Knowledge Leader - Fall 2010

Knowledge Leader

co ll iers i n ternational propert y mag azine

malcolm gladwell

best-selling author reveals characteristics of success

TAX TALK

Smart Strategies for 2011

Commercial Real Estate What’s the true value?

Fa ll 2 0 1 0

Maximum Results

MAXIMUS’ VP of Real Estate Susan Boren

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Contents 4 Outlook 20/20

21 Chart-Toppers

Best-selling author Malcolm Gladwell shares what makes legends out of bands and businesses.

Five strategies for turning your diamond-inthe-rough properties into successful assets. by cHRISTOPHER LEE

6 Spotlight

Off-price retailers take advantage of vacant big box retail space/Toronto Sun building finds new owner/Parking rates around the world/Q&A with Antoinette Tummillo, senior vice president, Real Estate Management Services with Colliers International Canada.

10 B2B

Declining property values have their advantages. by jEFF BOND

12 Working Space

14 Bank Notes M a l c omn G l a dwe l l : © Brooke W i l l i a ms ; C S R : c ourtes y of Jud y P igott

BY RUSS COLCHAMIRO

26 True Value

Federal Reserve commercial real estate expert K.C. Conway takes stock of today’s market. BY TERESA KENNEY

31 Behind the Scenes Canadian and U.S. business profiles, featuring Onni and Airpark 599.

36 Follow the Leader

Nontraditional uses for traditional spaces. by jENNIFER GARTON

If you want to know if your employee training is truly effective, calculate its ROI. by hEIDI STOUT TRETHEWAY

38 CSR

Has commercial real estate hit bottom?

Donating property can help your community and your bottom line.

by tIM MAZZETTI, CMB

by cHERYL REID-SIMONS

15 Personal Business

40 In Focus

Smart tax strategies for April 15. by eLIZABETH MANCE

16 Maximum Results

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What a difference a single degree makes. by dOUG FRYE

Using keen insight and intuition, MAXIMUS’ Susan Boren successfully negotiates leases in spite of a challenging economy, an evolving industry and dramatic time constraints.

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BY CHERYL REID-SIMONS

www.knowledge-leader.com

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Cover Photo by Brooke Fitts Colliers international Fall 2010

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Volume 4 u Number 3

From the Editors’ Desk

Knowledge Leader

co ll i ers i n t er n at i o n a l propert y m ag a z i n e

David Bowden

Dylan Taylor

IN BETWEEN THE LINES

Executive Managing Editors

Dylan Taylor and David Bowden Editor

Teresa Kenney

There is mystery in finding and unleashing hidden opportunities for success—or is there?

At Colliers International, we’re focused on amplifying our enterprising business approach, on behalf of our clients and our people. Simply put: We tap hidden value to achieve maximum results. For us, there is no mystery. We do it every day, at work and within our communities worldwide.

In November, we are pleased to host Tony Blair, the former Prime Minister of Great Britain and Northern Ireland, Quartet Representative for the Middle East and Patron of the Tony Blair Faith Foundation, as he discusses challenges and opportunities in an increasingly globalized world. For him, seeking common respect and understanding is an opportunity to promote peace among the world’s diverse cultures.

So what can we learn from those who turn the ordinary into extraordinary? Our fall 2010 issue of Knowledge Leader shows that highly successful individuals and innovative organizations change the way we think about business—and our lives—uncovering hidden opportunities along the way.

• MAXIMUS’ Susan Boren shares how she uses insight and intuition to negotiate the best possible leases, despite seemingly impossible challenges.

• Federal Reserve commercial real estate expert K.C. Conway shares his personal thoughts on the state of the commercial real estate industry today.

• Best-selling Author Malcolm Gladwell outlines characteristics shared by highly successful businesses and individuals—those traits that make legends out of bands and businesses.

• In Spotlight, we explore how off-price retailers are “Thinking Inside the Big Box,” by taking advantage of low rental rates to lease second-generation space.

• Property tax expert Todd Liebow reveals how decreasing real estate values can actually work to the advantage of property owners.

• Follow the Leader takes a look at how investing in professional development can unlock hidden success measures, as well as contribute to your company’s bottom line.

Despite the many challenges we face each day, there are hidden opportunities for success we shouldn’t overlook. And as we continue to amplify our enterprising business approach, we have found kindred spirits in the thought leaders, icons and game changers showcased in this issue. We hope you will too.

David Bowden Chief Executive Officer | Canada Colliers International

Dylan Taylor Chief Executive Officer | USA Colliers International

Associate Editor

Christine Schultz Art Director

Amy Wallace Project Manager

Heidi Page Contributing writers

Jeff Bond, Russ Colchamiro, Sarah Eadie, Doug Frye, Jennifer Garton, Teresa Kenney, Christopher Lee, Elizabeth Mance, Tim Mazzetti, Lex Perry, Cheryl Reid-Simons, Michelle Santos, Christine Schultz, Heidi Stout Tretheway Proofreader

Matthew Goldberg

This magazine is published by Colliers International

To order more copies, learn about advertising options or subscribe to Knowledge Leader, visit Knowledge-Leader.com.

Tiger Oak Publications 1518 First Avenue, Suite 500 Seattle, WA 98134 Knowledge Leader is published three times annually by Tiger Oak Publications, Inc., with offices at 1518 First Ave. S., Suite 500, Seattle, WA 98134; 206.284.1750. © Tiger Oak Publications, Inc. All rights reserved. POSTMASTER: Send address changes to: Knowledge Leader, Colliers International, 601 Union Street, Suite 5300, Seattle, WA 98101. Publications Mail Agreement No. 40064408. Return Undeliverable Canadian Addresses to: Express Messenger international, P.O. Box 25058, London, ON N6C 6A8. Printed in USA.

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Outlook 20/20

h ot to pi c s m a k i n g h e a d l i n e s to day

In today’s uncertain, challenging and often

Diamonds in the Rough creating successful property assets means getting back to basics.

by CHRISTOPHER LEE

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unpredictable times, creating asset value can be an elusive process subject to the influence of numerous external pressures and conditions.

Historically, creating asset value focused primarily on operating fundamentals such as leasing and expense controls. Now, however, the focus is shared equally with the new evaluative metrics of value. Real estate investors, lenders and service providers are rediscovering that value creation can also be derived from intangibles, structure, management execution and effective strategies. Buildings are like a mound of clay on a potter’s wheel: While every mound looks the same at first, it is the experience, expertise and vision of the potter that shapes the mound into a valued work of art.

Uncovering diamonds in the rough is a priority for every owner and/or operator of real estate assets. To do so successfully requires implementing the following five strategies:

Don’t Forget the Basics Increasing occupancy, managing operating expenses and seeking ways to improve asset performance are cornerstone activities to adding value. Implementing a robust tenant retention program and customer relationship plan, which includes tenant recognition events, are proven tactical actions that can help to knowledge- leader.com

Opposite page: Don’t forget the basics of property management. Make sure your properties’ lobbies and common areas are clean and inviting, landscaping is well-maintained and parking garages are well-lit.

improve the bottom line. In addition, ensuring that all on-site personnel are tenant-friendly, responsive and communicative is essential.

Measuring tenant satisfaction, implementing a contingency staffing model and engaging vendors like brokers in retention and customer relations programs are very important in asset value creation.

Don’t Overlook the Intangibles Today every building needs a brand. Positioning or repositioning a building requires a strategy to create a consistent quality experience for users and visitors alike. The entryway

Today, managing a building is just as much about taking care of what is inside the four walls as maintaining the building itself.

Perfect the Capital Structure Adding and creating asset and entity value mandates a stable capital structure—equity and debt. Property owners need a readily accessible source for equity to invest in unique property opportunities and corporate infrastructure upgrades. Trying to find or canvass existing or prior sources of equity in a cash-is-king, close-in-30-days environment can be stressful, time-consuming, distracting and frequently unsuccessful. Having a strategic partner or an unencumbered fund—either of which can quickly provide the equity to tie up investment opportunities—is a must.

Equity or reinvestment capital is often needed for tenant improvements, commissions, new

the critical test is how you answer the following question: “Am I proud to say that I own and/or manage this building?”

experience is critical, as is the tenant mix, external imaging, lighting and signage, landscaping, common area maintenance, restroom cleanliness, and appearance and location of smoking areas. The quality and condition of tenant and visitor parking areas, as well as the cleanliness of the shipping/receiving and mailbox areas should also not be overlooked.

Remember that safety and security factors matter, as do the concierge or security personnel who meet and greet tenants and visitors.

Deploying a broker relationship program often can produce improved results.

Cleaning heavily trafficked areas, such as hallways, restrooms and elevators, at set times throughout the day, can make the difference between a pleasant or unpleasant tenant experience. Timely and responsive maintenance repairs, and the replacement of outdated or defective furniture, furnishings and equipment can be important. Staging tenant events and insisting on quality communications are additional intangibles that can make a dramatic difference. knowledge- leader.com

hires, technology upgrades, branding, new deal pursuits and other business-essential investments.

This equity must be readily available.

On the debt side, relationships with current or prospective lenders for lines of credit and financing is essential. Shopping around for credit and loans only when needed often places the borrower at a competitive disadvantage.

Furthermore, keeping asset leverage below 70 percent loan-to-value is a must.

The real estate industry thrives on debt, which has been both a blessing and a curse for decades.

Too much borrowing on the belief that ‘tomorrow will be better than today’ is a misconception.

Perfecting the capital structure is a must.

Develop Effective Strategies From going green to improving workplace environments, asset values increase when investors perceive a differentiating story. Less than 5 percent of all commercial buildings in the United States are LEED (Leadership in Energy and Environmental Design) certified.

Increasing the level of tenant rewards and

creating a buzz that this building is a cut above the rest must be a desired outcome for all building owners and operators.

Value is enhanced when tenants are willing to pay more, stay longer and refer others. You achieve this by remembering that true value is created and implemented by people, not through fixed assets such as buildings. Knowing how your building is perceived by tenants and brokers is another key to adding asset value.

Perhaps the critical test is how you answer the following question: “Am I proud to say that I own and/or manage this building?”

Have a Plan There’s an old saying that when the tide comes in, all the boats rise. This is what happened from 2005 to 2007. Value was primarily driven by an abundance of easy-to-access capital (equity and debt) and far less by asset performance. Today, value is created by the development and effective execution of a written asset plan. The absence of an asset plan is akin to a ship’s captain without a destination. “What are we trying to achieve?” is the real estate industry’s version of the captain’s question, “Where are we headed?”

Effective asset plans incorporate competitive and competitor data, market intelligence, economic operational trending data, a capital plan, a tenant strategy and a facilities plan. If I were a broker today, I would be creating a detailed plan for every prospective client. Value is a product of knowledge. Brokers, property managers and appraisers have that knowledge, but they need to harvest it effectively.

Finding or uncovering diamonds in the rough is the role—no—the obligation of all service providers. Investors and building owners may know how to buy or sell assets, but service providers can make the difference between average and a good-to-great asset performance.

That difference can improve a capitalization rate by 25 to 100 basis points.

Everyone should start looking for those diamonds in the rough. They are there to be found and polished. K L

Christopher Lee

is president and CEO of CEL & Associates, Inc., a real estate consulting firm based in Los Angeles. For more information, visit www.celassociates.com or phone 310.571.3113.

Colliers international Fall 2010

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spot lig h t the people, places

Âť

and events shaping the industry

trends

Thinking Inside the Big Box

Off-price retailers are taking advantage of low rental rates to lease vacant second-generation space.

The recent economic downturn has presented retailers in the United States with one of the most challenging operating environments they have faced in decades.

As of the first quarter of 2010, Colliers International reported an overall retail shopping center vacancy rate of 11.0 percent across the markets it tracks.

This number is up considerably from January 2008, when the rate was 7.4 percent.

While vacancy has increased for every retail shopping center type in virtually every U.S. market, occupancy losses for big box retail buildings have been especially pronounced. The United States had a total retail inventory of just over 11.6 billion square feet at the end of the first quarter of 2010, according to the Costar Group, a U.S. commercial real estate information firm. Of that space, nearly two-thirds—or 870.7 million square feet—was vacant.

