Stay the Course

CCIMs share business-navigation tips for weathering stormy markets.

By Jennifer Norbut

During the past 18 months, the meager economy has drained profitability from many commercial real estate companies, leaving behind unprecedented challenges. Business models that allowed companies to weather past economic storms may not hold water in the current market: “The conditions we face today are unlike any we’ve ever experienced,” says Josh Paul, director of communications at Thornton Oliver Keller, a commercial real estate brokerage in Boise, Idaho.

While the unpredictable economy continues to create a flood of uncertainties for commercial real estate companies, savvy industry professionals are shifting their focus from the present to positioning themselves for the future. The goal is to “see opportunity in the challenge,” Paul says. “Now the question isn’t so much what we’re aiming for, but how we’re going to get there.”

CCIMs nationwide were asked to share some of their top tips for staying afloat amid the economic maelstrom. The following strategies are helping many industry pros remain buoyant during this down cycle and create unsinkable business plans, allowing them to sail past the competition when the market returns.

Live and Learn
Market slowdowns provide an ideal opportunity for CCIMs to assess and expand their knowledge bases. CCIMs such as Matthew K. Marshall, principal of Landbridge Commercial Properties in Tyler, Texas, find that courses available through the CCIM Institute’s Robert L. Ward Center for Real Estate Studies allow them “to add another tool to the [commercial real estate investment] toolbox.” The Ward Center’s one- and two-day workshops and Webinars (www.ccim.com/rlwc) provide insight and training on critical topics in today’s market, including disposing of troubled assets, advanced negotiations, structuring syndications, cost-segregation studies, securing capital, and green strategies, among others.

“I went to It’s a Whole New Business [Ward Center course] in Chicago and learned how to syndicate deals,” Marshall says. “Syndicating deals today when equity is tough can allow a broker to move transactions and add value to development projects.” Since completing the workshop in April, Marshall has put the concepts to use immediately. He’s currently working with potential investors on a $7 million medical office syndication deal. The syndication structure allows Marshall and his partners to “raise more equity, be more flexible, and provide more options to clients,” which is critical in today’s capital-strained market.

Distressed assets are a growing source of business in today’s climate, and learning the nuances of working with these properties gives CCIMs a competitive edge. The Ward Center’s new one-day Troubled Assets Workshop (www.ccim.com/content/troubled-assets-workshop) provides creative strategies for managing these unique properties directly from experienced CCIM instructor and past institute president Steven R. Price, CCIM, of Price Properties REalytics LLC in Colorado Springs, Colo. With course offerings both online and in a classroom setting, the workshop provides specific examples of how to participate and profit in these difficult times, methods to test disposition alternatives with appropriate metrics, and ways to identify lender and owner objectives.

Other specialized industry organizations, such as the National REO Brokers Association (www.nrba.com), also provide distressed asset educational opportunities for commercial brokers. Nicholas B. Andrews, CCIM, broker/partner with SellState NRES in Scottsdale, Ariz., gained insight on working with REO assets at NRBA’s annual conference last May. This niche organization “is dedicated solely to the listing and selling of bank-owned properties,” he says, pointing out the value of these educational opportunities in the current market. “Asset managers who are holding nonperforming commercial paper will need the assistance of highly qualified commercial practitioners with the skill sets to handle the work.”

Other industry pros are using the slow market to develop an energy-conscious business approach. “I’m taking classes to acquaint myself with the green movement,” says Abe Lee, CCIM, principal broker of Abe Lee Realty in Honolulu, who is in the process of earning the National Association of Realtors’ Green designation (www.greenresourcecouncil.org). Available to commercial real estate pros, property managers, and residential agents, NAR’s Green designation requires completion of a 12-hour core course and one of three six-hour elective courses. Classes are offered both in a classroom setting and online, and designees are entitled to a variety of green resources, including a referral network, marketing tools, and a one-year membership to NAR’s Green Resource Council.

“I plan to work on a green building course for [local] real estate pros to earn continuing education credit,” Lee says. He sees the green movement as an opportunity to gain visibility and to position himself as a knowledge leader. “I hope to become the expert [in my market] in green buildings and provide a much-needed service to our clients at the same time.”

Expand Your Scope
Thinking outside the traditional brokerage box can help CCIMs realign their business models to meet clients’ changing needs. “In normal times we operate as a full-service brokerage, development, and construction firm,” says Ted W. Hill III, CCIM, a commercial real estate agent with Vision Ventures in Charlotte, N.C. “But given the economic conditions, our development and construction activities have slowed dramatically.”

To counter the drop in two of its three key business sectors, Vision Ventures has aligned itself with a client and co-investing partner “best defined as a private equity firm,” Hill says. “Our primary focus is to acquire first-position non-performing or soon-to-be non-performing notes backed by commercial real estate.” The new partnership has resulted in more than 40 transactions worth about $50 million, with an additional $20 million scheduled to close by midyear, Hill says.

When structuring the compensation for such deals, “a set percentage is paid based on the purchase price of the loan, much like a real estate transaction,” Hill says. In addition to an acquisition fee, “we co-invest company funds in each transaction and act as the managing member of the holding entity. We retain rights for property management and the listing assignment, at which time the asset is slated for disposition.”

Though Hill says the trend of banks seeking brokerage companies to represent them in loan sales could grow as loan defaults rise, these transactions are no piece of cake. “Distressed asset purchases come with a myriad of liens and oftentimes the borrowers are in various stages of bankruptcy. Depending upon geographic scope, foreclosure proceedings may vary from state to state.” These and other factors make “having a competent legal team paramount” to avoid the risks associated with these types of deals, Hill says.

