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Category Archive for: ‘International Commercial Real Estate’

  • SXC User Sachyn

    Using Search Like Zillow

    A couple days ago, Duke Long posted a great rant about the future of search in the CRE industry.

    As he normally does, Duke used his sharp tongue to lambast our industry for being so far behind current technology on search results. He tried to Google a specific building and wanted to see what the search results showed.

    The results were unimpressive; especially compared to what you get if you type in your home address (Zillow, Trulia, et al).

    Now, Uncle Duke and I don’t always see eye to eye and he certainly has a more confrontational tone than I like. But on this topic, I could not agree with him more.

    Doesn’t it seem off that we have built infrastructure to find online a $50,000 homes in Racine, Wisconsin but lack the tech infrastructure to  find online a $150,000,000 office building in Manhattan?

    How do we fix it?

    Well, I suppose CIEs (Commercial Information Exchanges) are the answer, but they have to be open to all searchers and the amount of information infrastructure to do that on a national scale is simply massive. I’m not saying it can’t be done. CoStar has done it (poorly).

    It can be done. It needs to be done.

    But by whom?

    Well, Compstak is solving part of the problem by getting better information through outsourcing comps. Catalyst is also improving the CIE game (I used it in Louisville).

    But there is no end-to-end solution for our lack of strong searchability.

    So, if anyone is asking my opinion, I would say a true game-changing tech startup in CRE would be the one who can control the entire universe of search inquiries for a building (like Zillow does for your house).

    Find that guy, and you will find the man set up to change our industry.

    – Duke (the other one)

  • Wallpaper 613372

    What You Should Know If You Work With Me

    One of the most exciting things about a young career in real estate is that you get to know yourself and your quirks as you figure out your place in this business. Learning simple things like how, when, and where you like to work is incredibly useful if you recognize and use that info.

    With that in mind, I try to be keenly aware of what conditions make me most effective and what type of environment will allow me to thrive.

    So what follows is a guide to any future business partners.

    It’s not an ultimatum. Nor is it a rule book. In fact, this is just a snapshot of what makes me most effective in business right now. It may change over time, but I doubt it. Most of these are lifelong preferences/ideas and not passing fancies.

    So, here is what you should know about me if we are going to work together . . .

     

    A. Ethics are non-negotiable

    If you and I don’t see eye to eye ethically, we shouldn’t be partners. I know that sounds preachy or moralistic, but if we are coming from different ethical perspectives we won’t get along in the long term. There are so many deals to be done and properties to see that no single deal is worth sacrificing your ethics. If there is any ethical “gray area” in a deal, kill the deal. We’ll find a better one anyway. Don’t hurt other people, don’t sabotage, don’t exact revenge, don’t trick people. You can make money being honest and upright with everyone and, to paraphrase Twain, there is less to remember when you tell the truth.

     

    B. I love helping other people make money or solve problems

    Maybe this plays to my generation’s obsession with meaning over money, but being able to help people resolve financial problems or come to mutually beneficial arrangements is fun to me. That makes me feel like I spend my day doing more than try to make boat loads of money. That is more fulfilling to me than a six-figure paycheck (some people get paid six figures right?). I’m not curing cancer or solving water shortages in Africa, but seeing my allies and adversaries walk away from the closing table with a smile is satisfying to me.

     

    C. I am honest to a fault

    This may come across as arrogant, but trust me when I tell you that my penchant for extreme honesty is not always an asset. It’s great that people know they can come to me for direct, honest answers and information. But I tend to divulge more than I should and would rather have all parties know all available information. That doesn’t mean I go out of my way to tell trade secrets to my competitors, but asymmetry of information bothers me even if it is tipped in my favor. So, if you are going to partner with me, you should know that I will always tell you the truth, but you should also know that I will tell everyone else the truth. Like I said, that is both an asset and liability.

     

    D. I would rather you make more money than me

    Let’s say that I own a company and you are the CEO. I will gladly pay you $150k to my $100k. Or $70k to my $50k. If you are my partner, I want you to know how much I value you. You should know that I appreciate you enough to compensate you beyond my level of compensation because I think you are more important to the partnership than I am. If you are ever unsatisfied with your compensation or percentages, talk to me. I want you to feel like I pay you more than you are worth. Is that a way for me to get rich? Probably not. But having happy partners who love working with me will mean more to me than the zeros in my Suntrust account. And happy partners are productive partners. Productive partners are lucrative partners. So keeping you well paid will work out fine for me in the long run anyway. Even if it doesn’t, I doubt I will regret paying a partner a bunch of money. If I recruit you, you deserve it.

     

    E. I give money to charity

    Maybe I should change this header to “I run corporate finances like I run personal finances.” We operate on 80% of our income because 10% goes to charity and 10% goes to our emergency fund. We can argue over the other 80% until we are blue in the face, but that 20% is untouchable. We can decide together which charity or charities deserve our cash. When revenue increases, I’ll probably increase our cash holdings. I don’t like debt (especially corporate debt). Having been a lender and now a successor creditor, I can tell you that the borrower truly is slave to the lender and I want to minimize that with my business partners. I am pretty conservative with my money and like my war chest to be heavy. Food for thought for anyone expecting 50% returns on their capital and maximum leverage on their portfolio. You probably aren’t a fit for me.

     

    F. I have a life

    I could throw around the cliche about “working to live instead of living to work,” but you probably already know that about me. I coach baseball. I am in two terrific men’s bible studies. I run this website. I have a personal investment portfolio I work on weekly. I work out. I run. I am crazy about my wife and dog (and one day kids, hopefully). All of that is to say that there are several things that demand my time weekly. You, as my partner, deserve my time and should demand it from me. But understand that I will draw the line. I don’t answer the phone on Sundays or during dinner with my family. If you are the kind of person who works until 10 PM every night and expects me to do the same, talk to someone else. I’m not that guy. I work my brains out when I am in the office and I strive to be the most efficient man in the business, but I do not throw hours at a problem and I will not sacrifice my family life for our financial gains. Sorry.

