Commercial Real Estate Finance

Posts Tagged ‘Integra Realty Resources’

Once again, we’re featuring a guest post from our friends at Integra Realty Resources. From their own commercial real estate blog, IRR on Real Estate, here is IRR Managing Director Gary DeClark discussing the market dynamics and challenges that affect the value of regional shopping malls. Thanks to IRR and Gary DeClark for the contribution!

How to Spot a Dying Mall

Gary DeClark, IRR

A few years ago, I testified at a bankruptcy hearing for a regional mall, which for legal reasons will remain anonymous. The case came down to a battle of appraisers, each engaged by the respective sides of the case, with the other appraiser’s value coming in much higher than ours. No one doubted the mall was hurting, but while the other appraiser thought it was just in a downturn, we thought it was dying and had little chance of recovery.

The judge threw out the other appraisal and took ours. How did we know the mall was dying? Read below for the anatomy of a mall’s demise and warning signs that mall owners should look out for.

How malls work

Most malls will have two to four large stores (anchors), a couple medium-sized stores (sub-anchors), and a bunch of smaller businesses (in-line units). The idea is that anchors will draw in customers who are then funneled to the rest of the stores. The in-line units get more foot traffic than if they were in standalone stores, while the anchors’ position allows them to negotiate rent at a low price per square foot or at reduced common area expense levels.

Anchors are so important to a mall’s business that it’s common to find an “anchor clause” in an in-line store’s lease. These clauses kick in if an anchor vacates or doesn’t pay rent, and usually allows the in-line store to either pay a lower rent or vacate. It’s a house of cards – if the anchors leave, the in-line stores could be right behind them.

Of course, when an anchor leaves, mall owners will try to find a new tenant. But these large spaces are 30,000 to 100,000 square feet. The chance of finding a new tenant who wants that space is low, and the search may take a year or more. Read the rest of this entry »

Once again, we’re excited to feature a guest post from our friends at Integra Realty Resources! From their own commercial real estate blog, IRR on Real Estate, here is IRR Senior Analyst Robin Brady to discuss strategies to navigate the complex, post-recession real estate market. Many thanks to IRR and Robin Brady for the contribution!

Risky Business: 3 Pain Points for Commercial Real Estate Developers

Over the last couple years, the development market has returned to fundamentals. The wounds of the downturn are still fresh, and investors, developers, and banks are more cautious, putting their money behind only what looks like a sure thing. As a result, we’re seeing more tenant-driven development and less speculative development. For example, in the Boise area, we have seen two significant projects break ground in the last year: Eighth and Main (a high-rise office building) and Village at Meridian (a retail lifestyle center). Both projects were over 75 percent pre-leased prior to going vertical. We’re also seeing a lot of owner-user product being developed, such as automotive dealerships.

Speculative, capital-driven projects that don’t fit an existing market need are just one risk that developers should avoid. As more developers return to fundamentals, here are three ways projects can go wrong and how to avoid them.

1. Misreading the market. Never assume that there’s more demand for your proposal than there actually is or act as if the trends from the last couple years will last indefinitely. Pursue projects driven by a market need rather than one pushed forward by capital in search of a return. Before starting a project, know exactly what you’re going to build based on your target market. Know who the users (buyers or tenants) will be, what rent or price level they can pay, and what design features they want. Know your competition, not just vacancy rates but also how much new product is coming to market. And, while this might sound self-serving, do a market study to get a critical, objective look at your project’s potential absorption rates and rent levels to get a clear sense of the project’s feasibility. Read the rest of this entry »

Today we’re excited to feature our first guest post from our friends at Integra Realty Resources! From their IRR on Real Estate blog, here is IRR Managing Director Jim Andrews to discuss the complex, ever-changing world of real estate valuation. Many thanks to the IRR Blog and Jim Andrews for the contribution!

Why Consistent International Valuation Standards Are Essential

There’s no shortage of valuation standards today, such as the Royal Institution of Chartered Surveyors (RICS) “Red Book,” the Uniform Standards of Professional Appraisal Practice (USPAP), and the International Valuation Standards (IVS), to name a few. Use of these standards varies by country and based on the clients’ needs. But the real property and business valuation community is increasingly boiling down these rules into a more consistent set of standards as the members of these organizations collaborate in defining the guidelines for appraisals.

I spoke about this topic [last November] at the RICS Summit of the Americas on a panel discussion I helped spearhead, titled “Comparison of Valuation Standards and Movement to Globalization.” Joining me were current and former committee members of the organizations that produce the various standards, such as RICS, the Appraisal Foundation, the Appraisal Institute of Canada, and the International Valuation Standards Committee (IVSC).

Everyone on the panel expressed interest in having a more consistent set of standards. We delved into the reasoning more deeply, and I wanted to share it with you.

1. Enhance the reputation of the profession and promote its usefulness around the world. 

Currently, the U.S. uses Generally Accepted Accounting Practices (GAAP) as its set accounting principles. Nearly every other significantly developed country has already adopted the International Financial Reporting Standards (IFRS). The U.S. still hasn’t moved toward total adoption of the IFRS measures, but it has begun integrating IFRS with GAAP. An established set of consistent standards would help in appraising assets and liabilities for financial reporting, especially for companies that control assets in various countries and work across national borders. For valuations for other purposes, the reputation of the profession would be enhanced if the clients could expect consistency in valuation reporting internationally.

2. Simplify the appraisal process.

USPAP is the accepted set of standards for valuation in the U.S. But if a member of RICS is performing the appraisal, it should also comply with RICS standards, which differ in subtle ways. In the Caribbean, I work across U.S. and British territories, which typically require different standards, as well as Dutch, French, and Latin American islands where there are generally no nationally accepted standards. A single set of standards and guidance notes would enable appraisers to produce a credible valuation with a similar report structure regardless of membership or the location of the asset to be valued. Read the rest of this entry »

With a title like that, how could this post not go viral?

In a follow-up to our Top 10 Best-Performing Property Types of 2013, here is a ranking of the Top CRE Property Types according to their “Projected Cap Rate Compression” in 2013:

(This ranking is drawn from data published by Integra Realty Resources in its Viewpoint 2013 report. All cap rate changes are for Class A properties.)

10. Airport Lodging (% of properties expected to see cap rate compression in 2013: 33.9%)

9. CBD office (35.0%)

8. Suburban Office (35.0%)

7. Neighborhood Retail (37.1%)

6. Suburban Lodging (38.3%) Read the rest of this entry »

From Integra Realty Resources‘ 2013 Viewpoint report, here’s a list of the Top 10 Best-Performing Property Types of 2012, ranked according to average transaction cap rate:

10. CBD Lodging (2012 average cap rate: 8.58%)

  9. Flex Industrial (8.30)

8. Suburban Office (7.91)

7. Industrial (7.75)

6. Neighborhood Strip (7.66)

5. CBD Office (7.65)

4. Community Mall (7.60)

3. Regional Mall (7.28) Read the rest of this entry »