CUE UP FOR 2014...Page 10 TO CUE: To position in readiness; to signal or prompt
About this magazine…
In this Issue…
Editorial Director: Dawn M. Kennedy Managing Editor: Laura Devries Associate Editor: Becca Grober Contributing Editors: Susan Wagner Tina Luehrman For editorial inquiries contact Laura Devries at ldevries@stlrealtors.com For delivery or distribution questions contact Becca Grober at bgrober@stlrealtors.com Copyright 2013. All rights reserved
Presidents Report……….3 Are Strip Malls the New Stars in Commercial Real Estate………………………….4 What is FASB & Why Should I Care……………..8 The Volcker Rule Challenged in Court…...9 Cue Up for 2014………...10 CEO Report………………...11 Quarterly Market Trends………………………….12
Market trends provided by Xceligent
President’s Report 2014 Highlights The Board of Directors for SLAR’s Commercial Division is focused on the needs of the membership. Our industry is stronger when united with other commercial brokers. Please note the highlights for 2014: 1. 12 hours of Continuing Education. This is a renewal year and Commercial Division will provide 12 hours of CE in Clayton geared to commercial practitioners. 2. Dedicated commercial specialist. Your member benefits include a staff person solely dedicated to commercial members. 3. New Online Contract and Forms. Commercial Division entered into a contract with an online document management company to manage all our forms online. Completed forms (Purchase Contracts, Listing Agreements, Buyer Rep agreements, etc) can be saved online, emailed or faxed from desktop or mobile device. Auto-Fill function makes it the easiest to use ever. All forms reviewed by Board attorney to confirm compliance with MREC requirements. FormsRus.com will introduce service through upcoming webinars.
4. Xceligent Discount . CIE Board negotiated a deep discount for Commercial Division Members -- $85 per month provides access to the state-of-art market data information in St. Louis and nationally. Best price available in the country. Panels of top brokers in St. Louis (industrial, office, retail) will review data to validate its accuracy. It’s the most cost effective program on the market. Xceligent.com 5. Broker Luncheons. Ten broker lunches each year showcasing best listings in town. Owners love the exposure and is a benefit only offered to members. Commercial Division staff plans and staffs the luncheon and have a good track record of arranging a sponsor to pay for all the costs. Confirmed success stories of properties leased/ sold due at this lunch. 6. Political Action Committee . Legal representation at each Commercial Division Board meeting to monitor local and state laws affecting our industry. We have insight to oppose or promote legislation BEFORE it becomes the law of the land; specific focus on commercial issues such as signage, permitting and impact fees were addressed this year
Our Board invites your participation in 2014.
The New CDX®: COMMERCIAL DATA BY XCELIGENT A Research & Marketing Platform
Are Strip Malls the New Star in Commercial Real Estate? By Dawn M. Kennedy, MSPM, RCE, e-PRO, Green
For the past several years there has been much discussion surrounding the “overbuild” of strip malls, but recently NAR research has indicated that new uses may attract investors. According to the NAR, Emerging Trends in Real Estate 2013 survey respondents indicated that community and strip centers were still a “buy.” So what is the truth? Well...
It depends on your perspective. NAR journalist Evans’ research offered, “Vacancy in strip and community centers fell by 30 basis points in 2012 and, at the beginning of 2013, sat at 12.8 percent nationwide, according to CRBE Econometric Advisors. Newer properties, particularly those located in high-density areas with strong employment, report even lower vacancy rates, says Julie Taylor, senior
Vice-president of the Retail Services Group at Cornish & Carey Commercial Newmark Knight Frank in San Francisco” (July, 2013). Ease in management and leasing both add to the appeal of strip centers. In addition, rates of return can climb to as high as 9% . Street appeal, a dynamic mix of tenants, and a food anchored strip all are cited by NAR as keys to success in strip leasing.
Did you know the first strip mall in the USA was built in Kansas City, MO? The Country Club Plaza. to the reputation of being a community destination. Time magazine cites community gardens, dog runs and ice rinks as breathing new life into a strip.