     

    G. I want people to love working with me

    Perhaps my first goal in creating partnerships is to structure an environment where you want to come to work every day. I want your head to pop off the pillow every morning and know you have a brother ready to go to battle with you. Sure, there will always be problem tenants, difficult deals, accounting mistakes, government delays, and a thousand other headaches that come with deal-making. But I hope you enjoy fighting those battles with me. If you don’t, talk to me about it. Let’s make an environment that you love and find fulfilling.

     

    H. I trust people

    Probably too much. I love working with my friends and I love that our industry is full of so many great men and women. The problem is that I am inherently trusting and will assume that everyone I meet is a good person unless they give me a blatant reason not to. I wouldn’t say I am gullible, but I do tend to give people the benefit of the doubt and allow them to impress or disappoint me. So it would be useful to have a potential partner who has a healthy level of skepticism and pessimism to balance out my sunshine and rainbows.

     

    I. I value creativity and flexibility

    Don’t like what you’re doing? Change it. Think the market is shifting? Shift with it. Think one property type is overheated? Let’s pursue others. Wanna buy cell towers in Botswana? Cool. Let’s figure it out together. I think the days of “I’m a single tenant retail broker for 40 years” are behind us. Shift. Adapt. And have fun. I can be as flexible and creative as you like and I hope you challenge both of us with new ideas, strategies, and investment models. Bring it on, hot shot. We’ll figure it out.

     

    J. I’m a wanderer

    I may be speaking too soon, but I don’t think I would be satisfied with a career that only involved Atlanta. I love Charlotte. Nashville has impressed me. Phoenix is growing like ATL. San Antonio is under the radar. Chile is undervalued. India is ripe. While it is way to soon to expand anything oversees, it is fun to be strategic about national and international investment platforms depending on your capital. So, while I may never own apartments in Melbourne, I would be surprised if I only work on Atlanta deals for the rest of my career. Atlanta will always be home base, but there are other interesting cities and opportunities all over the world and our business is getting more and more connected globally every day.

     

    K. Answer this question:

    “I don’t know anyone who is better than me at______”. Fill in that blank and then do that blank everyday. Every minute you spend not doing that “blank” is a wasted minute. I will do my best to outsource, offshore, delegate, and automate everything else for you. If you really want to shine, you need to do that “blank” as often as possible every day. We will have to scramble and do everything ourselves for a little while, but we will be keeping an eye toward focusing on what we are best at doing.

     

    Now the real question is: Who would want to work with someone like that? I dunno. But just in case someone thought it was intriguing, I figured I would write it down.

    Do you have any special quirks or stances that make you productive? Anything unique to your ideal working situation? Let me know in the comments.

    – Duke

     

     

  • Book Review: Resilience – Why Things Bounce Back

    Resilience: Why Things Bounce Back

    Resilience: Why Things Bounce Back

    Can you see why this book’s title would catch my eye? Interesting idea, right?

    While it wasn’t exactly what I expected and I’m not sure I love the author, Resilience does offer compelling examples of resilient systems and organizations and offers a few theories on how to create a similarly resilient entity yourself.

    Like most nonfiction/business books Resilience uses anecdotes and examples from both business and the environment to illustrate what true resilience means. Zolli uses Mexican corn riots, South Pacific tribal fishing, and the Wall Street meeting over the rescue of Lehman Brothers. Let’s call this the Gladwell Approach (he wasn’t the first, but he is one of the best).

    Anyway, Zolli argues that there is a sweet spot of interconnectivity. Systems that are too connected, i.e. Wall Street circa 2008, are much more vulnerable to catastrophic failure given a single significant downward incident. It isn’t much of a stretch to say that this financial system was too connected if a few of the big boys can falter and every financial institution in the world feels the ripple effects. He also argues that a certain level of connection is crucial. Isolation and resilience do not walk hand-in-hand, Zolli claims.

    I particularly enjoyed the book’s fishing examples. Zolli gave historical cases where a certain species had been over-fished and therefore decimated almost to the point of extinction. Then he recounted the ways a system would nourish the species back into abundance. Fascinating.

    Is this a life-changing book that will forever alter the way I view business models?

    No.

    But it is fairly interesting and I like drawing parallels from nature to business models. Zolli does that fairly well.

    What is will criticize is tone. Great writers strike a balance between formality (showing expertise and some appropriate jargon) and informality (making it readable for the general population). Zolli is too formal and reads like an academic. I have a theory that people who truly master their opinion can explain it to an 8 year old. No 8 year old on the planet would understand this book. Choosing longer words in lieu of shorter, simpler words just makes me impatient and doesn’t impress me. As a writer myself, I appreciate word choice and I think this book does a below-average job on tone and readability.

    Also, as a small side note, I read the audio version and the narrator had trouble with “s”. His “sss” was more like “sch” and it bugged me every time I heard it. Not Zolli’s fault, but you’d think and audiobook company would hire a reader without speech quirks.

    All in all, meh.

    Read it if you like interesting anecdotes. Skip it if there is something more interesting on your shelf.

     

    Resilience in Two Sentences: Nature and business can provide poignant examples for resiliency and one needs to be carefull of connectivity. One key to resilience is finding the right amount of connectivity to fend of small losses while avoiding system failures.

    Pros: Interesting analogies, well-reasoned examples of resilient and non-resilient systmes/businesses

    Cons: Overly academic and verbose. Could use more clarity for thesis.

    Target Audience: leaders seeking to create a lasting system built to weather all storms.

