Once upon a time, there was a young man working in the land of commercial real estate. This gallant lad owned several types of commercial properties around the kingdom and was charged with selling them.
To do so, he knew that he would need the help of specialists. He began to speak to these “brokers” to determine the value of each property and the proper price for each. He called on several different brokers to provide their opinion of value on the property.
Almost immediately our hero noticed that these Broker’s Opinions of Value, or BOVs, varied widely. At first, he assumed that the fluctuation was due to the turmoil and bifurcation in the market of property buyers. But as time progressed, he began to see patterns with these BOVs. He noticed that there were three brokers in the land:
Broker A would be charged with valuing a property that was probably worth roughly $1,000,000. He would conduct his diligence, interview tenants, research the submarket, and return to our hero with a projected sales price of $1,500,000. “The market’s hot! Lots of buyers for this property in this market” cried Broker A.Broker A was quite clever. He knew the only way he made money was by selling property. The only way to sell property was to get listings. And the best way he knew to get listings was to promise his clients high prices and then shrug his shoulders when the property sits on the market for a year, unsold. “Tough market. Bad luck. Let’s drop the price and just move this bad boy!” he says to his clients. He eventually sells the property for $1,000,000.Broker B gives his BOV at $750,000. He claims “Tough market, sir. This one is going to be a challenge. I will need to use every trick in the book to get this one moved!” Just in case you find a sucker, he lists it at $1,250,000. All of the sudden, you have an offer at $1,000,000 and you take it! What a hero Broker B is for that miracle price! He must be a great broker!Finally, Broker C gives his BOV of $900,000 to $1,100,000 and he tells you that the price will eventually depend on the buyer’s access to debt. Broker C also sells the property at $1,000,000.So, what’s the moral of the story? Slow and steady wins the race? One in the hand is worth two in the bush?Nope.The lesson is that brokers are salesmen. They only get paid when they sell you on the listing and sell the buyer on the purchase. For the sake of argument, let’s say that all 3 brokers are equally talented at selling to buyers. Now we can distinguish how each sold you on the listing.Broker A over-promised, blamed unforeseen market factors, and then sold at market value.Broker B used the classic under-promise over-deliver technique.Brokers A and B would never admit they are doing this, of course. “I’m very aggressive” says A. “I want to be conservative and not over-promise to my clients” say B.
Broker C just tells it like it is.
When I am ready to list property for sale, I want Broker C. I have access to CoStar. I speak to other brokers. I do my homework and form my own opinion of the property’s value range. I’m not always right, but I’m usually close. And when a certain broker always gives BOVs well above my estimated value, he is Broker A. When another broker consistently gives values below my value, I label him Broker B. I’m always looking for Broker C.
Broker C is Goldilocks. Not too hot; not too cold; just right.
So, seller beware! Brokers are some of the best salesmen in the world. They will promise you the world, then shrug about the market. They will bash the market and then get a “miracle” price. The onus falls on you, seller, to do your homework, research the market, make the phone calls and form your own opinion of value.
Do that and you will find your Goldilocks.
Below are notes from Sarah Williams of SRS on the news at the ICSC Next gen Conference. A big thank you to Sarah for the great notes! Enjoy!
Notes from ICSC Next Gen Conference
July 29-31, 2012
“The Evolution of Retail Real Estate Development: Where Are We Now?”
As the recession begins to fade, development starts to gain traction. However, because of lessons
learned from the recession, development looks differently than it did in the past. At the ICSC Next
Gen Conference in Atlanta last month, we heard from top developers who are at the forefront of
revolutionizing Retail real estate development. This article is dedicated to those developers and their
current projects. At the end of each section, I will summarize key words and phrases that highlight each
project’s influence on the Evolution of Retail Real Estate Development today.
Have you heard of Chelsea Market in NYC? Ponce City Market will be its
Southern counterpart. Jamestown Properties, developer of the renowned Chelsea Market,
has acquired a 2.1 million SF historic building in Midtown Atlanta that is being transformed
into 330,000 SF of retail, 400 residential units, some offices, and who knows, maybe even
some Food Network studios like they have done at Chelsea. Jamestown’s Vice President of
Development, Jim Irwin, told a room full of ICSC’s Next Generation that one secret to success
in Retail is, “It’s what you don’t see, and what you can create out of it.”
Beyond the creative vision of Jamestown’s success, they also had to get creative in terms of financing the mammoth
project. The majority of the capital dedicated to Ponce City Market is coming from a pool of
German private equity, which Jamestown manages. Additional funding has been secured from
two federal grants with the Beltline Partnership. While this historic redevelopment is still under
construction, the pedestrian and bike paths around the building are opening this month. If you
haven’t visited the Ponce City Market area in a while, you might be surprised to see construction
underway, as well as all of the new green space that has blossomed around it.
Some keywords that summarize Ponce City Market’s influence on the Evolution of Retail
Real Estate today: Non-traditional financing, in-town redevelopment, creative thinking, non-
traditional retailers, captured public, tourism.
II. Emory Point.
Cousins Properties, Inc., an Atlanta-based company, has learned that some of
the most vibrant and successful, recession-proof retail is near universities. Pair that wisdom
with the ability to secure a multi-acre tract of land across from Emory University and the world
headquarters of the Centers for Disease Control, and you’ve got Cousins’ newest project under
construction: Emory Point. 80,000 SF of Retail Space beneath 443 residential units (thank you
Gables Residential for providing extra capital), paired with the surrounding demographics with
some of the highest densities and education levels in the Southeast, and you’ve got a healthy
new retail development that leased up quickly, even during the recession. Retailers that will
open stores at Emory Point over the next 60-90 days include BurgerFi, Fresh To Order, Marlow’s
Tavern, Which Wich, The General Muir, La Tagliatella, Paradise Biryani Pointe, Tin Lizzy’s,
American Threads, Jos. A. Bank, Lizard Thicket, Loft, and Fab’Rik. CVS will anchor the project,
taking a prominent corner position at the traffic light.
Some keywords that summarize Emory Point’s influence on the Evolution of Retail Real Estate
today: Non-traditional financing, capital partner, density and education, proximity to a major
III. Lake Point.