Reduced rents are now playing a major role in bringing users back to the marketplace. There has been a surge of big box leasing activity in the second quarter of 2010, driven largely by discounters, off-price apparel retailers and grocery concepts looking to lock in low rental rates on vacant second-generation space. For example, electronics chain HH Gregg has opened more than 30 stores in the past 18 months, with plans to open 45 more in 2011. The majority of these new stores will occupy former Circuit City locations. The Indianapolis-based electronics retailer is on track to single-handedly absorb more than 2.5 million square feet of vacant big box space through 6

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knowledge leader Fall 2010

the end of 2011.

Though most backfilling of vacant big boxes has been driven by discounters, there is reason to believe that deal activity will continue to increase. Colliers International tracks the expansion plans of more than 500 major retailers. Between January and May of 2010, nearly one-third of those retailers increased their growth plans for 2011 and beyond. Strong store sales until May of 2010 likely played a factor in retailers becoming more bullish on 2011.

For more information on this and other timely industry research, subscribe online to the Colliers International research series by e-mailing white.papers@colliers.com. www.knowledge- leader.com

» Market

news

GLOBAL COMPARISON TOP 25 MONTHLY PARKING RATES (USD)

Park It Despite a challenging economy, daily and monthly parking rates hold steady in North America.

Colliers International’s 10th Annual North America Parking Rate Survey indicates that even in the face of economic hardship, parking garage owners and operators have managed to hold rates steady, providing little relief to businesses or consumers. Over the past year, Canadian and U.S. parking rates both registered little change, highlighting the high degree of stability in this often overlooked real estate sector.

Despite a loss of 8 million jobs and a significantly more challenging business environment, few U.S. cities saw a significant decline in parking rates during the June 2009/ June 2010 period. Daily and monthly parking rates largely held steady over the past 12 months, with daily parking charges down 1.4 percent (reversing a 1.2 percent increase last year) while monthly rates increased 1.1 percent (reversing a 0.9 percent drop last year). Underpinning parking rates is the continued tight balance between supply and demand—even with the economy still far from operating at capacity.

» big

Contributing to the modest increase in monthly parking rates has been an uptick in office leasing activity and a general improvement in the business landscape.

Daily rates, which tend to track the general economy and consumer spending, show the demand for infrequent parking remains fairly strong and most likely reflect long-held commuting patterns seen in most parts of North America. While many businesses and consumers are still acting prudently, demand for parking looks to be somewhat insensitive to price, allowing parking garage owners and operators to hold rates steady even in the face of economic hardship. Even with a slowly recovering economy and a weak labor market, parking rates are expected to show little change in the coming year, but beyond the next 12 months, parking rates are expected to resume their upward trajectory.

To read the 10th Annual North America Parking Rate Survey, visit www.colliers. com/research.

London – City 932.99 London – West End 873.50 Hong Kong 744.72 Tokyo 654.00 Zurich 605.64 Sydney 591.28 Perth 563.37 Brussels 549.94 New York – Midtown 538.00 New York – Downtown 529.00 Copenhagen 516.88 Vienna 496.22 Amsterdam 482.28 Brisbane 469.47 Manchester 462.87 Calgary 432.93 Geneva 431.34 Birmingham 428.05 Oslo 425.98 Boston 425.00 Bristol 419.34 Antwerp 393.70 Milan 393.70 San Francisco 375.00 St. Petersburg 356.40

deal s

Sold! Toronto Sun building National Investment and Office Leasing Teams Combine Expertise for Sale of $300M Downtown Toronto Redevelopment Site.

After relocating their printing operations, Quebecor (Sun Media) hired Colliers International to assist in maximizing the value of their landmark Toronto Sun building in downtown Toronto. Quebecor’s key to success was attaining maximum value for the property and an attractive long-term lease for their Sun Media operations.

Milton Lamb (Toronto) and Adam Kosoy (Toronto) of Colliers’ National Investment Team negotiated the successful sale of the Toronto Sun Building and Lands at 333 King Street East for $41 million. The property consists of approximately 300,000 square feet of office/production space on 3.92 acres of land, allowing the purchaser, First Gulf Development, to complete a $300 million mixed-use project.

“The opportunity to acquire and develop almost four acres of land with almost 1 million square feet of density over two city blocks in downtown Toronto does not come along very www.knowledge- leader.com

often, allowing us to attract strong pricing from highly qualified purchasers,” says Lamb.

With the expertise of top leasing professionals Mark Cowie (Colliers Toronto Downtown), Michel Leonard and Michael Friedlieb (both of Colliers Montreal), Colliers also guided all parties through complicated negotiations to secure a 10-year, market competitive lease for the Toronto Sun newspaper in the building for 61,000 square feet.

First Gulf has hired Colliers’ brokers David Moretti and Michael King to lease the remaining approximately 100,000 square feet to office tenants, and will develop new retail space, providing amenities to office and residential tenants. The vacant land on the eastern portion of the property is suitable for either an office or residential development.

The Colliers team worked together to help Quebecor achieve their real estate and facility requirements, completing one of the most nota-

ble property transactions in recent history.

“The hard work and collaboration of everyone on the Colliers team played a major role in getting this complicated deal over the finish line,” notes Kosoy.

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spot lig h t » Q& A

executive insight with:

Antoinette Tummillo Senior Vice President, Real Estate Management Services Colliers International, Canada

Even better, these programs will drive strong operating and financial performance. It not only makes sense; it’s just good business.

What “untapped hidden opportunities” would you advise clients to consider?

What do you see as a notable new industry trend?

Sustainability is the single most important development in our industry. It’s much more than a trend, it’s a movement. The spotlight is ever-increasing on how we build, manage and use buildings. There is a tremendous opportunity for companies—if they haven’t done so already—to formalize their commitment to corporate sustainability and to develop guidelines and benchmarks to measure their performance and accomplishments in this area. Consumers are driving this change with dollars. Companies who are not seen as leaders in this area now risk losing market share. Sustainability is much more than governance though; it’s really about corporate citizenship.

I’m excited that in Canada, as a manager of more than 50 million square feet of property, Colliers International has a tremendous opportunity to assist our clients in developing ethical business practices, and strong corporate governance to support sustainability programs.

When you consider that we manage 1.1 billion square feet globally, the difference we can make is unique and massive, as is our responsibility.

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There are two key areas I advise clients to focus on: value and people.

To create value, you need to focus on the big picture and not get caught up in the day-today operation. Identify what’s critical for your business to be successful, and that will drive how you manage your assets. Colliers has a deep, diverse service offering that can help clients develop and execute their strategies— from an overall portfolio review, to building out space, or managing, acquiring and divesting real estate assets. Our goal is to accelerate our clients’ success by providing tailored real estate solutions to meet their specific needs.

The second area that impacts value is a people strategy. Attracting and retaining the best is critical to any business’ success. You want your team to be the best in the industry. In our business, that will drive service excellence and all that we need to achieve.

What would you consider your biggest accomplishment to date?

In each phase of my career, I’ve had an achievement so major that I consider each one special.

It’s like asking me to pick my favorite child.

One of the more exciting projects I was involved in was the re-zoning of the railway lands in downtown Toronto, which led to the development of the Rogers Centre (previously known as the Skydome). Getting the approvals to build the infrastructure to service the Skydome on time was no small feat. There was a tight timeline to build roads, parks and relocate a major rail freight line operating on the southern edge of the site.

Another phenomenal experience was Canadian National’s privatization. Working with an amazing team, we sold off $100 million in real estate assets, transferred more than $350 million in real estate assets to the federal government before privatization, and structured a real estate team for the ongoing management of more than 350,000 acres of railway properties across Canada.

There was also CIBC Development Corporation where I was involved in the sale of more than $1 billion of real estate assets and led one of the most successful outsourcings in Canada.

My most recent accomplishment was winning the Global Turnaround award at CB Richard Ellis. As leader of the Canadian Global Corporate Services team, my team was recognized for its efforts in turning around the operation in record time, after experiencing tremendous strain from unprecedented growth and a changing regulatory environment. I am not afraid of making change and being innovative; in fact, I am energized by it.

What legacy would you like to leave behind?

I would like to leave a legacy of fun and success.

I want the clients I work with, as well as my colleagues, to feel as though I’ve helped accelerate their success—whether it be by helping them in their careers or with the assets they manage— and have fun doing so. I want those around me to feel as though I made a difference.

What advice would you give to someone entering the real estate profession today?

Focus on understanding your client’s needs and wants. If you do that you’ll be successful. It’s also important to have an area that you can specialize in. Don’t be a generalist. Focus on an area where you can add value and build a name for yourself. K L www.knowledge- leader.com

B2B

B u s i n e s s to B u s i n e s s Ti p s

Is It Time to Reassess?

For property owners, decreasing real estate values could actually work to their advantage. By Jeff Bond If anyone needed divine intervention with their property taxes, it was the Sisters of the Holy Names of Jesus and Mary.

The Catholic Order located in Lake Oswego, outside Portland, Ore., opened a continuous care residential community on approximately 19 acres of their property in 2001. But the devil turned out to be in the details for the Mary’s Woods at Marylhurst facility when Clackamas County assessors slapped a value of $72 million on the property.

Desperate to reduce a ballooning tax bill, the facility’s chief financial officer, Diane Hood, turned to property tax expert Todd Liebow with Colliers International’s Portland office and attorney Jack Orchard, a partner with the Portland-based firm Ball Janik, LLP, to help the Sisters secure a lower tax bill.

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You may say the two real estate experts ended up being the answer to the Sisters’ prayers. The case eventually went to trial before a tax court magistrate who viewed the county’s appraisal skeptically. He recessed the trial to encourage the county to reduce its valuation significantly.

After overnight deliberation, the county offered to re-set the valuation of Mary’s Woods at $14 million on a stabilized basis. This resulted in an immediate refund (with interest) of $2.5 million and an annual tax savings of at least $525,000. “The Sisters were ecstatic,” says Orchard.

Few assessment cases are as dramatic as the Sisters of the Holy Names. Still, property value fights of a similar nature are currently playing out across the country. The reason is simple: After more than two years of watching property values plummet, owners of commercial and residential real estate argue that their knowledge- leader.com

T odd Lie b ow

After reassessing the value of Mary’s Woods at Marylhurst facility (shown here), Oregon’s Clackamas County awarded the Sisters of the Holy Names of Jesus and Mary an immediate refund of $2.5 million and an annual tax savings of at least $525,000.

property assessments remain stubbornly high.

They want relief from what they contend are unfair tax bills.

“People tend to say that you can’t fight City Hall,” Orchard says. “But that’s not true. You just have to be careful that when you get into this process that you have outside help from people who know how the system works.”

That is where people like Orchard and Liebow come in. The two are among a growing number of real estate appraisers and lawyers around the country who have the expertise to assess a property’s value and negotiate with county officials to lower the property’s tax bill.

Needless to say, business is booming. In fact, Liebow says the amount of business he is getting is sometimes like “taking a drink out of a fire hose.”

While such experts can’t do anything about the current recession in the real estate sector, they are able to help property owners pay less in taxes. That is one silver lining on the clouds hanging over the nation’s real estate industry.

“You might say that we make lemonade out of lemons,” says Liebow, managing director of FirstService PGP | Colliers International Valuation & Advisory Services. The Portland-based company recently became part of Colliers International. “This process is kind of a no-brainer for property owners. With property values falling, it really is important for owners to get an independent assessment.

The property tax savings can be significant.”

How significant? Each county and city is different, but Liebow estimates that property values have fallen as much as 20 to 50 percent across the country. That means a sizeable tax reduction should be in order for commercial property owners.

And they are taking notice. Liebow, a former appraiser for Oregon’s Clackamas County Assessor, says his client list includes various banks, retailers—such as Home Depot, Kohl’s and Sears—as well as 208 McDonald’s franchise stores in the Pacific Northwest. He has also consulted with large pension funds, valuing their vast portfolios of properties.

Property tax expert Todd Liebow estimates that property values have fallen as much as 20 to 50 percent across the country. That means a sizeable tax reduction should be in order for commercial property owners.

knowledge- leader.com

Liebow and Orchard recently helped Trammell Crow Residential win a reassessment of a new apartment complex in the Portland area.

The building, which was completed right at the height of the real estate market bubble in 2007, was assessed at $41 million. After negotiations with county officials, the two sides settled in 2009 for a valuation of $17 million, saving the developer $414,000 a year in taxes on this one property alone.