Redevelopment and repurposing holds promise for the viability of strip centers. ICSC reported this spring that strips are being repurposed as medical facilities, fitness centers, schools, community centers and even churches. Strip malls which seem to serve a singular purpose, particularly those geared towards personal services, may fare better than others– becoming a destination strip. As Edward McMahon, a senior resident fellow at the Urban Land Institute stated, “people are willing to shop at a strip but no one wants to linger” (Harris, 2013). Through redevelopments which include community space and ample landscaped parking or focus on a strategy of a niche market (think tanning salon, yoga center, massage facility, nail salon, coffee bistro and hair salon– where a consumer can spend the day) strips may become a gathering place to linger. Retrofitting as opposed to repurposing or redevelopment may be another answer to mall vacancy rates. Community gardens both add to strip curb appeal as well as adding
Perhaps of more importance is retrofitting to a “Green” environment. Considerable research has been conducted with results that are counterintuitive to traditional marketing. For example, while easy to read signage may be considered the ideal of the client, consumers prefer green spaces rather than blacktop. Research by Dr. Kathleen Wolf substantiated that consumers reported that quality and selection of products, level of customer service, and merchant helpfulness were all judged to be more positive in the vegetated mall. Survey respondents reported lower values for goods in the
“no vegetation” mall. Price differences between scenarios are considerable: approximately 34% for convenience, 40%f or shopping, and 23% for specialty goods. In addition, rental rates increased as much as 7% for commercial real estate with quality landscaping. Researchers. Patchett & Shields ‘(2009) reinvent the mall contest proposed fresh ideas for strips: Spaces become docking station for mobile business (Food trucks, eg) “unbox” the strip to allow for free-flow movement Produce farm and restaurant anchor Bio– bridge pathways to connect stores Take a fresh look at the strip—it may be an opportunity waiting to be a star.
Five hot strip mall tenants 1. Frozen yogurt—the darling of the late ’80s returns 2. Locally made goods—the “locavore” food movement has expanded to include clothes and personal care items. 3. Furniture stores and home decor 4. Pressed juices—the new smoothie 5. Waxing and threading Courtesy of REALTOR® Magazine
$15 million to be reinvested in the Renaissance Suites Hotel—sale expected to close at 3.2 million
Do More Deals in 2014… Download the Mobile App ! Just search STLCR in the Apple Apps Store (Iphone or I-pad) or in Google Play (Droid)
Industry News Networking Opportunities Site locator Find a REALTOR® Coming in 2014– calculators and conversions
What is the FASB and Why Should I Care? What is the fundamental issue? The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) proposed lease accounting changes may be detrimental to our nation’s economy by reducing the overall borrowing capacity of many commercial real estate lessees and lessors. The proposal would bring nearly $1.3 trillion in leased assets back onto companies’ balance sheets, with roughly 70 percent being real estate leases. Under the proposal, companies would be required to use a “right-of-use” accounting model where both lessees (renters) and lessors (property owners) recognize assets and liabilities arising from lease contracts. Currently, accounting rules allow many businesses to classify leases as operating expenses, which do not appear on their balance sheets. Both FASB and IASB believe these changes would improve transparency as well as provide investors with more consistent and concise financial reporting. However, if enacted, this proposal could negatively impact the financial stability of many businesses,
which could prolong our nation’s economic recovery. Additionally, the elimination of off-balance-sheet financing would be detrimental to commercial property owners. More frugal lessees will want less space and shorter-term leases without renewal options or contingent rents, which will decrease cash flow for property owners. Shorter-term rents will likely reduce the borrowing capacity of many commercial real estate lessors, who rely on leases and the value of the property as collateral in order to obtain financing. Ultimately, property owners would be forced to increase rent rates due to market uncertainty and reduce tenant improvements due to shorter recovery periods. Conversely, this change could encourage some firms to consider buying instead of leasing commercial real estate. NAR Policy: NAR is concerned that the new lease accounting proposal will be detrimental to our nation’s economy by reducing the overall borrowing capacity of many commercial real
estate lessees and lessors. Also, NAR is opposed to lease accounting standard changes that would treat the income producing real estate business as a financing business on company balance sheets. Such a step would not accurately depict the unique characteristics of the investment real estate sector and in turn discounts the usefulness of the industry’s financial statements. Legislative/Regulatory Status/Outlook FASB/IASB will likely reexpose their proposal on May 16, 2013 and provide the public with a 120 day comment period. Both organizations expect to have their joint proposal finalized by 2014. The effective date of this proposal will likely be in 2017, where virtually all new and outstanding leases would be subject to the new accounting standard. NAR continues to work with FASB/IASB and other stakeholders to ensure that any modifications to lease accounting rules will not negatively impact commercial real estate practitioners. Current Legislation/Regulation No actions at this time.
