession here, or lower the rent there, in order to maintain occupancy. But now there may be new competitive space to worry about….and its space a landlord never dreamed he’d have to compete with before….vacant car dealerships. Read the rest of this entry »

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With an increasing number of building projects stalling out due to limited availability of debt financing, we are bound to see some development projects take much longer than expected. If you’re a developer working on a project that seems like it will never finish because you simply can’t get sufficient access to credit, have a look at this list of the 10 Longest Construction Projects. Maybe it will make you feel better. Of course, there’s also a chance it may make you feel worse…

#10 – The Parthenon (Greece)
Duration: 17 years

#9 – The Great Pyramid at Giza (Egypt)
Duration: 20 years

#8 – Sacsayhuman (Peru)
Duration: 63 years

#7 – York Minster Cathedral (U.K.)
Duration: 252 years

Read the rest of this entry »

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