One point that Liebow and Orchard emphasize is that no one is really at fault or is trying to pull a fast one. The last two years have been a difficult time for governments and property owners alike, and both are trying to adjust to this new world order where property values are actually falling instead of rising for the first time in decades. At the same time, governments are extremely cash-strapped and the idea that officials may have to reduce their tax collections, let alone return money already collected, doesn’t excite anyone.

Beyond the financial bind facing current government agencies, some property assessments may be out of line due to simple mistakes. Liebow says assessors have limited resources and, in many cases, must assess thousands of properties each year. They are unable to keep up with the specific details of each property and are forced to often use a statistical approach to assess the value for properties in a given neighborhood.

Orchard says his clients don’t resent paying taxes. They understand that the money is crucial to supporting local police, fire fighters, schools and government operations. They just want to be treated fairly.

Jeff King is finding the same circumstances across the country. King, director of FirstService PGP | Colliers International Valuation & Advisory Services, says that assessment appeals are on the rise from California to Michigan.

He notes the reassessment process could potentially benefit property owners anywhere who believe they are being charged too much.

“For years, everyone believed that property values would only go up and we all know that turned out not to be the case,” King says.

“That is why now is the best time for property owners to take a hard look at their assessed valuations and get them back in line with where the market is today.” K L Colliers international fall 2010

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Working Space

s m a r t d e s i g n f o r t h e wo r k p l ac e

Space Savers

Since 2008, increasingly anemic tenant

rolls have become commonplace throughout the commercial real estate industry. According to Colliers International’s Vice President of Research Garrick Brown, it’s estimated that “120 million square feet of big box retail space [alone] has gone vacant since January 2008… roughly the equivalent of the entire shopping center inventories of Baltimore, Cincinnati and Kansas City combined.”

But the enterprising spirit of many in the commercial real estate business has not been quelled by tough times—quite the contrary. Creativity is playing an increasingly valuable role in trans12

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actions, as spaces are no longer wed to their originally intended purposes.

Previously vacant properties are finding new life as boutique theaters, art installations, travelling museums—even indoor go-kart race tracks (see sidebar). This innovative use of space has been breathing new life into empty spaces, as well as attracting new patrons through the doors.

The trend of finding new uses for unleased space came into play in Columbus, Ohio, when a Colliers International team was working to fill a complex of three buildings, comprising just over 41,000 square feet in Powell, Ohio.

Although the property is impressive—“Most people who tour the space are blown away,” says Senior Marketing Specialist Jackie Gulasy—its location some 30 to 45 miles north of downtown Columbus proved to be challenging. So to bring additional traffic and potential clients to the complex, the Colliers team offered the space to select organizations as a meetings and events venue. To date, the results have been promising: After attending one free event onsite, the owner of the online coaching company Mylogy was so smitten with the location, he decided to relocate his offices there.

While promoting properties through free community events can assist with leasing space, brokers are also thinking outside of the “big box retail” mode by repurposing properties built for one use to another, completely different use altogether, generating positive cash flow.

Consider a deal successfully negotiated by Gary Montour and Jason Ryals of Colliers International in Jacksonville, Fla. Montour and Ryals leased a former Toys “R” Us storefront to Latitude 30, a mixed-use, upscale, 45,000-square-foot entertainment center that, according to Brown, “will include an 8,000-square-foot sports bar, 13 bowling lanes and four small theater rooms.” The center will even include a Las Vegas-style, 300-seat live entertainment venue.

Health care is one industry that is particularly well-suited for rethinking traditional spaces, because of its rapid growth. As demand for medical services increases, thanks in large part to the aging baby boomer population, more stagnant properties are being renovated into medical facilities. In January 2010, for example, knowledge- leader.com

J a mie s a nti l l a n

Brokers, tenants and property owners are looking at nontraditional uses for traditional spaces.

By Jennifer Garton

Driving Business Penn State Milton S. Hershey Medical Center confirmed plans to utilize a former Williams Sonoma, Inc., call center in Camp Hill, Pa., as a new medical office complex.

In a recent white paper on big box retail, Brown shared story after story illustrating this growing trend of rethinking space. This past spring, he notes, an empty CompUSA in Honolulu, Hawaii, was given a short-term lease on life as a filming location for The Descendants, a new movie starring George Clooney. While serving as an on-location movie set may not be a feasible option for most places, it does speak to a growing change in attitude toward short-term leases, seasonal stores and the like.

Opposite and this page: Looking to lease more than 41,000 square feet in a three-building complex in Powell, Ohio, Colliers International offered the space to select organizations for meetings and events.

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The best case studies of innovative use of space are those that result in a win-win situation for the immediate neighborhood. A prime example of this occurred at the Regions Center in downtown Little Rock, Ark. The common area underwent a wide-ranging remodel that included transforming an entire wall into a commemorative photo gallery that detailed the timeline of downtown Little Rock, past and present. Property Manager Kim Battle, part of the Colliers team working with the Regions Center, explains that “the intent was for [the gallery] to be a contribution to the community and a celebration of our heritage.” Not only is it generating positive public relations, it’s also drawing people into the building and benefitting neighboring businesses.

Well-chosen, unique tenants—both short- and long-term—can generate interest, increase foot traffic and draw people from previously untapped demographics. And this is good news—not only for property owners and brokers looking to sell or lease a property, but also for the community as a whole. K L

For Driven Raceway, an indoor go-kart and family entertainment venue, finding the right location meant finding a home large enough for an indoor go-kart track, as well as bowling lanes, mini-golf and an arcade. With a little creative thinking, they found all that and more.

In Rohnert Park, Calif., Driven Raceway has taken up residence in a former Linens 'N Things—the sizable, open space offered up the perfect canvas to start with. The company has also discovered that being in a retail-centered area is a boon for driving business.

Looking to add one more to their successful track record, Driven Raceway is now planning to renovate a former Circuit City in Fairfield, Calif.

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Bank Notes

C o mm e r c i a l F i n a n c i n g N e w s

Forewarned is Forearmed

There are still a lot of challenges to come for commercial real estate. By Tim Mazzetti, CMB There seems to be a growing belief in the com-

Frenzied Pursuit of Yield

mercial real estate (CRE) industry that we may have hit the bottom and will soon be on our way back up. Economists, research groups and news headlines point to emerging signs indicating that, while CRE markets in general are still performing poorly, the rate of deterioration has slowed, which, they say, bodes well for a recovery.

Unfortunately, I am not as optimistic, and here’s why:

I recently read an article that I believe best sums up the current investment environment.

Investors are so hungry for yield that they may be willing to compromise underwriting standards and/or take a lower risk-adjusted return. It also stated that we might be witnessing the formation of another bubble.

While I am not saying that a bubble is going to happen, some of these transactions do raise images of 2006 or 2007. We have been tracking the FDIC Structured Transaction bids going back to July of 2009 when Starwood acquired the $5 billion Corus Bank condominium loan portfolio, in partnership with the government, at a whopping price of 61 cents on the dollar. The cover bid was more than 20 percent lower at 50 cents. Since that landmark transaction, the FDIC has closed five to six additional bulk sales of distressed asset from numerous failed banks at increasingly higher prices. In my view, the pressure of funds to get the money out is increasing as the lack of available transactions continues to drive “irrational” behavior.

I cannot disagree with what the FDIC is doing because if they truly accelerated the number of bank closures (the current FDIC distressed list has more than 700 banks, not including the 230-plus already closed since January 2009), the economy would likely dip back into a recession. But in the meantime, they are preventing all those sick regional and small community banks from clearing out their bad assets, which is preventing them from making new, good credit, quality loans to small businesses. Those loans would drive job growth and help fuel a sustainable recovery versus the current, weak, stimuluscharged one.

Tale of Two Cities Over the past 9 to 12 months, I have been hearing about newly built, Class A multifamily projects in major metropolitan markets, like Washington, D.C., New York and San Francisco, selling for five caps or below. I have witnessed the feeding frenzy between life company lenders on one hand and newly (re)formed conduit lenders on the other trying to place a long-term, fixed-rate loan on a newly built, credit-anchored retail center in an in-fill location in Chicago. The final pricing, level of proceeds and soft terms, left me scratching my head in amazement. I felt like it was 2006-07 all over again. And I learn about dozens of similar transactions every day.

What’s really happening? Welcome to the current world of “haves and have-nots.” If you have a well-positioned, high-quality property located in a major metropolitan market or strong secondary location with good cash flow and a strong sponsor, you will have no shortage of debt and equity capital chasing you, some quite aggressively.

Unfortunately, Class A properties that meet the above criteria represent a relatively small piece of the $5 trillion (debt & equity) CRE market. The remaining “have-not” assets fall to the back of the line. Don’t view the handful of transactions that are getting done as a reflection of the overall market.

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Slow CMBS Recovery Adding to the distress is a slow recovery of the commercial mortgage-backed securities (CMBS) lending market. CMBS 2.0 will take some time to sort through the hundreds of new rules that were just passed into law by the passing of the Dodd-Frank Financial Reform Bill, including dozens that affect the securitization industry in general and CMBS in particular. Just about the time we do sort through all these issues, the first wave of some $1 trillion of CRE loans start coming due through 2017—many of which were originated in the 2005-2007 era—and will not be refinanced without either a write-down and/ or an additional equity infusion.

The return of CMBS is a requirement for a healthy CRE market. There just isn’t enough balance sheet capacity to properly serve a $5 trillion CRE market even with lower leverages and tighter credit standards.

The Moral of the Story It’s becoming more apparent that we are already three years into our own “lost decade”, mimicking what occurred in Japan in the early 1990s and which, unfortunately, still lingers there today. Deflation is a real risk, price discovery is muted, and toxic assets still clog regional and small community banks’ balance sheets. Credit is tight, job creation is negligible and the economy is floundering.

The bottom line is the majority of CRE assets which currently fall in the have-not category, still have a long way to go in terms of value loss and distress. This cycle is a “war of attrition” that could last another five to seven years. I expect that we could bounce along the bottom (or close to it) for sometime with a slow recovery taking on more of a “U” or “L” shape than the sharply rising “V” shaped economy we all want. The depth of the downturn and duration of the recovery will depend on how closely we continue to match Japan and its failed policy decisions of yesteryear.

Sobering outlook? Possibly. But my motto of “forewarned is forearmed” may serve us well in figuring out how to survive and even thrive in this environment. K L To read more on capital markets, visit www.cohenfinancial.com/blog. knowledge- leader.com

Personal Biz

Enhancing the executive lifestyle

2010 Tax Rate Schedule Single

Tax Talk

April 15 will be here before you know it. Strategize now to save more later. By Elizabeth Mance April 15 may be months away, but now is the time to look ahead and implement some smart tax management strategies to reduce your future tax liability. Some of the tax breaks you may be counting on are scheduled to expire for the 2010 or 2011 tax years.

Child Tax Credit The credit of $1,000 per eligible child reverts to $500 after 2010. Additionally, the increased earned income tax credit for filers with three or more children, as well as for those in the higher income levels, have been repealed.

Higher Tax Rates

Smart Tax Strategies

Beginning in 2011, tax rates that were in effect prior to the 2001 and 2003 Bush Tax Cuts—as they are collectively known—will be restored if Congress does not extend the cuts. The Bush Tax Cuts included reductions in some individual income-tax rates, levies on capital gains and dividends, and changes to the estate tax, as well as relief from the marriage penalty.

In all likelihood, lawmakers will extend income tax cuts that benefit families earning less than $250,000 a year, while allowing tax rate reductions for high-income earners to lapse.

This will boost the top marginal rates—or tax brackets—from 33 percent and 35 percent to 36 percent and 39.6 percent respectively.

If you own stock or a business and were thinking of selling it because of the capital gains rate hike, you may have a compelling reason to do so in 2010, rather than in 2011.

In 2011, retirees who face capital gains penalties because of downsizing—selling a current home to purchase one of lesser value—can still take either the $250,000 exclusion if they are single, or a $500,000 exclusion if they are married and filing a joint return. However, if they have gains beyond the applicable exclusions, they will also pay an additional 5 percent capital gains increase.

When tax rates rise, tax-deductible contributions and tax-deferred investment growth may become more valuable, so make the maximum contribution to your retirement plan each year.