    This book is best for: The businessman who has given no thought to cyclical volatility and down sides.

    Overall Rating: ♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:

     

    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

  • Sunrise on Chattahoochee River, Atlanta

    What to Expect in 2013

    One lesson I took away from Microeconomics is that when you are presented with a tremendous amount of information you should take your time, absorb it, and then repackage it and then you will truly retain it. In that vein, I wanted to take a little time to let the flood of information from the Morris Manning event on Thursday October 4th sink in before I shared it with you.

    What follows is the series of notes I took in the Morris, Manning & Martin/France Media event on What to Expect in 2013. It was basically 6 panels that related to all things CRE in the southeast. I think it’s a testament to MMM that most of the heavy-hitters in Atlanta CRE were either in attendance or actually on one of the panels.

    As a note, my favorite panels were the first (State of the Market) and last (Development) panels. Be sure to pay special attention to Dr. Linneman’s comments in the first section. He was very good. Also, I put some disclaimer language at the bottom to delineate that none of these opinions have anything to do with MMM or France Media.

    Sunrise on Chattahoochee River, Atlanta

    A new dawn in Atlanta is just around the corner

    State of the Market: Where are we in the Cycle?

    Dean Adler (CEO/Founder Lubert-Adler Group) – Biggest single risk in the CRE business is interest rate volatility. The thirst for yield has pushed yields down. Investments are being made because rates are cheap. Real estate still has the same amount of risks and obstacles as ever, but adding IR volatility to the equation is increasing risk. Always asking the question of what type of debt to place on property depending on disposition strategy. As loan sale market winds down, buyers now have the opportunity to buy properties that have had no investments dollars or cap ex for 4 years (zombie assets). Real estate is really back to local execution and returns are going to be made through execution. Why would you go to a closing dinner when you buy something? Operate it, sell it, then celebrate it. In retail, there are winners and losers today. Unlike the past, when A, B, and C centers will all survive. C now has huge risk. There are strong submarkets and “gateway” submarkets in every major metro in the country.

    Larry Gellerstedt (CEO Cousins Properties) – Doesn’t think the election is having much of an effect on either investors or customers other than the fact that it feels like everyone is tapping the brakes. Very attractive market for sellers. Taking advantages of a good market so they can redeploy capital elsewhere. Our expertise should be picking assets and knowing how to operate those assets. We get caught up in proforma analysis and manipulating yield (“pencil whipping”). New development is going to be a much smaller part of the sector as a percentage and even apartments will cycle back down. Development opportunities are very geographically focused and urban mixed-use is very attractive.  Generally sellers of suburban office and generally buyers of urban office. Urban play is more appealing and is driven by demographic trends. “Like fish, we will eat until we blow up.” So when the market comes back, products get hot, and everyone is pitching their deal, we will overbuild. It will happen again. “The economy is better than most people think it is. “

    Mark Grinis (Head of RE North America E&Y) – As a service provider, only the new tax law is effecting their business from a governmental perspective. In isolation, our asset classes look like there is a mismatch for allocating capital. Distress has been redefined in this cycle. Europe is that part of the market that is suffering the most. Asia is having annual growth around 5 to 6%. us is still the engine of the global market place and will continue to be as such. You cannot have one particular strategy and say “I am going to do this one thing.”

    Tom Roberts (Head RE Investments Cole) – Election will have very little effect on Cole’s business, but they are vulnerable to the Fed raising rates. Very conservative investment strategy and generally 45 to 50% LTV. Investors are looking for monthly dividends. If they can make 20% on appreciation of that, home run. One way to deal with downsizing tenants is cutting the box into a smaller box and renting the remainder. Always want to be aware of concentration risk, to Dean’s comments about stronger or gateway submarkets in every major metro.

    Peter Linneman (Linneman Associates) – Real GDP, since 1970, has continued along the same trend line until 2008. GDP has not “bounced back” and is, in fact, falling farther behind. The between “where we should be”  and “where we are” is $2.5 Trillion (US GDP is $15 Trillion). We are growing well below our long term historical growth rate.

    Since the bottom of the recession, we have added 4.2 Million jobs, but we have lost 9 Million. Atlanta has been one of the slowest MSAa to recover, but has picked up speed over the last 6 months (more than any other major metro in the US).

    Retail sales have recovered in spots. Manufacturing has recovered to a degree. US exports have never been higher in American history (in real terms). Corporate profits are at all time highs, but have dipped in the last quarter. Productivity growth is growing at about 20% of its normal growth rate. Commercial construction is at its all time lowest rate, since ’63, with most of it in Texas, NYC, and DC.

    Monetary base: In the last 50 years, grew by $600 Billion. At QE1, it grew by $1 Trillion. QE2 it grew another $1 Trillion. QE3 is going to grow it by AT LEAST another $1 Trillion.  “The Fed’s policy is destroying the economy is two ways: 1) No one has ever seen this investment landscape. 2) money is being created like never before.”

    “When people are in a situation they have  never seen before, they do less. When government is in a situation they have never seen before, they do more.”

    “If you don’t need money, you can borrow a bunch of it at minuscule rates.”

    Loan volume in CRE has slightly ticked up over the last quarter, all due to multifamily. You are going to have to depend on not much debt being available outside of multifamily. Don’t count on debt. Count on equity as your salvation.

    Debt: Who is getting money and why?

    Michael Hartman (Managing Director Reznick Capital Markets) – Moderator

    Paige Hood (MD Prudential Mortgage) – Most mortgage companies are looking at stabilized acquisitions deals. Pru will look at ground up development, but there needs to be a proven demand for demand. Multifamily has proven demand and Pru will look at construction-perm debt on deal by deal basis. Focused on primary markets. Deals are be underwritten on untrended rents and expenses that are justifiable. Looking for 8% debt yield on MF.