Reprinted with permission from the National Association of REALTORS®
require a commercial occupancy permit or require a commercial inspection and application fee? Download SLAR’s Municipal Guide at http://www.stlrealtors.com/wp-content/ uploads/Municipal-Codes.pdf
The Volcker Rule Challenged in Court on Christmas Eve For years the National Association of REALTORS® (NAR) has been challenging various aspects of Dodd-Frank legislation to protect your ability to earn in the commercial real estate industry. NAR sees three key commercial concerns with the implementation of various phases of the DoddFrank Act:
Bank Liquidity Plummeting commercial real estate values have forced many regional and community banks – a significant source for commercial real estate lending – to take steep write-downs, resulting in bank failures and a reduction in credit. Equity Gap Over half of all commercial mortgages are currently “underwater” and many lenders are now demanding that borrowers come up with additional capital to cover this gap – especially problematic when a loan needs to be refinanced.
Small Business Lending Credit to the small business community has declined, leading to a decreased workforce and business failure. This has also elevated commercial vacancies, forcing prices to fall thus placing even more pressure on community banks and reducing credit – accelerating a negative economic cycle. (From NAR 2013 legislative agenda)
The long awaited Volcker Rule (a piece of Dodd-Frank) was
released this December. It basically deals with banks’ ability to utilize collateralized debt objects (CDOs), a pool of assets which are essentially debts owed to the bank including mortgages, auto loans and loans. This asset is then sold in pieces or “tranches” to investors. The Volcker Rule in a nutshell is, a trading restriction placed on financial institutions which seeks to distance the banks investment arm from its consumer lending arm. The institution cannot serve a creditor in an advisory investment role. In addition, according to Investopedia (2013), “...a bank cannot trade in the investment markets with the intent of making money, unless it is done on behalf of a customer. A bank can serve as a middleman, but not as a trader for its own benefit”. Well all this sound good right? Well not exactly… There is considerable fear that there will be a reduction in institutional buying which could negatively impact the commercial real estate market. In addition, NAR expects a concurrent reduction in commercial real estate lending and an increase in lending costs. Regional
leader, Zion Bancorporation, announced the implementation of the rule will force them to rid themselves of CDOs at a cost of 387 million. The American Banker’s Association (ABA) expects over 600 million in losses to community banks due to the rule. Bi-partisan support to help an estimated 300 small banks deal with the rule’s impact has been sent to regulators (Bloomberg, 2013). In its suit against the FDIC, the ABA forewarned of an immediate decrease in lending. The filed motion asks for immediate suspension of the part of the Volcker Rule; the part regarding CDOs. What is ironic is that the Volcker Rule was intended to prevent large Wall Street firms from participating in speculative trading. Instead the CDO provision has squarely hit small banks across the United States. Banks have until July 21, 2015 to divest their CDOs. What can you do? Support NAR in its efforts to protect bank liquidity and small business lending through your RPAC investment.
4– t 1 0 a 2 k R o FO r lo or P U the act E CU e ano dIn f Tak Linke the
Time to take a new look at an old standard– LinkedIn. Commercial real estate, any real estate for that matter, is all about building connections and Linked in is the premier network connection builder in professional world. According to Investis’2013 IQ Audience Report over 64% of all corporate traffic from social media sites come from LinkedIn alone… more than all the other social media sites combined. But LinkedIn is more than just traffic builder, it’s a quality referral network. Richard Sink, of Mastercard’s Business Network, states the following reasons why LinkedIn is considered the quality social media site for professionals: “ValidationLinkedIn is the trusted source for validating information and connecting with valued sources: 71% say LinkedIn allows users to identify the credentials of information sources; only 35% say the same about Twitter and 29% say so about Facebook. 58% say LinkedIn provides a trusted resource to help validate information from other sources (vs.