Self-employed taxpayers in particular can set aside substantial sums on an annual basis to their retirement accounts (Keogh or SEP / Simplified Employee Pension Plans), with contribution limits of $49,000 for 2010. Taxes on those funds will be deferred until they are withdrawn during retirement.

If you’re younger than 50, consider converting your traditional IRA to a Roth IRA. This allows those earnings to grow tax free for you. Starting in 2010, the income taxes due on a 2010 conversion can be spread out over two years.

Remember, poor planning equates to poor performance. It’s never too early to strategize a sound fiscal plan with your tax and financial advisors. K L

Increase in Capital Gains Rates In 2011, the maximum long-term capital gains tax rate goes back up to 20 percent from 15 percent. A lower 10 percent tax rate is used by individuals who are in the 15 percent tax bracket—their long-term capital gains have been tax-free since 2008.

Increase in Dividend Income Tax Rates Beginning in 2011, qualified dividends currently taxed between 0 and 15 percent will be taxed as ordinary income. For those individuals in higher income brackets, this income will then be taxed at your highest marginal tax rate. knowledge- leader.com

Of the amount over

Taxable income is over

But not over

The tax is

$0

8,375

$0.00

8,375

34,000

837.5

15%

8,375

34,000

82,400

4,681.25

25%

34,000

Plus 10%

$0

82,400

171,850

16,781.25

28%

82,400

171,850

373,650

41,827.25

33%

171,850

373,650

108,421.25

35%

373,650

Married Filing Jointly Qualifying Widow(er) Taxable income is over

But not over

The tax is

$0

16,750

$0.00

Plus

Of the amount over

10%

0

16,750

68,000

1,675.00

15%

16,750

68,000

137,300

9,362.50

25%

68,000

137,300

209,250

26,687.50

28%

137,300

209,250

373,650

46,833.50

33%

209,250

373,650

101,085.50

35%

373,650

Head of Household Taxable income is over

But not over

The tax is

$0

11,950

$0.00

Plus

Of the amount over

10%

0

11,950

45,550

1,195.00

15%

11,950

45,550

117,650

6,235.00

25%

45,550

117,650

190,550

24,260.00

28%

117,650

190,550

373,650

44,672.00

33%

190,550

373,650

105,095.00

35%

373,650

Married Filing Separately Taxable income is over

But not over

The tax is

$0

8,375

$0.00

10%

0

8,375

34,000

837.5

15%

8,375

Plus

Of the amount over

34,000

68,650

4,681.25

25%

34,000

68,650

104,625

13,343.75

28%

68,650

104,625

186,825

23,416.75

33%

104,625

188,825

50,542.75

35%

188,825

Elizabeth Mance

is the founder and general manager of Accountability Services, a Seattle-based accounting, tax and business advisory firm. For more information, visit www. accountabilityservices.com.

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As vice president of real estate for MAXIMUS, Susan Boren manages more than 200 leases in the United States, Canada, Australia, United Kingdom and Israel.

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knowledge- leader.com

{ } Maximum Results Using acute insight and intuition, MAXIMUS’ Susan Boren negotiates unparalleled leases while facing some seemingly impossible challenges.

By Cheryl Reid-Simons

In any market, Susan Boren’s job would be a challenge. But add to that an economy in flux, a rapidly changing real estate industry and dramatic time constraints, and almost anyone else would be considering a complete career change altogether. Not Boren, however.

Photos by Brooke Fitts

As vice president of real estate for MAXIMUS— a Reston, Va.-based government contractor that provides administration of government health and human services programs—Boren is responsible for negotiating leases that seem daunting to many landlords. But she enjoys the challenge of turning dubious property owners into happy and trusted partners.

Boren didn’t necessarily intend to go into real estate. She majored in business at the American University and University of Maryland and happened upon a job working for a large resi-

knowledge- leader.com

dential builder shortly after graduating. “My father was a developer and much of my family is in the same business,” she says. “I think it’s just in my blood.”

She worked in marketing and leasing on residential properties, but it wasn’t long before she was approached about a position in corporate real estate with MAXIMUS. “With just enough real estate knowledge to be dangerous, I thought I could take this on,” she recounts. Corporate real estate is completely different from residential, but Boren’s drive and

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“

MAXIMUS is built on the most brilliant,

talented, hardworking professionals that I’ve seen.”

Susan Boren, vice president of real estate, MAXIMUS

ambition helped her make the transition. “It really was the right match for me,” she says.

Founded 36 years ago, MAXIMUS administers health and human service programs like Medicaid, Children’s Health Insurance Program and employment services. It has weathered economic storms that swamped many other small companies, continually posting impressive stock prices. “The company is built on the most brilliant, talented, hardworking professionals that I’ve seen,” Boren says.

“It really takes a high level of performance to meet the very sensitive demands of our clients.

MAXIMUS is a culture of self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities.”

With the passage of Health Care Reform in the United States, MAXIMUS is poised to continue to grow in the future. “For MAXIMUS, the direction the government is taking is providing some great opportunities for growth,” Boren says. “It’s already an important focus of what we provide—we do a lot of work in the managed health care enrollment arena. We believe we will continue to see growth opportunity abroad as well, driven by the same social challenges that all governments are facing.”

It’s MAXIMUS’ role as a government contractor that provides much of the challenge in Boren’s world. “A lot of our leases are tied to contracts,” Boren says. Typically when a government contract is awarded, MAXIMUS has a matter of two to three months rather than the typical industry standard of six to 12-plus months to get an office or call center up and running. That means Boren has many engines going at full speed to produce a building and a deal that match a contract’s unique demands, including a rolling termination option in the rare instance that the contract is canceled or radically changed.

“Our clients can award and execute a contract with very short fuses to implement,” Boren

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explains. “Sometimes one of the strategies is to find the right landlord who is nimble enough to be able to accommodate our needs.”

And because leases are based on the length of the contract, they are often relatively short. All those requirements plus a determination to not pay a premium for space often make landlords balk, Boren says. “The first time they hear [our requirements], they often say, ‘You’ve got to be kidding me.’”

That’s why MAXIMUS will sometimes turn to landlords they’ve worked with before— landlords who know the reality of leasing space to the company. “We’re very successful both in winning and keeping contracts,” Boren notes.

So despite the short lease terms, “our typical stay in a space averages seven to nine years.”

Boren understands the reluctance of new landlords to initially accept MAXIMUS’ terms. “After you get over the short-term lease, termination clause, down to the bone negotiated rent and the very short fuse to get the space built out, we’re a great tenant,” she says with a laugh.

To help ease landlord concerns over the unique structure of a MAXIMUS lease, Boren says she prefers to be directly involved in the negotiation process. “I like to do my negotiations principal to principal,” she says. “I have worked in most every market in the country and understand the importance of the right approach with these landlords.”

That understanding came into play when one lease on the fast track to signing was slowed by the 11th-hour reluctance of the building owner.

“I received a call from the landlord’s broker who said the landlord didn’t want to sign the lease because he was concerned about the program being the right ‘fit’ for his building.

I asked for a meeting with the owner, who happened to be one of D.C.’s largest real estate owners. He took me out on a half-day tour to show me other buildings in his portfolio that he felt would be a better fit—for him, though, not

necessarily for our client,” recounts Boren.

As the sun was setting and with MAXIMUS’ start-up deadline looming, the property owner was still very reluctant to allow the deal. “At a standstill, he asked for me for my word that his asset would be kept in good hands. He was actually unyielding in his request for ‘my word’, so I gave him just that. And now 10 years and several leases later, this landlord is a viable go-to option when MAXIMUS is in need of an aggressive and flexible deal locally,” notes Boren.

MAXIMUS operates primarily in the United States, Canada, Australia, United Kingdom and Israel. Boren is responsible for all real estate transactions, managing some 225 current leases. “I’m typically working on 25 projects at a time,” she explains. That translates to a lot of travel and a lot of different markets and projects to juggle. “Traveling to negotiate deals—particularly internationally—offered some of the highlights of my career,” she notes.

Local brokers help her to identify the nuances of each market and provide the tools she needs to get the lowest rate possible. “She is a fantastic negotiator and really merges the business plan and the real estate model together in a way that a lot of people can’t,” notes New York City-based Colliers International broker Steve Jaray, who works extensively with Boren. “Her insight and intuition are quite uncanny and more often than not, lead to remarkable, ‘on target’ direction.”

“I want to know that we have the best deal in the building,” Boren admits. “That said, my interest is to always be reasonable and fair.

Going in with that approach also helps lead to successful negotiations.”

She also doesn’t worry too much about the market’s ups and downs and instead works on building strategies and relationships for the long-term. “One of our landlords in Sacramento, Calif., that I sort of ‘cut my teeth’ with told me early on, ‘Susan, the whip changes knowledge- leader.com

Founded 36 years ago, MAXIMUS administers government programs, including Medicaid and the Children’s Health Insurance Program.

hands,’” she says. In other words, in an up market or a down market, “It’s just a question of who has the upper hand and then that will undoubtedly change. This taught me to be fair and reasonable even when the market is in our favor. That said, I will persevere until the deal is where my company needs it to be.”

In the current market, tenants seem to have a pretty good hold on that whip and Boren will use that to her company’s advantage while she can.

“We have achieved several millions of dollars in real estate savings this year alone,” she says.

But ultimately, it is sometimes less about saving dollars and more about successfully meeting MAXIMUS’ clients’ needs.

“It’s really the business that drives my real estate decisions,” she says. “The most critical knowledge- leader.com

objective is to understand where the business is going and what the contract requirements are.

That drives where we locate office space and how we structure the deal.”

Jaray handles a majority of MAXIMUS’ brokerage work. “Steve knows how to put the client and their requirement first before himself,” she says. “That takes an insight and discipline that very few have.”

Jaray, along with Brian Given, Michael Berger and Sheena Gohil, all of whom are also in the New York City Colliers International office, have earned Boren’s trust over nearly 15 years working together.

Boren says she’s impressed with what she sees at Colliers. “I’ve worked with some of the best brokers around the country,” she says. “We

only recently implemented an exclusive representation model. Through my experience, I was able to see who were the best, most competent real estate advisors out there. I don’t go by the shingle, I go by the individual.” Since 2007, that individual has been Jaray who became MAXIMUS’ national representative, a sign of the trust he built with MAXIMUS over the years.

And over the past few years, she’s been impressed to find that Colliers’ new leadership seems to follow the same model as MAXIMUS. “Colliers seems to be restructuring their business model and placing more emphasis on long-term relationships with their clients,” she says. “It takes discipline, maturity and talent to develop and maintain those types of partnerships.” K L Colliers international Fall 2010

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Chart-toppers Best-selling author Malcolm Gladwell shares what makes legends out of bands and businesses.

By Russ Colchamiro

knowledge- leader.com

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Malcolm Gladwell is the author of numerous bestselling books, including Blink, The Tipping Point, and Outliers.

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knowledge- leader.com

Perhaps it takes the unique mind of best-selling author Malcolm Gladwell to decode the trajectory of legendary rock n’ roll band Fleetwood Mac as a fourpoint study in which characteristics highly successful businesses and individuals share. Because that’s exactly what he did this past June before a packed auditorium at Jazz at Lincoln Center, when the author of such renowned books as The Tipping Point, Blink and Outliers addressed Colliers International’s Global Leadership Summit in New York City. Gathered were leading Colliers executives and clients from around the world.

Gladwell was quick to debunk several

© Brooke W i l l i a ms

myths. First was the notion of “overnight” success. While certain iconic individuals and organizations appear to become famous in a flash, most aren’t simply born to achieve, and their rewards rarely come easy. Colliers International, for example, did not become a global leader in real estate services overnight.

Nor did Fleetwood Mac, best known for their classic album Rumours, rise to prominence by accident.

Debuting in 1977, the group’s blockbuster album went on to sell more than 40 million copies worldwide, catapulting the band into an elite circle of international superstars. Yet Fleetwood Mac’s legendary status was not the result of blind luck. As Gladwell posed to the audience: Just how many albums did Fleetwood Mac release prior to Rumours? One? Two? Three? After many audience shrugs, Gladwell revealed the answer: Fourteen.

The fact is, the band spent a decade in relative obscurity honing its sound and mastering various styles before fame took hold.