    Kurt Schwarz (Client Executive JPMorgan Chase) – At the very least, assets are beginning to trade. Top located assets are going to be rewarded on the valuation side with lenders. Credit decisions are being driven be equal part optimism and pessimism. When it come to recourse, guarantors need to show liquidity much more than simple net worth. Bankers do value the cross-sold products and want the treasury management

    Matt Donnelly (SVP Cole RE) – Debt structure depends almost completely on investment strategy. Projects with lease up will go to local commercial banks and keep on floating debt to allow for flexibility in refinance. Larger, more leased properties will go to the LifeCos on a longer term. Investors are a fixed income play allocated to CRE. They look for stable investments and that means core, long-term investments.

    Dave Gahagan (SVP Walker Dunlop) – All underwriting depends on property type. Agencies will go to 80% LTV governed by 1.25x DSCR. Somewhere around 3.75% for a 10-year rate. CMBS spreads have come in dramatically over the past 45 days and p[ricing is landing in the 4.5% range. LifeCos are a little more selective of properties, but will lend around 3.75% on floor rates. Level of due diligence done on sponsors is significantly higher than 5 years ago. Sponsor quality is high on everyone’s list. How are your other assets performing? Where will our sponsor be when the deal drops?

    Joel Stephens (MD Regions) – Rally in CMBS has allowed almost all property types to obtain debt finance. MF is leading the pack and continues to go to agencies and LifeCos. Commercial properties in gateway cities and going more toward LifeCos. CMBS looks close to $50 Billion for this year. 20% of CMBS is hospitality and 33% is retail (down from 50% at peak). Retail continues to be a challenge for debt financing, but trophy and grocery-anchored can get debt placed.

    Capital – Where is it being invested? What markets and asset classes?

    Chris Marshall (MD JLL) – Moderator.

    Neill Faucett (Principal Lubert-Adler) – Invest through local operating partners. If you can maximize current yield, you can take some pressure off the exit strategy. Will consider development, but it has to be very deal specific.
    Atlanta lags behind its competitors in terms of jobs regained. Investment thesis shifts to discount to replacement cost.

    Will McIntosh (Head of Research USAA RE) – Generally, investors are conservative capital looking for core and core-plus returns. Top markets are gateway markets, but they are looking at secondary markets (especially for industrial). Looking for growth in employment and population where it is available and while it isn’t abundant, there is some. Atlanta is still on the institutional radar, but investors need to find deals that make sense. People are focusing on economies that are focused on tech, energy, or medicine.

    Tom Coakley (Director MetLife) – Met has roughly $7 Billion out in debt and almost all of it was in gateway markets. Invests for general account and doesn’t have interest in venturing out on risk spectrum. Atlanta is an opportunistic market.

     Loretta Cockrum (CEO Foram Group) – Diversification is an absolute mandate for clients because all are from outside of the U.S. substantial amount of capital is coming from outside of the country and all of the gateway cities are experiencing that same trend. With no natural barriers, there is nothing to stop people from moving out. With 60 year investment horizons, you need to look at where the long term value will hold.

    Chip Davidson (CEO Brookdale Group) – Had success in Dallas and in Texas because of the demand driver of the energy industry. Primary investment target is suburban office with identifiable demand drivers. Looking primarily for value-add assets. Investors have become considerably more cautious and more informed. Can’t count on cap rate compression in a couple years because the fed will adjust 10-year rates. Atlanta has become a big city with a great airport. Public schools is a big problem and will not attract corporate relocations. Tech and energy are the main demand drivers in larger markets and Atlanta is behind other markets in those games.

    To Fund or Not to Fund? And What to do when you do.

    Brad Lenox (Morris, Manning, & Martin) – Moderator

    Thomas Boytinck (Founder Allegro Advisors) – 600 funds in the market right now. The big guys are taking maybe 80% of the available capital. When you start a fund, you are becoming an investment manager. You are going to be judged against Fidelity. Track record has become more and more of a focus. Take on a full time staff member whose sole responsibility is raising debt and equity capital.

    Mit Shah (Principal Noble Investment Group) – There is nothing more frustrating than finding opportunities and then having to patch together capital. shifting from a deal by deal promote to a fund level promote, hasn’t made investors shy away in the past. Today, finding investors at the fund level has become much more of a challenge. Blackstone has become the index for the private CRE investor industry. There has become a hard hurdle you must hit in order to get to the preferred return.

    Amachie Ackah (MP Argosy Capital) – There is capital for individual deals. You might be better off doing deal by deal raising right now because of the scarcity of fund-level capital.  Most first time funds lose money.

    Pike Aloian (Partner Almanac Realty Advisors) – Fund structure can provide speed. If the marketplace is dynamic, you may need speed to close. Raising capital deal by deal is very time consuming. Deal by deal is the best way to structure the deal currently. Trying to put together programmatic JV with institutional capital is another way to slice it but funding is not guaranteed. Limited partners are concerned with governance, reporting, and stability.

    Michael Reiter (SVP American Realty Capital) – Capital is predominantly raised through the independent broker-dealer channels.  Investors look at team, theme, and track record.

    Real Estate Tax: Facing the Fiscal Cliff

    Michael Frankel (Global Head RE Tax E&Y) – Moderator

    Chuck Beaudrot (Partner Morris, Manning) – We have 3 types of federal income tax on our income. If we head into a higher tax environment, the ability to defer and transfer tax burden becomes paramount. Basing selling decisions on the tax benefits is a distorted economic activity.

    Robert Rozen (Partner E&Y) – Powerpoint = The Fiscal Cliff. This year we have a deficit of $1.2 Trillion. Beware of Buch tax cuts that are going to cease in Jan 2013. Accelerated depreciation, carried interest, and 1031 exchanges will all be affected.