37% for Twitter and 29% for Facebook). 55% say LinkedIn provides a trusted channel for information (vs. 43% for Twitter and 32% for Facebook). Access a broader network of peers54% of users say LinkedIn enables users to quickly find information; 42% say the same about Twitter and 34% say so about Facebook. 71% say LinkedIn surfaces in sights that are relevant to users’ needs; 49% say the same about Twitter and 41% say so about Facebook. 86% say LinkedIn provides access to a broader network of peers; 54% say the same about Twitter and 54% say so about Facebook.” LinkedIn’s credibility helps to attract clients. In today’s e-world consumers know what they want before they ever contact a professional. Consumers rely on credible internet information long before they reach the decision-making phase.
new tool which might be leveraged for more deals in 2014. The newest feature is called “Channels”. LinkedIn users can now follow channels based on topics of interest, such as real estate. LinkedIn asserted that, “following channels that are connected to your business will keep you ahead of industry trends and allow you to engage with business leaders.” It also helps to build a community of trust as business is referred back and forth. Another relatively new feature is the ability to follow “Influencers”. Influencers are people who have gained immense followings such as Arianna Huffington of the Huffington Post and business magnate, Richard Branson. Find an influencer in your area of expertise, and follow them– observe how they engage others and be aware of what is at the top of their mind. If you already have a LinkedIn account remember to continuously update your profile, join groups, endorse others, and use the company page feature to expand upon your business. If you haven’t joined LinkedIn, maybe its time for a second look.
LinkedIn has recently launched a Dawn M. Kennedy, CEO
FREE Commercial Day 1 of 2 FREE days! Date: Monday, February 24th Time: 9AM - 4PM Location: TBD - Watch your eblasts, the STLCR website and the STLCR mobile app for more information Courses: 9AM - 12PM: Commercial Real Estate Law and Disorder - One hour of the course will focus on proper business practice and the remaining two hours will be a discussion of current and past lawsuits in commercial real estate. 1PM - 4PM: Pitfalls of Development - This course focuses on the trials and tribulations of commercial real estate development. Featuring Dan Sight, CCIM, SIOR, and 2010 Vice Chairman of NAR Commercial VP of Reece Commercial
CEO’s Commercial Update The first quarter of 2014 is looking very exciting for the commercial division of SLAR. Our contract with the new online forms provider has been signed and now we will begin the difficult task of mapping over drop down 130 clauses to various portions of our key contracts. It is anticipated that the new online and editable forms will be available in late January. For those of you who weren’t aware, SLAR won the coveted ACE award from the National Association of REALTORS®. The ACE award recognizes Achievement in Commercial Excellence. Kudos to our
Fearless 2013 commercial president, Adam Glosier. This winter we will be working on expanding the functionality of the mobile app to include calculators. The Cue, our newest endeavor, is designed to assist the commercial REALTOR® with pertinent information regarding the industry itself and the work of the organization. At this printing the Marketing & Communications Department, the Professional Standards and Specialties Department as well as the Professional Development department have all collaborated to launch the first ever online
commercial new member orientation! What this means is a new member curriculum specifically designed for the commercial practitioner and the ability to complete the course at one’s own pace and in the comfort of their own home, office, or even at Starbuck’s (any place with wifi). Please suggest this option to new recruits. In addition to ease of use the system has a series of online tangible rewards.
Quarterly Market Trends
This report provided courtesy of ...
2013 Quarter 4 Highlights
IKEA announces 380,000-square-foot store in St Louis
Renaissance Suites to sell for 3.2 million
Historic Paincourt building for sale at $620,000
Grand Center to reap $70 million in investments
Maplewood Shopping Center purchased Ramco-Gershenson Properties Trust for $24 million in cash.
Hostess plant back on the market
2014 Commercial Officer Installation