Just prior to taking the stage, Gladwell sat down with Knowledge Leader to discuss, oneon-one, those characteristics that take a band or a business from the sidelines to success.

Rule I: The 10,000-Hour Rule Chess prodigy Bobby Fischer notwith-

standing (who did it in nine), Gladwell notes that rarely has an elite-level performer in any field effectively mastered his or her craft in less knowledge- leader.com

than 10 years—or roughly 10,000 hours.

As he wrote in Outliers, it takes 10,000 hours to acquire the skills, nuance and wisdom to achieve mastery, regardless of the field of specialization.

“Look at The Beatles,” he says. “They’re a wonderful example of that [10,000-hour rule].

They’re a band we think of as distinguished by their talent—that they’re musical geniuses.

What we overlook is just how much time they spent in preparation for [their] ascendency to stardom.”

He notes that the Fab Four spent two fingerblistering years in apprenticeship in Hamburg, Germany, performing eight-hour sets, seven days a week for months on end. He explains that their rite of passage didn’t take place before a stadium full of screaming teenagers— they honed their craft in dive bars and strip clubs. By the time The Beatles arrived in the United States, they had performed together 1,200 times.

“That’s an astonishing number of performances,” Gladwell notes. “That’s a really important lesson. What distinguishes those at the top is their commitment and drive. We [often] underestimate just how much work it takes to succeed.”

Which begs the question: Given the sustained effort necessary to achieve mastery, why do some persist while others give up? The answer, he offers, is simple: “You need to talk about passion first and mastery second. Mastery flows from passion.”

Rule II: Adversity is Good Rule II, according to Gladwell, is known as Adversity is Good. Gladwell notes that although Fleetwood Mac remained dominant from the mid-1970s through the mid-1980s—and they still tour to sold-out crowds today—Fleetwood Mac’s signature sound didn’t just “happen.”

Launched in England as an R&B group in 1968, the band’s initial record sales were soft—their first of many roadblocks. Facing this challenge, Fleetwood Mac reinvented themselves numerous times, as a reggae, heavy metal, progressive and then party band, until they finally discovered their rock n’ roll mojo.

They could have given up. They almost did.

After all, during those 10 eventful years, their lead guitarist was felled by mental illness, the band holed up in Wales for a year to “find” themselves, and then they battled increasing pressure and sporadic substance abuse issues before finally producing what many consider to be a rock n' roll masterpiece.

“Adversity brings out the drive to compete harder,” Gladwell explains. “It makes you hungry, and compels you to strive for your goals with an intensity and focus that might not otherwise come to be.”

Rule III: Social Risk-Taking Discovery through experimentation is actually one of Gladwell’s favorite topics.

“Experimentation leads to innovation,” he

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Colliers International’s Dylan Taylor (far left) and Doug Frye (far right) meet with Malcolm Gladwell at Jazz at Lincoln Center

notes. “Even more important is establishing an environment where people feel safe to experiment—and fail, which we often do. Fleetwood Mac experimented with various styles—taking risks—to discover what worked for them.

They had to take chances.”

To their credit, Gladwell adds, the band’s record company, Warner Bros., gave them the freedom to do just that. “People who are willing to risk their reputation in pursuit of excellence [requires] a very particular kind of courage,” he says, contending that risk-taking is at the heart of most innovation.

Make no mistake, however. Gladwell is no advocate of flouting the status quo as an attention-grabbing stunt. “[Innovators] are not risk takers in everything they do. Very often, their insight is a way of reducing operational risk.” He notes that truly great entrepreneurs do not take massive chances with their capital.

“Where they take risks is their willingness to defy conventional wisdom.”

One such visionary, says Gladwell, is Amazon. com Chief Executive Officer Jeff Bezos, who, when asked to identify the attribute that most contributed to his extraordinary success, is said

to have responded: “A willingness to be hated.”

Though “hated” might be too strong a word, Gladwell says, Bezos pursued ambitious goals and hewed to an unconventional and rigorous business model. “[Bezos] says, ‘I’m blazing a trail. I think there’s a better way of doing things.’ And he’s been proven right time and time and time again,” explains Gladwell.

Rule IV: Committing to Talent If mastery of craft, overcoming adversity and a willingness to experiment are all critical ingredients for success, Gladwell adds that no great organization, regardless of its size or niche, can truly succeed without Phase IV: Committing to Talent.

Again, Fleetwood Mac is emblematic of this fourth and final point. Whether it was luck, kismet or just fortuitous happenstance, founding band member Mick Fleetwood was visiting a friend’s Los Angeles basement recording studio in the early 1970s when a relatively unknown duo just happened to be singing there that day: Stevie Nicks and Lindsey Buckingham. Recognizing their

“Adversity brings out the drive to compete harder. It makes you hungry, and

compels you to strive for your goals with an intensity and focus that might not otherwise come to be.”

–Malcolm Gladwell

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enormous talent, Mick recruited them both.

Enter the Fleetwood Mac era.

“People play…disproportionate roles in the spread of ideas and influence,” Gladwell says.

“There are a small number of people who do most of the work. They are extraordinary people and they need to be identified and encouraged if organizations are going to succeed.”

Despite their significance, Gladwell notes, these abilities are not always so easy to detect.

“Organizations have to be smart about seeing and valuing that role, of being that kind of node in the network—someone who serves as the center of communication.”

Spotting that talent also ties into a theme of Gladwell’s Blink, in which he focuses on instant recognition, and circles back to his 10,000Hours theory. “Blink is [an] endorsement [of ] wisdom that arises out of years of effort and the accumulation of knowledge,” he explains. “A lot of that is about respecting the kind of instincts of the experienced.

Talent isn’t enough. Perspective is the missing ingredient.”

The Devil is in the Details Even with his Fleetwood Mac-modeled four-point study as a strong foundation for success, Gladwell offers two additional observations about today’s challenging business environment.

“People tend to believe that things are calmer and that the chance of the catastrophic event [occurring] is less than it actually is,” he says.

“We can no longer…build our business plans on the assumption that there will never be this kind of [economic] meltdown again. You have to plan for catastrophe. These things happen [more] often than we think.”

Black Swan-type events may be inevitable, but Gladwell also notes that fears of future catastrophes shouldn’t turn us into doomand-gloom pessimists. Far from it. Part of Gladwell’s book The Tipping Point argues that one must respect the details of any endeavor.

“There are all sorts of things that you might consider to be trivial or not trivial,” he says.

“But what might seem insubstantial on the surface can often turn out to be something far more significant.”

Translation: Be it the name of your organization, the look of your logo or your interaction with others, the specifics matter.

People notice.

“I’m not suggesting that we sweat the details,” Gladwell says, “but the tone necessary for how we tackle the big issues is set by how we tackle the small ones.” K L knowledge- leader.com

True Value Federal Reserve Commercial Real Estate Expert K.C. Conway Takes Stock of Today’s Market.

By Teresa Kenney

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knowledge- leader.com

K.C. Conway’s father was one of the founders of Vail, Colo.

K

iernan Conway, or “K.C.” as he’s known by his friends and colleagues, learned about the ups and downs of real estate at a young age. A third-generation Member of the Appraisal Institute (MAI) and a Counselor of Real Estate (CRE), Conway is currently serving a dual capacity for the Atlanta and New York Federal Reserve Banks as their Commercial Real Estate Risk Specialty Officer. He grew up in Colorado in a family with a rich real estate history— his father was one of the founders of Vail, Colo.

“In the early ’70s, my father was heavily invested in land and the development of the Vail Ski Resort when the 1973 oil embargo occurred.” That event, coupled with the ensuing 1977 to 1981 recession, brought real estate development and lending to its knees—much like it has today. “Construction loans were called due because inventory would not sell under the weight of 13 to 18 percent interest rates, and there was no demand for land. I remember thinking, why would anyone want to get into real estate?” recounts Conway.

The Organization of Arab Petroleum Exporting Countries (OAPEC) proclaimed the 1973 oil embargo on the United States because of U.S. support of Israel in the 1973 Arab-Israeli War. The price of oil rose 70 percent, and gas stations were asked to participate in voluntary gas rationing, resulting in long lines at the gas pumps. The crisis eased in six-month’s time but it wasn’t long before a new oil crisis occurred in 1979 when oil production in Iran nearly stopped following an Iraqi invasion.

A high school student during the ’79 oil crisis, Conway went on to attend Emory University School of Business in Atlanta. By the time he graduated in 1984, the economy had once again changed dramatically, although this time for the better.

“If you look back to 1980, the real estate environment was abysmal. The prime lending interest rate was marching toward 20 percent (peaking at 21 percent in 1981), unemployknowledge- leader.com

ment was elevated, the U.S. auto industry was hurting, and the U.S. economy was not firing on all cylinders. Fast forward to 1984 and the economy was charging back, with the U.S. embarking on one of the most robust real estate periods in its history. In a relatively short period of time, the U.S. moved from being mired in recession to one of the biggest booms in real estate,” recalls Conway.

The economy’s fickleness was a lesson, he says, that he remembers to this day.

“My dad told me that he was always more calm and optimistic at the bottom [of the market] because there was no place for it to go but up.

It was the peaks that he worried about, because he knew [the economy] had nowhere to go but down,” he explains.

When Conway graduated from Emory Business School, he and his late father talked about what he should do next. After much discussion, his father persuaded him to try appraising—a hybrid of real estate and banking—as a compromise. “I told my dad that while real estate intrigued me, I wanted to do something more stable, like maybe banking. I bet my dad would have a good chuckle over that today if he were around for a Coors beer and a discussion of today’s banking and real estate crisis,” says Conway.

Conway says that because he pursued a real estate career on the finance rather than the development side of the industry, he has been able to work with leading real estate companies,

past and present, such as Cushman & Wakefield, Equitable Real Estate, Deloitte & Touche, Wells Fargo Bank, and SouthTrust Bank. He says that his 10 years with SouthTrust Bank were his most enjoyable because it was “a solid family-owned bank that grew up doing real estate right. SouthTrust just never got tangled up in messes or market hype.” Following SouthTrust’s acquisition by Wachovia, Conway was approached by the Federal Reserve about joining the Atlanta District Bank to help develop a real estate center.

Today, he spends much of his time on the road—23 days in the past month alone—working with examiners and other district banks, and speaking to industry groups across the country.

Knowledge Leader caught up with him in New York City between meetings, and he shared his thoughts on where the commercial real estate industry is today. (His observations are his and not those of the Federal Reserve Bank of Atlanta or New York, the Federal Reserve, or its Board of Governors.)

First the Bad News To assist appraisal examiners, Conway tracks commercial real estate conditions in 180 U.S. markets. Two of the leading indicators he examines are personal bankruptcies—which serve as a bellwether for a rise in foreclosures—and business bankruptcies—which point to an increase in retail vacancies and a decrease in rents.

Using a proprietary rating system, he ranks the Colliers international Fall 2010

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27

At the Real Estate Spring Conference 2010, K.C. Conway ranked Las Vegas (left) and Chicago (middle) as “worse decline” while Denver (right) is “improving.”

CRE markets as “improving”, “less decline” or “worse decline.” At the Real Estate Spring Conference 2010, he ranked Chicago, Las Vegas and Phoenix as “worse decline” while St. Louis and Atlanta were in “less decline.” Denver, he says, is moving from “less decline” to “improving.”

Another indicator of the health of commercial real estate is the health of residential real estate.

“Commercial real estate follows rooftops,” he explains.

In the first half of 2010, he notes that, “the housing market appeared to be stabilizing and showing signs of recovery due in large part to the housing tax credit which expired April 30th. Now the subsequent May and June data are showing that there was a pretty dramatic fall-off [of home purchases] after the April 30 deadline. One of the challenges for policy makers from this recession is that the markets respond favorably at first to government stimulus packages, but as those packages are pulled back, the supported industries are not standing on their own two feet,” he says, adding, “This suggests that there is still an underlying problem and that more work is needed.”

For the worst performing property types, Conway says, “it’s a tie between hotels and retail. In the last 18 to 24 months, hotels have experienced the single greatest decline in RevPar [revenue per available room], dropping more than 50 percent. It occurred at a time when more product was delivered than any prior cycles since the 1980s.” He notes that 28

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knowledge leader Fall 2010

high-end hotels did worse than the more business and mid-price segment, because, he says, “we lost the discretionary luxury and foreign travelers.”