    Ricky Novak (President Strategic 1031 XC Advisors) – People are beginning to plan for being forced to become active investors vs passive investors. Many clients are attempting to close this year due to the uncertainty of next year. They will be sitting on that liquidity until the dust settles and they can decide how to deploy it.

    Development: What? Where? By Whom?

    Mike McDonald (MD Eastdil Secured) – Moderator

    Reid Freeman (President Regent Partners) -Underwrote to 9.8% constant on Sovereign. Had to allocate between office and condos. when construction started, LIBOR was at 5%. Currently developing hospitality project in Charleston. 4.5 acres with 200 unit apartment project and 2.3 acres on upper King Street. 304 room hotel with 30k sf retail/office. Leveraged IRR at 60% LTC is 24%. Partnered with Bay North from Boston.

    Charlie Tickle (CEO Daniel Corp) – Daniel came to Atlanta about 10 years ago. Decided to partner with Selig and started to assemble large portfolio and decided Midtown was the market of choice. Multifamily was underwritten to 7.5% development constant. Hotel and office were underwritten separately and hotel underwrites better today. Reynolds Plantation is a long term investment. Probably going to add 100 rooms to Ritz Carlton. Potential for seniors housing and multifamily and golf amenity.

    Chad Weaver  (VP Camden) – Great time to be in the apartment business. Mid 2010, finally saw improving occupancy and rent and therefore began to start developing. Leasing has been around 50 units per month and rents have been 10% better than proforma. People are, perhaps, finally getting more comfortable that they are not going to be losing their jobs. So they are moving back into apartments.

    Jay Jacobson (Director Wood Partners) – One of the largest MF developers in the country. Actively developing in 22 markets. Currently building 4,000 – 5,000 units. Best apartment development market in career. Will build to a 5 cap if they think they can sell to a 3 cap. Equity has been flooding to super core product in urban infill markets.   Everyone seems to be getting filled up with MF deals. May hit 220k units in starts this year.

    Jim Jacoby (CEO Jacoby Development) – Atlantic Station site worked for retail. Leased and sold office at sub-6 cap rate. Always looking for smart growth type projects. Ford Motor Plant and Porsche project are creating hundreds of jobs on the south side. Trying to bring a little gentrification to that area.

    The information presented (above/below) is provided by The Atlanta Property Journal and was taken, in whole or in part, from the October 4, 2012 “What to Expect in 2013?” Commercial Real Estate Development and Finance Conference, sponsored by InterFace Conference Group and Morris, Manning & Martin, LLP (“MMM”).  The above is general information and not intended to constitute legal advice.  Any opinion expressed at the conference by a speaker is solely the opinion of the individual and may not reflect the opinion(s) of MMM, its individual attorneys, personnel or the opinions of MMM clients.  It should not be distributed or repurposed without the approval of MMM by contacting rleplattenier@mmmlaw.com

  • AWNM

    Book Review: A Whole New Mind

    A Whole New Mind by Daniel Pink

     Image Courtesy DanPink.com
     

    As I have mentioned before, I think the age of the American analyst is ending. Daniel Pink agrees with me. Sort of. His book, A Whole New Mind, argues that creativity and innovation are the American exports of the future and right-brain thinking will be the key to our future. He says that we are leaving the Information Age and entering the Conceptual Age.

    Pink’s book is an intriguing (and well-written) argument that the proliferation of MBAs and “Quants” in recent American business has run its course. The ability to analyze and quantify are skills that can be replicated more cheaply abroad.

    Pink uses the terms Asia, Abundance, and Automation to explain why our left-brained, analytic business model is headed overseas. They are each pretty self-explanatory, but I like the way he argues for abundance.

    My favorite example is the toilet brush. He claims that because of the recent astronomical rise in standards of living across the planet, most people can afford the necessities to survive. Most people even have enough income to have a choice in how to allocate their disposable income.

    Enter the toilet brush. Pink describes his recent trip to Target where he headed to pick up a few things and noticed the bathroom aisle. He saw no fewer that twenty different toilet brushes. Martha Stewart had one. Allen + Roth had one. Some were sleek and sexy. Yep. Sexy toilet brushes. Think about that . . .

    Because the toilet brushes were all less than $10 and all did the EXACT same thing, Pink had to choose the toilet brush that appealed most to him aesthetically. He went with the coolest toilet brush and Allen + Roth got his hard-earned dollars. Or, put another way, the most creative company earned the sale.

    And that, I think, is the entire premise of the book. If we have all we will ever need to survive, then we make our decisions based on taste. And taste is a very right-brained, creative activity and has very little to do with our analytical skills.

    I wouldn’t do it justice to describe all of the examples and analogies that Pink uses to prove his point, but I will say that he is very thorough and convincing. He goes as far as scanning his brain, exploring labyrinths, learning to see the world differently through painting, attending laughing classes, and about a half dozen other exercises that flex the creative muscle of the mind.

    Through Pink’s eyes, you can see how the truly innovative and inspirational companies in the world really put a premium on creativity and R-directed thinking.

    One of the most important keys of the book is what I will leave you with. Pink argues that, with the impending end of the Information Age, the vast majority of American jobs in the future will be held by people who create something. There will be no need for data interpretation or management, and no need for the ability to organize or present information. That will be done for pennies in Pakistan.

    The American job of the future will be creation.

    So, what I recommend you ask yourself is: What am I creating?

    If it can be done cheaper by someone else . . . watch out.

     

    Whole New Mind in Two Sentences: Analytical skills, data processing, and data management can all be replicated abroad. The future of our country will depend on our ability to create and innovate rather than our ability to analyze and interpret.

