More Questions Than Answers: A 2016 Forecast for Atlanta Commercial Real Estate

More Questions Than Answers: A 2016 Forecast for Atlanta Commercial Real Estate

3 years ago 0 0 1398

Trouble in China. Falling oil prices. Unsteady stock market. Slow employment growth. Stagnant incomes. That’s a heck of a way to start a new year, isn’t it? In the real estate universe, an abundance of capital and cheap financing have once again pushed prices up to record levels. My friends in the capital markets tell me that investment activity flattened toward the end of last year, as both investors and lenders became more cautious. Do these macro events portend the end of the slow—if resilient—economic recovery? How will Atlanta be affected? So far, Atlanta’s commercial real estate market has performed well during this recovery. Led by multi-family development, occupancy and rental rates have both been ticking up. In 2015, new construction has increased in all sectors. Will this continue in 2016? For my part, I have a few questions (and a few predictions) about how things will shake out over

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A Tale of Two Restaurants

3 years ago 0 0 1642

I had the opportunity this fall to travel with my wife to South Africa for a couple of weeks. Between enjoying Cape Town and going out into the Savannah to see exotic animals, it was everything you’d imagine it to be. The only downside was the jet lag. Part of the experience was, of course, eating. South Africa is renowned for its vineyards, and it has a few high-concept restaurants that offer tasting menus of chef-selected pairings of dishes with wines. I was excited for one of these, in particular. It was the “bucket list” spot, the one everyone said I needed to go to. It was always booked, requiring reservations long in advance. Food critics around the world were raving. When the night finally came, everything about this place was…just OK. The atmosphere was a little stuffy, but OK. The food and wine were OK. And the price—well, let’s

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What Makes a Good Deal?

4 years ago 0 0 1809

Is this a good deal? As an investment sponsor, this is a question I get asked all the time. My clients want to feel good about placing their money into a particular real estate venture—and justifiably so! One easy response is: “We only promote good deals!” In one sense, that’s absolutely true. We make it our top priority to find and underwrite fundamentally sound real estate deals. But that fails to answer the real question behind the question, which is: “Is this a good deal for me?” Answering that question is not as simple as identifying a yield, internal rate of return, potential appreciation. Even if these all look good, a property’s characteristics or an investment’s financial circumstances may mean that it isn’t a good deal for some investors. We may not always know if a property purchase will turn out to be a “good deal” for a particular investor,

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Cutting Through the Brokerspeak

4 years ago 0 0 1686

If you’ve ever bought a house, you’ve heard some of the code words residential real estate agents put in their listings. That “contemporary design” may just be ugly as sin. The “convenient location” could be because you get stuck in rush-hour traffic within a quarter mile of the driveway. And don’t even start thinking about “open concept.” Commercial brokers have their own language as well, and it can lead the uninformed or unsophisticated buyer to overpay. For the uninitiated, it may take a while to pick it up on this language. But once you’ve heard the same phrases ad nauseam, it can be easy to get cynical about brokerspeak. Below are five of the most commonly abused phrases, along with the cynic’s interpretation. And, on a more serious note, what you really ought to think about when you see these phrases in a marketing package.   Below replacement cost! The

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Calculated Speculation

4 years ago 0 0 1749

A commercial real estate asset is a small business unto itself, operating in a micro-market that may be as big as a ZIP code or as small as a few city blocks. While portfolio investments like stocks, bonds and institutional real estate are heavily affected by macroeconomic trends like employment and interest rates, the financial performance of any given real estate asset is influenced much more strongly by what goes on around it. And even though these high-impact local events may seem to come out of nowhere, in reality they might be a long time coming. Armed with market knowledge, a strategic plan and conservative financing, investors can both capitalize on these trends and mitigate micro-market risk factors. Imagine these micro-market scenarios: A former manufacturing area on the edge of town has become a hot spot, complete with trendy restaurants, craft beer bars and converted loft apartments. Thanks to a

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The Right Spot in the Lineup

4 years ago 0 0 1637

An investment portfolio is a little like a baseball lineup. Smart managers know where to place batters with different skills in the right spot in the batting order. Similarly, when a portfolio is properly constructed, each investment plays a different role and they all work together to maximize team performance. Cash and government bonds are the “contact hitters” of a portfolio. They may not have a lot of flair, but they rarely strike out and will consistently do the little things to help the team, like legging out an infield single—or delivering a safe, moderate return. You want them near the top of your order. Stocks and mutual funds tend to “hit for average.” At any given moment, they may perform great or they may disappoint. But over the long haul, they consistently deliver opportunities to score. And then there are the “power hitters” of the lineup, the ones that

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Borrowing to Invest in Real Estate? Lend Your Ears First

4 years ago 0 0 1876

According to an April report from industry giant CBRE, global investors poured $835 billion into real estate in 2014, and they show no sign of slowing down any time soon. What relevance do global trends like this have on individual private investors? The answer is that, when so much money is chasing a single asset class, prices inevitably rise, making competition for assets fierce and the pressure to generate strong returns that much more intense. This usually results in aggressive borrowing. In market conditions like this, debt financing can be a powerful tool to for investors, especially when interest rates—the cost of debt—are historically low. As any homeowner knows, borrowing increases purchasing power. It can also limit the number of partners needed for a deal, keeping things nimbler. And, as long as the rate of return is higher than the interest rate on the debt, it gives investors a greater

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On Doctors, Lawyers and Real Estate Consultants: Why You Need an Expert

4 years ago 0 0 1573

If you are an attorney or a physician, or if you have friends in these professions, you are probably acutely aware that they spend a lot of time doing things that are not quite so glamorous as a weeknight television drama would suggest. For every “Matlock moment” in a rapt courtroom, attorneys file dozens of motions, type hundreds of memos and research thousands of cases. Similarly, most doctors spend more time writing prescriptions, reading X-rays and sewing up incisions than they do performing life-saving procedures. If the mundane is such a big part of being a highly specialized professional, why do we tend to value them so much? The answer is expertise. When faced with a legal or medical problem, we need motions and prescriptions, and we turn to qualified professionals for those things. But more than this, we need counsel: Someone to assess (or diagnose) our situation, and then

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Sell high? Not so fast!

4 years ago 0 0 1929

One of the truisms of investing is that you should always sell high — in other words, when the market is at its peak. With values for commercial properties approaching, and in some cases surpassing, “all time highs,” one might argue for aggressive selling. Not so fast! Pause, take a breath, and consider the following decision pathway: 1.    A primary consideration should be “What will you do with the money from the sale?” In this market, virtually all asset classes are very expensive, and cash is yielding close to nothing. This leads to question #2… 2.    If the current property is financially sound and producing a good return, why replace it for another? Unless… 3.    If the current property is not performing well, no longer meets your objectives, has changed fundamentally, or has fulfilled the objectives for which it was purchased, it may be time to sell. 4.    Are the

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Four questions you must ask your deal sponsor – and one for yourself

4 years ago 0 0 1785

In the world of private real estate investing, it’s important to KNOW the sponsor. That individual or group will determine if the deal being considered will be good for you. Ask these four questions of any deal sponsor with whom you are considering investing. Then ask yourself the last one. “What is your track record?” A deal sponsor may claim success with his or her last few investments, but what does the long-term track record actually look like? Have there been failures and what were the circumstances? Has there been consistency in the profile of the properties purchased? Or are they just chasing what’s hot? “What is your proclivity for borrowing?” Deal risk stems from several areas, one of which is the extent of the financing. High loan to cost ratio, short-term loans, and high interest rates raise the risk substantially. Aggressive terms can boost returns, but jeopardize the deal

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