He notes that some of the issues that retail is facing, on the other hand, can be attributed to a lack of experience with co-tenancy clauses in non-anchor tenant leases.

“Non-anchor tenants are drawn to shopping centers because the anchor tenant is going to spend more money on advertising. So the anchor gets a discount on rent. The non-anchor signs a co-tenancy agreement that says essentially ‘we will be here as long as the anchor is here and spending on advertising to draw traffic to our shops as well.’ When the anchor leaves prematurely or goes bankrupt, the property owner has a short period of time to replace it,” explains Conway.

If the anchor is not replaced, the non-anchor tenants have a range of options that include breaking their leases or staying under a much reduced rent structure. “These co-tenancy clauses are unique to retail real estate and are prevalent in all retail centers, even unanchored lifestyle centers. They have a ripple effect that was not well understood by lenders in this last up-cycle. Many of the banks underwrote the retail centers because of the centers’ anchors.

When the anchors leave, they think that they have only lost 30 percent of their rents, but they have really lost 50 to 60 percent because all the other shop tenants now have a right to leave as

well,” says Conway.

This, Conway says, is history repeating itself.

“We are learning old lessons. This happened in the '80s and '90s but now we have a whole new generation of lenders that have not experienced this before,” he explains.

And the Not so Bad News But all is not lost for commercial real estate.

While for-sale housing may not be flourishing, for-rent apartments are faring somewhat better.

“Of the major real estate property types, the one we are seeing stabilize during the first-half of 2010 is apartments. We haven’t seen rents rise, but rent concessions [such as free first and last month’s rent, or moving cost incentives] are declining,” says Conway.

Of course, with every challenge comes opportunity, and this economy is no different.

Conway says that there are sound investments to be made if you know what to look for.

“One of the best ways to look at a property is to consider the replacement costs. If you can purchase the property at 30 to 40 percent of the replacement cost—or the cost to build it at today’s pricing—then there is a solid argument for investment in it today. We are seeing that behavior now by life companies, opportunity funds (both knowledge- leader.com

domestic and foreign) and REITS (real estate investment trusts),” explains Conway.

He points to a transaction that occurred in Chicago as an example of this.

“There’s a brand new ‘flagged’ [a hotel that is owned by a franchise] hotel next to Chicago’s O’Hare airport. To build the hotel, it cost nearly $200,000 per room. It was recently purchased for reportedly $40,000 per room. That’s good investor thinking,” he says.

Appraising the Appraisers Conway says that one important factor that has been missing in the real estate industry is investor confidence. And that’s where the appraisal industry comes in.

“One of the things I feel is at the foundation of the economic crisis is that investors and lenders don’t believe in the value of the properties—and that is a crisis of competency for the appraisal industry. Investors have to have faith that someone is telling them the truth [about a property’s value]. A lot of the skills and tools used by appraisers in prior recessions have not been taught or required by lenders in nearly two decades, but are once again needed. Some appraisers got lazy and lenders didn’t have robust appraisal review programs,” notes Conway. knowledge- leader.com

Conway says that this opinion is shared by others, and was a key finding in a majority of the Office of the Inspector General’s Material Loss Reviews during the first wave of bank failures.

“The market is searching for a mechanism to assist in determining value. Somebody needs to step forward and lead on appraisal quality again,” he says. “Appraisers have to get back to the business of doing analysis and looking at real estate market-by-market and propertyby-property. All commercial real estate is not distressed, yet all real estate appears to be painted that way with the same broad brush.”

Conway notes that the regulatory community has tried to address this industry concern with the October 2009 Commercial Real Estate Loan Workout Guidelines, but says that appraisers and banks are still wrestling with the concepts of liquidation, market and fair values.

“In 1991, when this same confusion resulted, an appraisal task force was created involving both the private industry and regulatory community to sort out the confusion over the terminology being used: market value, fair value, net realizable value, and disposition value. Such a task force is probably needed again,” he says.

But he does see some positive indicators of growing investor confidence in commercial real estate.

“Six months ago there were almost no buyers or investors, and the highest loan-to-value (LTV) that could be obtained was 55 to 65 percent. Now more players have come back into the market: life companies, opportunity funds, REITS and even some large financial institutions. LTV has risen to 70 to 75 percent.

However, debt and equity capital is primarily pursuing stabilized and cash-flowing real estate in a select number of first-tier cities,” says Conway.

This is evidenced, he says by the recent 2010 commercial mortgage-backed securities issuance. “Debt and equity capital is not yet pursuing the under $20 million commercial real estate in second-tier markets or with any leaseup exposure,” notes Conway. “The best way to describe the return of debt and equity capital to commercial real estate thus far is ‘selective.’

The market is not ready to take on much LTV or lease-up risk. All others will need to wrestle with how to refinance the gap with its existing debt structure.”

Conway says, “there is no crystal ball.

Appraisers are typically glass-half-empty thinkers; and economists are glass-half-full.

Looking behind the numbers market-by-market is critical at this stage in the cycle. Not all CRE is distressed. A number of markets are in balance and actually exhibit need for new supply.”

He says that investors, lenders and appraisers need to become re-acquainted with the concept of replacement cost as a reliable indicator as to when the market has over-reacted—both to the upside and downside. “Appraisers and lenders need to get back to performing sensitivity analyses on key assumptions in their valuations to test troubled debt restructures and adequacy of capital,” he says.

In the end, he says there is no way of knowing how it will all play out. With an economist’s glass-half-full optimism, however, he adds: “If you do your homework, you can take advantage of the opportunities in this kind of market. I honestly believe this may be the single most opportunistic time to invest in commercial real estate during my 25-year career. Commercial real estate is definitely on sale, and I would rather invest in a trough versus a peak.” K L Colliers international Fall 2010

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Behind the Scenes

Commercial Success John Middleton of British Columbia’s Onni Group of Companies is far from a middle-of-the-road developer.

By lex perry & Michelle Santos

It seems it was John Middleton’s destiny to be in the commercial real estate industry. Having always been interested in land forms, city history and growth, social geography and architecture— all key considerations in any real estate transaction—Middleton studied urban geography at the University of British Columbia. He was also an active member of North Vancouver’s rugby community where many of his peers were real estate professionals. So following his college graduation, Middleton found himself working in research for Royal LePage Commercial where he learned that there was much more to commercial real estate than he had previously thought.

“Each deal is unique,” he says. “Trading property is certainly not a cookie-cutter process. You deal with everything from economics to personalities and, of course, location is everything—it’s an allencompassing venture.”

Seven years ago, Middleton joined Onni, a British Columbia real estate developer and property and construction management company, as a member of the residential division’s sales and marketing team, responsible for promoting the company’s residential portfolio. Now as senior leasing manager for the organization’s commercial division, he is involved in ground-breaking projects ranging from a 650,000-square-foot hybrid lifestyle retail development to a 1.6-millionsquare-foot industrial park.

Thanks to projects such as these, the general public is bound to change its view of the breadth of Onni’s specialization. This shift in perception will not result from a change in Onni’s portfolio, but rather, from a realization of what has always been. “When people think Onni, they think ‘residential developer.’ In actuality, we engage in many commercial projects. This area has been a www.knowledge- leader.com

focus of the company—its backbone—since its inception.”

Middleton goes on to relay the Onni story of how four brothers immigrated to Canada from Italy in the 1950s with virtually nothing and started a landscaping company. Eventually, they constructed their first multifamily rental building in North Vancouver. Onni has emerged from those roots an aggressive, innovative property development and construction company with 175 employees, and offices in both Vancouver and Toronto.

Indeed, with an existing portfolio including 1.5 million square feet of industrial space, 450,000 square feet of office space and 720,000 square feet of retail space in Canada, Onni is much more than a residential developer. Two projects Middleton is working on further attest to Onni’s stake in the commercial market. Golden Ears Business Centre is a state-of-the-art, light industrial business park in Pitt Meadows, B.C. According to Middleton, the development will provide 1.6 million square feet of leasable space when complete. This undertaking represents a new direction for Onni. While the developer has traditionally built its industrial properties on spec, it is marketing Golden Ears Business Centre as a build-to-suit development. “We have the capability from a construction and development perspective to service and supply the build-tosuit market—and seeing the opportunity, we took on the project with determination,” explains Middleton.

Fremont Village in Port Coquitlam, B.C., is at present Onni’s largest retail project. Anchored by retail giants Wal-Mart and Canadian Tire, the property will provide 660,000 leasable square feet when complete. It will also add to the company’s

healthy retail inventory and become one of British Columbia’s most expansive lifestyle/ power centres.

And Onni’s reach spans far beyond British Columbia’s borders. Onni has two major mixed-use development projects underway in the Toronto, Ontario, area. Their property in Etobicoke boasts 1,300 residential units and 60,000 square feet of commercial space, while their property in Fort York offers 1,350 residential units. Onni also has two smaller office buildings in downtown Edmonton, Alberta, and both a residential and industrial project in Ensenada, Mexico. The industrial project is an 800,000-square-foot, build-to-suit development that has generated significant interest from U.S. manufacturers.

With such an aggressive expansion, what is next for Onni?

“Aside from pursuing projects in Toronto and Mexico, we are also active in the residential rental market in Phoenix,” says Middleton. “We recently acquired a 450-unit rental project there and our objective is to own and manage up to 2,000 units in the region. It’s important that we create economies of scale from a property management perspective.”

Amidst the obstacles the real estate industry is trying to surpass, Onni is a company on the move.

“We’re confident in the economy,” confirms Middleton. “Being busy is typical for an Onni employee and it’s about to hit a whole new level. From planning stages to construction, we have more than 3.5 million square feet of commercial inventory slated and approximately 4,500 residential units between British Columbia and Ontario, not to mention an additional 800 residential units in Mexico.” K L Colliers international Fall 2010

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Behind the Scenes

Planes, Trains and Automobiles

In California’s San Joaquin County, all roads lead to Airpark 599.

By Teresa Kenney

It’s Real Estate 101, really. When it comes to purchasing or leasing your ideal property, it all comes down to those three little words: Location, location, location.

Of course, what qualifies a property as “perfect” varies from person to person and use to use. Generally there is some give and take, as in “we’ll give up a, b and c to get x, y and z.”

But sometimes a property comes available that meets a, b, and c and x, y, and z, plus all the letters in between.

Consider Airpark 599, for example. Located in California’s San Joaquin County, it is the latest offering of Catellus Development Group, a ProLogis company that specializes in large-scale development projects that involve brownfield sites, military bases, former airports and other locations suited for mixed-use. Although San Joaquin County owns the land, Catellus is managing Airpark 599’s development.

The industrial park is a transportation logistics dream, neighboring the Stockton Metropolitan Airport with convenient access to the Port of Stockton, Highway 99, Interstate 5 and the intermodal facilities of the Burlington Northern & Santa Fe and the Union Pacific railroads.

Mass transit is also available, including the Altamont Commuter, which connects some 1,800 commuters daily from San Joaquin County to Silicon Valley and the Bay area.

Ben Peterson, ProLogis’ first vice president and market officer, is responsible for the company’s portfolio in California’s Central Valley. He notes that Airpark 599 is at the “very front end of the life cycle.”

“Right now we are in the planning stage with a lot of entitlement work. There are 500 gross 32

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acres of land at Airpark 599, 380 of which is developable land,” explains Peterson. “For this property we are looking to have a split between mixed-use commercial, office buildings, some light industrial and manufacturing, and perhaps a data center. We will also probably attract at least one mid-level business or extended stay hotel, some restaurants or delis, a coffee shop, gas station and business services companies such as a Kinkos.”

Peterson says that San Joaquin County is a prime ZIP code to do business in—which is exactly why the area is home to numerous Fortune 500 industrial companies.

“It’s a very good place to operate to keep your costs down. It’s centrally located and has a good existing employee base to draw from. In addition, it is one of the area’s most affordable markets to live in, which helps to attract more employees,” says Peterson. In fact, although Stockton is just 90 minutes south of Sacramento and 60 minutes east of San Francisco, its costof-living is approximately one-third that of its better-known neighbors.

There are also a number of incentive packages available to businesses and future customers of Airpark 599. The development is located within the California Enterprise Zone, entitling businesses to benefits such as tax credits in excess of $37,000 for every qualified worker hired. It also has Foreign Trade Zone status, which offers business owners privileges like the reduction or elimination of duties on imported goods. And San Joaquin County’s large revolving loan program has lent $70 million to numerous businesses in its 30 years of existence.