    Pros: Interesting analogies, well-reasoned examples of creativity trumping analytics

    Cons: Perhaps overly simplistic or generalizing (but not offensively so)

    Target Audience: Anyone under the age of 80 and over the age of 10

    This book is best for: The reader looking for an interesting introduction into the world of creativity and how the right side of our brains will become our economic engine

    Overall Rating: ♦♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:

     

    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

     

  • APJ Guide to Careers in Commercial Real Estate

    New to the business? Considering a career in commercial real estate? Or, have you been in for a while and you are considering shifting to another niche?

    Well, start here for all of the resources and opinions you will need to launch a successful career in Atlanta commercial real estate.

    Below is the collection of articles and resources we have complied to help educate and guide you through a fulfilling career.

    If there is something you would like to learn more about or an article you’d like to have published, send an email to admin(at)atlantapropertyjournal.com and we will see what we can do!
     

     

    Best Practices

    Primer

    Know Yourself (Part I)

    Know Yourself (Part II)

    Know Yourself (Part III)

    Know Yourself (Part IV)

    Anchoring and Priming

    Innovate – Coming Soon

    Ethics is Not a Choice

    Limit Your Weaknesses

    Run

    Networking – Coming Soon

    Goal Setting (Part I)

    Goal Setting (Part II)

    Goal Setting: The Ideal Day

    Stop Projecting

    Don’t Complain About the Market

    Hand-Written Notes

    Email Etiquette

    Five Free(ish) Tools for Increased Efficiency and Agility

     

     

    Info and Musings on Careers

    An Ode to Running

    Lessons I Must Learn from the Great Recession

    Impending Demise of the American Analyst

    Perfection vs Greatness

    The Lost Generation

    Five Things Our British Brothers Do Better than We Do

    When I grow up, I want to be Jordyn Wieber

    5 Lessons I’ve Learned After 5 Years in Commercial Real Estate

    What Ayn Rand can Teach You about Careers in CRE

    Five Free Tips for Increasing Efficiency

    Black Swans in CRE, Part I

    Why You Should Write About CRE

     

  • Lessons I MUST Learn From the Great Recession

    A new dawn in our city and business

    Let me be the first to say, congratulations!

    You made it. (Or you have almost made it.)

    The Great Recession is slowly grinding to an end. It isn’t happening quickly and it certainly still isn’t easy, but it is ending. And you are still here. You made it through. You stayed in commercial real estate through the greatest downturn anyone alive has ever seen.

    Well done.

    Now what? I think we need to learn from where we went wrong and how we can prevent a recurrence of the carnage (or at least plan for it).

    So here is what I think I should take away from the toughest 5 years in Atlanta CRE history:

     

    1. Understand the difference between “can” and “should”

    Can you get a loan on an office building in Buckhead? Yep. Can you get an apartment development started? Sure. Can you borrower 90% LTV at interest-only? Uh-huh.

    But . . . should you? We in CRE like to talk about our feasibility studies and thorough demographic reports. We throw around these fancy trends and numbers to show why we “should” build this new condo project or apartment building or spec warehouse or whatever. Somewhere along the way we confused “can” with “should.” We need to take a deep, long look at our assumptions going into our big projects.

    Foreign investors will throw money at you. Bankers may beg you to take their debt. A tenant may even be pushing for you to build some new space for her. But you, Mr. Dealmaker, need to know when to hit the brakes. It can be one of the most difficult decisions for a leader to make. But those who can slow down and avoid growth-for-growth’s-sake will be the legends in the long run. Hopefully the scars from all these foreclosures, bankruptcies, and early retirements are deep enough that we remember where the brakes are on our runaway train.

     

    2. Prepare for the Worst

    Remember 2006? Rents never decline. Tenants never back out of LOIs. Students always need a place to live. Right?

    Nope.

    Stuff happens. It happened before. It happened big this time. It will happen again.

    Plan for it. Write out a worst case-scenario. Have a rainy day fund. What happens if all that deal flow dries up? What happens if you lose your revolving line of credit? What happens if your bank fails?

    Plan for it. Write it down. And you will find that you always have your umbrella when it starts to rain.

     

    3. Debt structure matters

    So about all that debt you got in 2005 . . . how did that work out? How many of those 10-year notes are still in good standing? Remember how you rushed through the diligence and didn’t negotiate the terms of the debt? Let’s not do that again.

    If they bank offers you 80% LTV, make it work at 75%. Stay the heck away from interest only. (Take it from a creditor: amortization can be your friend just as much as it is your banker’s). Personal guarantees are serious and should be treated as such. Default interest and provisions are also important (see point 2).

    Basically, just be cautious about the way you structure your debt. Negotiate the terms and be sure to have your attorney and accountant present. The adage in Proverbs about the borrower being slave to the lender is absolutely true. As long as you recognize that you are entering into that type of relationship you will not be as inclined to stretch and squeeze every dime out of your lender.

     

    4. Who are the truly great men and women?

    Tough times have the way of bringing out the true faces of the people around us. Pay attention to how the people around you behaved when they defaulted on their debt or had major tenants leave.

    What did they do when threatened with bankruptcy? How did they treat their lenders? What did they do to their tenants when the building was in trouble?

    Pay attention to the men and women who handled the strife with patience and grace. Stick close to them and trust them. They are the people you want to spend your career with.

    Anyone can be kind and forgiving when they are making $1,000,000 in income per year. Who showed the same grace while losing $1,000,000 per year?

     

    5. Enjoy it

    Life is short and so is your career. I can’t tell you how many retirees or industry veterans have told me that their career seemed to go by in the blink of an eye. It will be over before you know it.

    So have fun with it. Enjoy something about your career every day. Even when times are tough and everyone around you is losing money, you should still be able to find some fulfillment from you career. If not, you’re in the wrong place.