Airpark 599 will be a high-performance park

as it pertains to environmental accountability.

The state of California has been a leader in sustainable development with its own green building standards that Catellus will meet and/or supplement with its own sustainability initiatives.

As Catellus vets potential building owners and customers for Airpark 599, Peterson says that they are setting the stage for the next wave of growth. “We are focusing on build-to-suit, so we are being patient and waiting before we break ground on a new building. The location is prime for a tenant that services high-tech, automobile or aircraft and airport industries,” he says.

For Catellus, the definition of a prime property goes beyond its physical address to what it, and they as a company, can provide customers.

“For us a successful project includes good relationships and experiences. With any of our projects, we want to offer a type of product in the market that is held to the highest of standards,” says Peterson. “We have a commitment to providing our customers with the best quality service. If our customers are happy then we have been successful.” K L Airpark 599 includes 380 acres of developable land in California’s San Joaquin County.

www.knowledge- leader.com

Investment/Leasing Opportunities A SELECTION OF COLLIERS INTERNATIONAL AVAILABLE PROPERTIES FOR lease

FOR lease

3, rue Hôtel De Ville

SETON Retail Development

Dollard-Des-Ormeaux, Québec

Seton Blvd SE and Seton Way SE Calgary, Alberta

• Fully air conditioned facility • 24' clear warehouse component • Total building area: 123,025 SF • 60,185 SF office & 62,907 SFs warehouse

Michael Friedlieb +1 514 764 2833 michael.friedlieb@colliers.com Claudio Vendittelli +1 514 764 2835 claudio.vendittelli@colliers.com Jordan Perlis +1 514 866 1900 Jordan.perlis@colliers.com

• 650,000 SF of retail space (approx.)

• Calgary’s fastest growing region • Be a part of Calgary’s newest large format Towne Centre • Office, institutional, recreational, medical and residential all on-site

Rob Walker, +1 403 298 0422 rob.walker@collierscalgary.com Isaac Beall +1 403 571 8827 Krystyn Gatto +1 403 298 0412

colliersproperties.com/ 3hoteldeville FOR lease

55 Renfrew Drive

FOR sale

Rare Development Opportunity

Markham, Ontario

150 Tsawwassen Drive North Tsawwassen, British Columbia

• 54,644 SF of office space over 2 floors, divisible • Net rent: $14.75 PSF • Additional rent: $9.62 PSF (2009) • 12 months net free on a 5-year term • Open concept with combination of private offices, meeting rooms, kitchen & lab • Free parking - 3:1,000

Patrick Cowie +1 416 791 7223 patrick.cowie@colliers.com Jim Brown +1 416 791 7224 jim.brown@colliers.com

• Rare opportunity to develop a

123- acre master planned community within Metro Vancouver • Existing zoning permits a mix of single-family, townhouse, and/or apartment development

Simon Lim +1 604 661 0882 simon.lim@colliers.com

http://homesite.obeo.com/ viewer/default.aspx?tourid=515 802&refURL=&locale=en-US

www.tsawwassenlands.com

FOR lease

King West Place

Morgan Dyer +1 604 661 0886 morgan.dyer@colliers.com

FOR sale

Industrial Investment Opportunity

901 King Street West Toronto, Ontario

500-510 Coronation Drive Toronto, Ontario

Both a corporate destination and a progressive work environment, King West Place currently offers up to 117,000 square feet of space, with large efficient floor plates of 30,000 and 37,000 square feet. Access your suppliers easily; stay close to your clients; the Best of Both Worlds.

Tim Bristow +1 416 643 3408 tim.bristow@colliers.com Daniel Holmes +1 416 643 3463 daniel.holmes@colliers.com www.kingwestplace.com

• 108,798 SF on 6 acres • 80% occupied – 13 tenants • Two multi-tenant buildings • Asking - $4,950,000 ($45 PSF) • Cap Rate – 9.1%

John Stewart +1 416 791 7213 john.stewart@colliers.com William (Bill) Pitt +1 416 791 7234 william.pitt@colliers.com

Investment/Leasing Opportunities A SELECTION OF COLLIERS INTERNATIONAL AVAILABLE PROPERTIES FOR lease

FOR sale

Devonian Building

Employment Land

11150 Jasper Avenue Edmonton, Alberta

545189 Pattullo Avenue Woodstock, Ontario

• Naming rights available

• State-of-the-art systems make this one of the most energy-efficient buildings in the market • Abundant underground and surface parking available • Efficient floor layouts maximize usable area and reduce gross-up factor • Ability to accommodate large tenants with contiguous space downtown

• Entitled and serviced • Equidistant to five US-Canada border

crossings

• Greater Toronto Area only one hour

by major highway (401)

Ian Bradley +1 780 969 2996 ian.bradley@colliers.com

• Ontario is North America’s renewable

Kevin Petterson +1 780 969 2992 kevin.petterson@colliers.com

• Minutes to Toyota’s manufacturing

energy leader

• Exceptional data centre

attributes(infrastructure/power) facility

FOR lease

FOR SALE & Lease

Platinum Triangle Industrial

La-Z-Boy Plant 350 WEST 1000 North Tremonton, Utah

• 25% Price reduction • Owners ask for offers from the investment market • 675,000 SF manufacturing plant (vacant) situated on 48.99 Acres • Space is in move-in condition • Located 75 miles north of Salt Lake City • 20' Ceilings • Heavy power (43,000 volts) • 55 Docks • Rail access

905-917 EAST Katella AVENUE Anaheim, California

Brent Beshears +1 248 226 1686 brent.beshears@colliers.com

• 152,280 SF Industrial Building (divisible to +/- 51,363 SF) • Located within the highly desirable platinum triangle overlay zone in Anaheim • Immediate access to 5, 57 and 22 freeways • Perfect distribution facility • 19 dock high doors • 24' clearance • Fenced yard

FOR SALE

Koppernick Corporate Park

1400 Lake Tapps Parkway East Auburn, Washington

7261 Commerce BOULEVARD Canton, Michigan

Paul Sleeth +1 206 223 1266 paul.sleeth@colliers.com Billy Sleeth +1 206 654 0522 billy.sleeth@colliers.com

Steve Schloemer +1 949 724 5523 steve.schloemer@colliers.com Andrew Becket +1 949 724 5523 andrew.becket@colliers.com FOR sale

Lakeland Town Center

• Grocery and drug anchored shopping center • Located in the community of Lakeland in Auburn, Washington • Benefits from strong rental increases, a captive, high-income trade area with severe barriers to entry, high occupancy, sustainable income stream • Long-term anchor lease • Excellent visibility and curb appeal, and accretive assumable debt

Terry Alexander +1 416 620 2843 terry.alexander@colliers.com

• 115,525 SF corporate image manufacturing building • Heavy power, 7 docks, 2 drive-in doors • Highway visibility on I-275 • 7,525 SF office, 108,000 SF shop • Tax exemption Michael Yamada +1 248 226 1180 michael.yamada@colliers.come

Investment/Leasing Opportunities A SELECTION OF COLLIERS INTERNATIONAL AVAILABLE PROPERTIES FOR lease

Ex: TWO UNION SQUARE

The Balcony on Beverwil

9400 Santa Fe Springs Road Santa Fe Springs, California

9600-9636 WEST Pico BOULEVARD West Los Angeles, California

Prime Industrial Facility Available for Lease.

This 608,470 square foot industrial building is centrally located in Santa Fe Springs, California. The building features 40,601 SF of 2-story office, 24'-26' minimum clearance, 91 dock high loading doors, 8 grade level loading doors via ramp, .60/4000 GPM sprinkler system, as well as a fenced and secured concrete yard. The building is divisible.

Clyde Stauff +1 949 724 5543 clyde.stauff@colliers.com www.colliersproperties. com/9400santafesprings

• A ±71,228 SF trophy, grocery anchored community shopping center investment opportunity.

• Irreplaceable infill location in prime West Los Angeles market • Densely populated trade area with affluent consumer base • Strong sales figures from anchor tenants • Opportunity to re-merchandise a trophy asset • Assumable in-place financing

Tom J. Lagos, CCIM +1 213 532 3299 Christina A. Pambakian +1 213 532 3245 www.thelagosteam.com

FOR LEase

FOR SALE

Rockefeller Group Chandler 101

RANCHO TEMECULA TOWN CENTER

SEC Chandler Boulevard and Price Road Chandler, Arizona

WINCHESTER RD & NICOLAS Road Temecula, California

• Owned by Rockefeller Group Development Corporation • Three 8-10 story office buildings/one 65,000 square feet 2 story building • Approximately 31,000 square feet floor plates • 24,000 SF of retail and restaurant space • Pedestrian friendly “Main Street” • On-site parking for over 3,100 cars

• • • • • •

Excellent investment opportunity 165,496-square-feet shopping center Recently completed in 2007 Stabilized rent roll; 95% leased 13 separate legal parcels Anchored by Henry’s Farmers Market, LA Fitness, Beverages & More and Rite Aid

Phil Breidenbach SIOR +1 602 222 5073 phil.breidenbach@colliers.com

Bill Barnett +1 760 930 7934 bill.barnett@colliers.com Doug Hogan +1 760 930 7935 doug.hogan@colliers.com

FOR sale

FOR SALE

Prime oceanfront Development

Oceanfront Redevelopment Opportunity

Aqua marina Oranjestad, Aruba

Boulevard Francisco Medina Ascencio Puerto Vallarta, Jalisco, Mexico

• Predominantly completed 6-storey

• Prime “hotel zone” located in Puerto

•

• 295 ft of oceanfront on 7 acres

• • • • •

building Commercial/retail/residential mixed-use Net area of 12,000 m2 (129,163 ft 2) Adjacent to cruise ship terminal Downtown waterfront location Potential to reconfigure or complete project as is Offers considered after September 15, 2010

Vallarta’s downtown

MarkLester +1 604 661 0890 mark.lester@colliers.com AlanJohnson +1 604 661 0842 alan.johnson@colliers.com www.uniqueproperties.ca

overlooking the Bahia de Banderas • Suitable for redevelopment to alternate uses or renovation of the resort’s 359 rooms and facilities (currently non-operational)

Richard Apfelbacher +011 52 55 5209 3623 richard.apfelbacher@colliers. com Alam Pirani +1 416 643 3414 alam.pirani@colliers.com www.colliershotels.com

Follow the Leader

Back to School If you want to know if your training is a true success, determine your ROI.

By Heidi Stout Tretheway

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Pr o f i l e i n l e a d e r s h i p

The training evaluations were unanimous: Everyone loved it. It was lots of fun. It was really interesting.

But was it truly a success?

Not necessarily, says Lorri Freifeld, editor-inchief of Training magazine.

“If your employees go back to their desks after training and keep doing exactly what they did before, you’re missing a key ingredient,” Freifeld says. “The best corporations consistently tie training to corporate goals and measure the impact.”

The impact of training—and, specifically, its return on investment (ROI)—is increasingly important as companies across all industries have cut training budgets by an average of 7 percent since 2008, according to a Training magazine report.

“Training departments must ensure the senior executives and shareholders understand how training contributes to the bottom line,” Freifeld says, “but sometimes, it’s not that easy.

Not all training has a direct revenue link.”

That’s why the magazine’s review board in charge of selecting the Training Top

125 companies each year considers “return on value,” looking at both qualitative and quantitative results.

“Most companies understand that training is important, and if they had unlimited budgets they’d be gung-ho,” Freifeld says. “But when it comes down to brass tacks, the missing link is ROI. You need to prove what training will do for your business. If you just force everyone to take it, it’s pointless.”

Accelerated Growth When Colliers University (CU)—the training department of Colliers International—started evaluating its own ROI, it wasn’t a defensive maneuver, explains Craig Robbins, Colliers’ chief knowledge officer and founder of CU. “Initially, we just wanted to help people make more money with less stress, effort and wasted time,” Robbins says. “So we needed data to tell us which of our core classes were most effective in driving growth to be sure that the time invested had an immediate payoff. Our core curriculum includes only those classes that create startling and substantial results.” knowledge- leader.com

CU’s training is voluntary, which allows the department to compare commissions earned by producers who took no classes with commissions earned by producers who took several. In a four-year study of nearly 500 professionals throughout North America, those who took no classes earned an average of 13 percent more money each year. But those who took five or more core classes earned an average of 71 percent more each year.