     

     

    Notice that I didn’t title this article as “Lessons that YOU Should Learn”. These are lessons for me that I thought I would share with you. I have no idea what you learned and how it will affect you. But I do know that you should have learned something.

    What do you think are the most important lessons to take away from the Great Recession?

    – Duke

  • APJ on Sustainability – 9.18.12

    “So, what would you say you do here?” – Bob from “Office Space.”

    If you’re like me, you look around our burgeoning city and notice that we don’t really have a good answer to that question.  Should we be a smart city?  Pivoting to create a Smart City by Fast Company – http://t.co/j1pSgOdh – Or, maybe we should become a Blue Zonehttp://read.bi/Ptycx3 – Or, is status quo okay with everyone? Or, have I not been clued in to Atlanta’s driving purpose.

    The debate the emerged from the July 31st transportation referendum was rather informative.  It led me to two conclusions.  One, we need some major changes in this region.  And two, we can’t agree on all of them and certainly not all at once.  I promote that Atlanta needs to pivot and should start acting like a Smart City.  From another Fast.Co – http://bit.ly/N5h6cB – let’s do more small projects that have a chance for scalability, but won’t drown the city if they fail.

    Tell us about some project’s you want to see happen and maybe we’ll go get them done.

  • Book Review: Blink by Malcolm Gladwell

    Blink by Malcolm Gladwell

     Blink: The Power of Thinking Without Thinking

    Image courtesy Amazon.com

    What goes through your mind when you form your first impression of something? What types of decisions do you make in the blink of an eye?

    Those are the main two questions Gladwell addresses in Blink. He wants to know how we form our first impressions and what happens inside our minds in the milliseconds that we first recognize something.

    In Blink, Gladwell explores and explains the science of “rapid cognition” or “thin slicing”, as he calls it. He wants to know why we make our knee-jerk reactions to certain circumstances and if there is anything we can do to control or interpret those reactions more effectively.

    Gladwell’s best example, in my opinion, is the Getty Kouros. Some years back, the Getty Museum in CA was presented with an “authentic” Greek sculpture said to date back thousands of years. They spent months analyzing it, testing it, and scrutinizing every inch. After all that analysis, they decided it was genuine and paid $10 million for it.

    But as they started to show it to Greek sculpture experts around the world, they started to realize that they may have made a mistake. These experts would come into the Getty, glance at the Kouros, and feel like something was amiss. The couldn’t exactly verbalize what wasn’t quite right, they just knew from years of experience that something was off with this particular piece.

    Gladwell uses this dilemma for the Getty as an example where an expert’s first impression was more useful that a year of careful studying of the object’s chemistry and provenance.

    As usual, Gladwell is not afraid of controversial topics. He uses a police shooting in Brooklyn, where 4 white policemen shot an unarmed black man, to illustrate the negative power of thin slicing (or as he calls it “temporary autism”). He illustrates how, in the span of about 8 seconds, 4 police officers used misguided first impressions to deem the young man a threat and ended up killing him over the misunderstanding.

    My favorite example involves Atlanta-based Coca Cola. Gladwell delves into the New Coke fiasco of the early ’80s where Coke had been losing blind taste tests to Pepsi for a few years and had seen their dominant market share begin to slip. Concerned with the perceived weakening of the company, Coke (led at the time by Goizueta) created the sweeter New Coke to combat the surging popularity of Pepsi.

    People hated it. There was public outcry to bring back the old Coke and eventually Coke did just that.

    The problem that Coke ran into, as Gladwell opines, is that they were over-weighting first impressions. These taste tests were simple sip tests where the participants would just get a small sip of an unmarked glass of cola. Then they would write which of the two colas they preferred.

    The problem with that is that Pepsi is much sweeter than Coke. So at the beginning of a drink Pepsi would probably win a taste test. However, over the course of an entire can or bottle (how people ACTUALLY drink colas), the sweetness of Pepsi would dissipate and most people would actually prefer Coke.

    Plus Coke had the added benefit of being the original cola, having years of great branding, and fitting in as part of Americana. Coke had this history where its drinkers remembered holding that cold glass bottle on hot summer days as children. Coke had (and still has) nostalgia on its side. You can’t taste nostalgia in a sip test.

    So Gladwell uses the New Coke anecdote as a parable of the dangers of knee-jerk reactions and the need to understand the nature of thin slicing.

    He also cautions on the validity of our first impressions. He argues that you need the skill to recognize your first impression, the vocabulary to name it, and tool set to apply it. For instance, if professional food and drink critics had taken the blind Coke/Pepsi taste test they would have been able to identify the subtle differences in carbonation, vanilla levels, and the hint of oak flavor underlying the first taste of Coke. They wouldn’t have been overly impressed with the sweet punch of Pepsi on the first sip and there may have been no New Coke.

    All in all, I would say that Gladwell, as usual, spins a compelling web of stories, anecdotes, and illustrations to show the strengths and weaknesses of first impressions and the psychology of our rapid cognition. I would have liked for him to delve more deeply into how to control and utilize those first impressions.

    Practically, I would be nice to be aware of when to listen and when to ignore my initial impressions. I suppose that is better left to Kahneman’s System 1 in Thinking Fast and Slow. I finished Blink and wanted to hear more about how to shape my first impressions and use them wisely. Still, Gladwell is always interesting and uses anecdotes well so that I have little doubt as to his theories or opinions.

    Would I recommend you read this book for business? Eh, maybe.

    If you read only one, go with Kahneman. But if you are fascinated by first impressions and their implications, or your career is built on influencing a tenant/client’s first impressions, sure.