And what was the cost of the training? An average of $2,000 and 30 hours per person.

One criticism of ROI evaluations such as CU’s is that go-getters who take classes are also more likely to produce better revenue results. Dylan Taylor, chief executive officer of Colliers International in the USA, acknowledges this.

“While some explain away the revenue gap between people who take classes and those who don’t, what’s clear is the fact that the more classes our professionals take, the bigger the gap,” Taylor says. “Each course incrementally adds value, and these effects carry forward into future years of revenue.”

Curriculum Choices Freifeld notes that companies in heavily regulated industries, such as health care, finance and insurance, have to focus much of their training on compliance. “They don’t have a choice; they’re monitored by government agencies and have to show certain results,” she says.

In real estate, state agencies typically regulate licensing and require credit hours in continuing education. Much of this training is delivered through third-party real estate training firms.

Colliers University doesn’t focus on this type of training. “It’s not what you know; it’s how fast you can learn. That’s the true competitive advantage,” Robbins says.

Katherine Steen, director of Colliers University, explains further. “We want to deliver behavioral coaching and business skills that are transferable no matter how the market or your role changes.”

For Steen, who has a master’s degree in curriculum development, some of the most gratifying course feedback is personal. For

example, participants have reported that communication and interpersonal skills learned through CU have improved their marriage or family life.

“Training should mean more than just learning information and processes,” Robbins explains. “If you just focus on that, you miss the opportunity to help the whole professional.”

Robbins constantly solicits feedback from clients and professionals to inform course content, which now includes more than 1,000 classes. Colliers’ business goals are at the core: classes include team collaboration, strategic presentation skills, service excellence, client engagement, marketing your specialization, and 35 courses on sustainability.

“We go to market fast—we don’t try to engineer each class into perfection, or else it would be out of date before it launched,” Robbins says.

“Once it’s piloted, we are in a constant process of evaluation. If the class doesn’t work, it’s gone.

This way, we can guarantee we won’t waste our professionals’ time.”

Freifeld explains several models that businesses can use to evaluate their own training. “When developing a course, it’s most effective to start with the results you want to produce—the business outcome,” she says.

“Then you work backward, considering the kind of behavioral changes you want to effect, the curriculum itself, and finally, the reactions from individuals.”

On the Horizon Freifeld, Robbins and Steen agree that on the training horizon is a radical change in the

traditional learning environment. For many companies, classroom training is not feasible or cost-effective, driving learning opportunities into webinars, podcasts, recorded resources and collaborative social media applications such as wikis.

“PricewaterhouseCoopers saved $57 million in fiscal year 2009 by using technology such as virtual conferences, self-study and LiveMeeting training sessions,” Freifeld explains. “With so many Gen Y-ers in the workforce, employees are not only receptive to collaborative environments, they also embrace the new training technology.”

“The bite-size pieces are getting smaller,” Steen adds, regarding CU’s typical content delivery. After reinventing classroom training for the Web, CU is now reinventing much of its Web-based content as downloadable podcasts and mobile and social applications.

“We’re staying ahead of the curve to meet our tech-savvy folks where they are,” Steen says. That’s had a positive outcome: Classes that used to include e-mail round-robins now have online discussion forums that generate more robust discussion and traffic.

“The most exciting and intangible return on investment from training is collaboration,” Steen adds. “Learning together produces a human reaction that creates lasting bonds more powerfully than other meetings and conferences. We see people develop relationships that create business referrals and collaboration for years after attending just one training opportunity together. That’s priceless.” K L

Opposite page: Colliers University instructor Gerald Clerx involves the entire room during the training session Bridging the GAP © . Right: Colliers University “camps” in Europe and Canada bring professionals from 60 countries together for a week of intensive learning, practice and competition, including a team canoe race like this one on Vancouver Island, British Columbia. knowledge- leader.com

Colliers international fall 2010

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CSR

c o r p o r at e s o c i a l r e s p o n s i b i l it y

Home Sweet Home Some property owners are using a nightmarish economy to help others’ dreams come true.

By Cheryl Reid-Simons

Above: Developer Stephan Boyd works on his Valtera townhome community (right) in West Seattle. Opposite page: The interiors of the Valtera townhomes.

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dreamed of building in-city homes that moderate-income families could afford. But with the high cost of land, “there was no way to really build affordable, quality houses,” his mother, Judy Pigott recalls.

Soon, even his traditional, 30-unit townhouse Valtera development in the Delridge neighborhood of West Seattle would be in trouble, thanks to a dramatic plunge in the housing market. With the construction loan steadily bleeding his bank accounts, no buyers waiting to pay the market rate for the homes, and the security risk of a vacant complex, things looked grim. Then he discovered an elegant solution that both helped him slow his losses and achieve his long-term dream.

If he couldn’t sell the homes, he’d give them away.

Boyd and Pigott formed Blue Heron JS LLC and joined forces with Homestead Community Land Trust—a Seattle-based affordable housing charity—Habitat for Humanity and the City of Seattle. Through Blue Heron, they essentially donated the land that 24 of the townhomes were constructed on.

Income-qualified buyers were then able to purchase the homes while the actual land remains in a land trust with provisions that ensure the homes will remain affordable to moderate-income buyers in perpetuity. www.knowledge- leader.com

P hotos c ourtes y of Jud y P igott

For years, Seattle developer Stephan Boyd

“For me, it is wrong to have people who need housing and to have housing that is empty.”

Judy Pigott, Blue Heron JS LLC.

Depending upon income, buyers were able to purchase the homes for $205,000 or $250,000—far below the market value. In exchange, when the new homeowners sell, they must pass on the savings to the next buyer.

Blue Heron, meanwhile, was able to pay off the construction loan and take a charitable donation tax deduction. But that wasn’t the primary motivation for the deal. “For me, it is wrong to have people who need housing and to have housing that is empty,” Pigott says.

The Valtera project may be unusual, but donating real estate has proven to be a boon both to developers with underperforming property, as well as a diverse array of charities.

“Most people donate because they’ve got a piece of property they don’t want. They’re looking to find an exit strategy because it’s not selling,” says Mark Maupin, a real estate agent representing charities in Michigan. “But I’m not saying you don’t occasionally find someone who has a really good piece of property and wants to make a difference.”

To get full tax advantage, the donor must own the property for a year and get an appraisal of the land value. Then, even if the charity sells it at a steep discount, the donor gets the tax write-off for the market value. “Most charities are desperate for cash so they want to liquidate quickly.” Though no money is changing hands, both the property donor and the charity accepting the property likely need professional advice and assistance to maximize the benefit.

Many of the donations are in severely distressed neighborhoods, while others may be industrial buildings or parcels. Part of Maupin’s job is to make sure the receiving charity doesn’t get stuck with an enormous bill for environmental cleanup or unpaid utility bills. “We get involved to make sure charity www.knowledge- leader.com

has an exit strategy,” he says.

None of this fits the more traditional model of land gifts to preserve wilderness, open space or parks, but gifts of developed or developable land in urban spaces are becoming more common, says Sheldon Cooper, executive director of Homestead Community Land Trust.

“A lot of land that developers own is not the pristine wilderness we’d like to protect,” he says. “It’s [in areas] where people live.” With construction loans and tax bills continuing to accrue whether the property is being used or not, it makes sense in many cases to donate.

“It’s market-driven. Basically, it’s developers who are in a tight spot because of the market and need to look at options they’ve never looked at before.”

In other cases, developers can partner with land trusts to ensure that their goals are met.

That’s what Shelter Real Estate, LLC did when the company donated a parcel of land to Homestead. The parcel was designated for a single family dwelling, but was chosen by the city as a demonstration project on innovative housing with plans to build four separate and affordable cottages.

When a partnership with another organization fell through, Shelter asked Homestead for assistance. “When the time came to build the affordable cottages, we turned to Homestead. They have been a great partner because they know what they are doing and really deliver,” says Bill Fenimore, co-owner of Shelter.

“There’s an economic benefit, but there’s also the feel-good side,” says Cooper. “They’re creating opportunity for families who wouldn’t otherwise be able to own a home.”

Darcy Rael, her husband, Israel Juarez and

their two young children are one of those families. They moved into their Valtera Townhome this spring.

“It’s about the stability,” Rael says. “Every year we had to find a new apartment because rent went up, and when my son was born we needed more space. My daughter is in preschool now and it got tiring uprooting every year, making new friends. I just wanted to be in one place for a long time.”

Rael knows there are more people like her, looking for a way to buy their first home, and more builders like Boyd.

“It could work for a lot more people,” she says of the land trust option that makes homes affordable. “I see a lot of places around here that are half-finished. This could maybe help projects get finished and get people in the houses.” K L Colliers international Fall 2010

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In Focus

F r o m t h e Pr e s i d e n t & C EO

Boiling Point What a difference one degree makes. By Doug Frye

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knowledge leader FALL 2010

or a combination of any and all of the above.

Ten thousand hours may seem excessive given the unprecedented access we all now have to real estate information and technology; however, real estate is essentially a people business and we cannot underestimate the value of experience in our quest to reach 212 degrees.

The second point, Adversity is Good, is Gladwell’s theory that the success of highly motivated and creative people is closely aligned with learning through adversity. Studies show that those with access to resources have different learning experiences than people who experience adversity, or a life of hardship, because the latter are hungrier and therefore work harder. The same could also be said about companies. The commercial real estate industry has undergone a lot of consolidation over the past 10 years and Colliers International was often dismissed as a global player due to our previous network structure. To overcome this, we’ve had to work harder and find more unique and creative solutions for our clients. This has also led us to our current operating model and an example of point three, Social Risk-Taking.

Colliers International is the first true alternative to “real estate as usual” with our unique operating model and enterprising spirit. We changed

The extra degree is the difference between hot water and boiling water, and is also the difference between good and great as it relates to people, initiatives, teams and companies.

Doug Frye is the global president and chief executive officer for Colliers International.

the way traditional real estate companies are structured, and have developed a platform that provides our clients with the stability and security of a commonly owned global company with the dedication and accountability that comes from people who have equity in the business.

As adversity challenged us to creatively look at how we could grow our business, we were open to unconventional options that have proven to be the smart choice for our business and our clients.

The fourth point, Committing to Talent, is evidenced by our long track record of recruiting and retaining the best and brightest. We are able to attract top talent because we provide an environment that gives our people the latitude to deliver innovative and creative solutions for our clients, as well as the strength of a diversified organization with 15,000 real estate professionals from around the world to draw upon.

I am struck by how these four simple points show the common thread among many successful people, companies and even bands (Fleetwood Mac was the inspiration for Gladwell’s speech to our company). Through hard work and passion, we all have the ability to reach the boiling point and be truly great. K L www.knowledge- leader.com

ri c k d a hms

212 is an important number. It’s the temperature that it takes water to boil, creating steam, which can power a locomotive. At 211 degrees water is simply hot. Not until that extra degree is added does water boil. The extra degree is the difference between hot water and boiling water, and is also the difference between good and great as it relates to people, initiatives, teams and companies.

This simple analogy is explored in the book, 212°: The Extra Degree by Sam Parker and Mac Anderson and is a theory that I find truly inspirational, particularly due to its simplicity.

While there isn’t a magic formula or roadmap to reaching the boiling point personally or professionally, we can look to the success of others and learn from the commonalities that helped shape their success.

Bestselling author Malcolm Gladwell, worldrenowned for his curiosity and thought-provoking articles and books, recently spoke at our global leadership and client meeting in New York City where he shared with us his observations on what makes people and companies truly successful.

His four-point plan could be considered a roadmap to reaching boiling point.

Point one is the 10,000-Hour Rule. Through his research, Gladwell found that it takes 10,000 hours, or about 10 years, to truly master a skill. This requires dedication and focus and is something that we encourage our people at Colliers International to strive for. Our mentorship programs and professional and personal development opportunities through Colliers University give our people the tools to truly master their skill. We also believe in refining our real estate industry knowledge and experience through specialization. Specializations are determined by client need and can be based on industry, geography, property type, service (such as valuation and property management)