    Blink in Two Sentences: Every day we make unconscious decisions and form impressions without ever knowing what or why we thought what we thought. These reactions happen in the blink of an eye and can have both great advantages and tremendous disadvantages depending on the circumstances and environment.

    Pros: Good historical examples, Easy read and interesting anecdotes

    Cons: A bit unsatisfying, Doesn’t fully explore applications

    Target Audience: Anyone interested in the psychology of first impressions and rapid cognition

    This book is best for: The casual reader looking for an introduction to first impressions and how we perceive our world in the blink of an eye

    Overall Rating: ♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:

     

    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

  • The Impending Demise of the American Analyst

    Sooner or later our deals are headed to Bangalore.

    Once upon a time, there was a young man who dreamed of a successful career in real estate.

    This bright young chap, diploma in hand, stormed the commercial property landscape at the ripe age of 22. He knew that his ivy league education and exceptional internships and extra-curricular experience would put him on the fast track to success.

    But our young hero faced a problem – paying dues. He was told to pay his dues, sit at a desk, and run numbers.

    “Be and ARGUS-jockey,” they said.

    “You have to know the numbers,” they said.

    “You have to know how to model a deal to have any success,” they said.

    Our hero was placed in front of a computer and told to model deals, stack leases, and build proformas. He didn’t leave his desk. He saw Excel more than he saw his family. He knew more about ARGUS than about how to save money. And every day, a little bit of that youthful exuberance, unbridled energy, and zeal for a career in commercial real estate died, crushed under the shear weight of computational monotony.

    He was forced to do this for 8 years, until he was thirty and everyone agreed he had now “paid his dues” and could actually have some responsibility and become the deal-maker. Unfortunately, most of his ambition and zeal had been beaten out of him one model at a time. He had been obtaining and rearranging data for so long that he forgot about creativity, innovation, pushing-the-envelope, and the joy of waking up every day to new and exciting challenges. The very skills he would need to succeed as a creative deal-maker were the ones he had no time to develop while he spent every day reading and stacking leases.

    He had gotten comfortable (and arrogant) in his ability to assess a deal and now passed the model-making to the hot-shot 22 year old new hire from Princeton, perpetuating the “pay your dues” commercial real estate career path. And another brilliant young mind is beaten into submission one lease abstract at a time . . .

     

    I know I’m exaggerating a little in the parable above, but, really, how far off am I? How many people enter our industry as deal-makers or with any real responsibility? If it is more than 1% I will be shocked.

    Now to be fair, I think it is TOTALLY reasonable to assert than anyone in our industry should know how to analyze a deal. If you don’t get the interplay of modelling and financing in commercial real estate, you will have a very difficult time finding success in our business. Every deal is based on numerical and economic assumptions and the most effective way to understand those assumptions is with a well-built model that you can manipulate and tweak as the market dictates. So understanding models is crucial, in my opinion.

    But here is where I break from the classic model and our sad story above. I don’t think you have to build models to understand them. And I don’t think Americans will be building models much longer.

    Here’s why –

    I didn’t build my car. I had absolutely nothing to do with my car’s construction. But . . . I know it pretty well and I know how to use it. I have taken the time to get to know it and what it can and can’t do.

    I know that is a bit of a silly example, but it rings true. Just because I didn’t physically input a rent roll into my model, doesn’t mean I don’t understand the occupancy rate, discounts, bad debt, etc. It is very easy for me to understand the output of a model without having done any of the input.

    If you sent me a completed discounted cash flow model tomorrow, I would check out the property type, address, units/sf, profit & loss, rent roll summary, and any projections. I would look at your rent/expense growth assumptions, occupancy/rollover, discount rate, hold period, cap rate, and projected returns and decide which of those I agree with. Maybe I even take 4 minutes on CoStar to see if I agree with your cap rate (if I don’t know the submarket). The point is, after minimal training, it’s not hard to figure out 1) the assumptions that went into the model and therefore 2) if I agree with the model’s output.

    So again I say that the only really tricky part of financial modeling is interpreting the output. The input is just shuffling numbers.

    And that’s the problem.

    For simplicity’s sake, let’s say that a 22-year-old analyst just out of college will be paid $50,000 per year or $25 per hour. Neat! Way to go, sport! Now sit at a desk and shuffle numbers all day, young fella!

    Or . . .

    Since it’s just number shuffling, I could pay someone in Pakistan $6 per hour to do it.

    Seriously. I’m not kidding.

    Anyone who has paid attention knows that off-shoring is spreading like wildfire in every industry in the country. Friedman’s The World is Flat, Pink’s A Whole New Mind, and Ferris’ 4-Hour Work Week all extensively profile the affects of off-shoring and the benefits it brings.  Off-shoring is real and here to stay. $6 per hour is not only a decent salary in developing countries, it will also get me an MBA-educated 30-something who specializes in analysis.

    Yeah, his English may not be great. Yeah, it may take me a while to work out some of the kinks. But, frankly, every analyst needs training and correction and I expect there to be kinks. If I am saving $19 per hour every hour, then I am totally fine with working out some kinks.

    The inherent beauty of the setup is the time difference. I can send 5 deals to my team of analysts on Bangalore at 7PM EST and having them ready and waiting for me in my inbox by 6AM the next morning. They work while I sleep.

    Let me say that another way:

    I am being productive while I sleep.

    Cool, right?

    So, you tell me. Would you rather pay an American financial analyst $25 per hour to stack leases and project cash flows during the day, or would you prefer to pay an offshore analyst $6 per hour to complete the model for you while you sleep?

    Seems pretty obvious to me.

    So, you heard it here from your buddy at the APJ. The days of the American analyst are numbered. In twenty years, we may have no more analyst positions in our industry based in the US. That doesn’t mean we stop needing to understand and interpret financial models. It just means we stop paying 4x as much for creating them.

    – Duke

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