The ever-growing green movement inspired Lee to pursue a new line of commercial real estate-related work to supplement his company’s revenues. “I am working with a company that sells 100 percent green, fireproof, soundproof, lightweight concrete that costs less than steel or traditional concrete,” he says. Lee negotiated a commission with the company for any new sales he generates, and so far interest has been high. While sales previously had been concentrated in single-family homes, Lee is starting to see an uptick in interest for small multifamily buildings and specialized commercial properties. “We have a commitment for a local church addition and a local university is interested in building a dormitory using this product,” he says.

Nevada ranks as one of the top foreclosure and REO asset markets in the country, which has prompted local brokerages such as Nevada Real Estate Services to concentrate on business opportunities in this economy-driven niche. Andrews has partnered with Michael P. Krein, president/broker/owner of NRES in Las Vegas and current president of the National REO Brokers Association, to expand their opportunities with commercial REOs. While many industry pros have focused on residential foreclosures to date, Krein and Andrews share a mutual vision of the value commercial real estate pros bring to the REO deal equation, Andrews says.

The pair recently established their third specialized REO brokerage office in the Phoenix market. “We are positioning ourselves to be the go-to REO brokers in our respective marketplaces,” he says. But “the model we use to recruit agents works well with REOs as well as with normal sales. We are putting our business plan in motion with a focus on today’s market as well as the economy’s eventual turnaround,” Andrews says.

Work Your Network
“One way to get through tough times is to increase your exposure,” says Lee Y. Wheeler III, CCIM, president of Fidelis Commercial Real Estate Services is Beaumont, Texas. While effective marketing and advertising are important, CCIMs say network building can ratchet up business opportunities in slow cycles.

Organizations such as Business Network International (www.bni.com) “have truly been a godsend for our business. BNI is referrals on steroids. In 2008 it generated 40 percent of our business,” Wheeler says. BNI defines itself as a global networking organization with hundreds of chapters worldwide that host networking meetings and events. The organization tracks referral activity conducted through its many local networks. “In 2009 so far, about 50 percent to 60 percent of our business has been generated from BNI referrals,” Wheeler estimates. BNI referrals have resulted in approximately $6 million in business for Wheeler’s company during the past 18 months.

Networking in slow economic cycles is particularly critical for small-market professionals such as Alex Ruggieri, CCIM, vice president of Sperry Van Ness/Ramshaw-Smith Co. in Champaign, Ill. Though transactions are fewer and farther between, “I still attend conferences across the country including CCIM events, Society of Exchange Counselors marketing sessions, and the Sperry Van Ness national and regional meetings,” Ruggieri says. While “this costs something in time, effort, and resources, I am able to meet new people and put together transactions that could happen no other way,” he says. The CCIM Institute’s 57 chapters (chapters.ccim.com) provide local networking opportunities and educational events for industry professionals in the U.S., Canada, Mexico, and Asia.

Though advanced training, expanding service lines, and staying connected can help to increase business opportunities, industry professionals also realize the value of adjusting their mind sets. “We have forced ourselves to realistically project income, wiping out optimistic expectations for a quick turnaround,” Paul says. To keep the boat afloat in these stormy seas, he suggests focusing on providing top-notch client service, celebrating successes, and communicating openly with employees. “We’re using these [steps] to reach the other side and become a better company, regardless of the economic conditions.”

Jennifer Norbut is senior editor of Commercial Investment Real Estate.

Cashing in on Short Sales
Commercial property foreclosures continue to rise at a feverish pace. Industry professionals who have a keen eye and carefully do their research can acquire prime properties at deep discounts through short sale transactions. However, it’s critical to keep the following points in mind when structuring such deals to avoid pitfalls with these potentially problematic properties.

Perform Due Diligence. Do research before making a purchase offer: Find out who holds the title, if a foreclosure notice has been filed or legal action has started, and how much is owed to the lenders and lien holders. Be extremely thorough if a property has more than one lien to ensure the purchase offer covers all outstanding debt. 

Adjust Expectations. A lender will not agree to a short sale unless the seller has no equity and is unable to repay the difference between a proposed purchase price and the balance of the existing loans. A seller should provide a hardship letter and other financial documentation to the lender to support the case for short sales. Potential buyers should be wary of situations where sellers demand unreported cash payments, which may constitute fraud. 

Submit Appropriate Documentation. Once a seller has accepted an offer, it must be submitted to the lender for approval with evidence of a deposit. The deal is not enforceable until the lender accepts it. Providing evidence of the buyer’s financial viability from the outset and a list of comparable sales supporting the offer speeds up the process.

Provide a Deadline. An offer should be made contingent upon the lender’s acceptance within a set time frame and automatically terminate after the deadline has passed.

Conduct Inspections. Obtain an inspection to ensure the property is structurally and environmentally sound. Never waive the right to obtain an inspection on a short sale. Buyers generally must purchase the property as-is, making inspections essential.

Finally, when conducting short sales, commercial real estate professionals should seek competent legal and financial counsel on all matters related to the transactions.

—by Ronald P. Kalyan Jr., a partner with Fox Rothschild LLP in Exton, Pa.

Marketing in a Downturn
An economic down cycle is no time for commercial real estate companies to slash marketing budgets. Smart industry professionals can take several steps to save money while making a meaningful impact in the marketplace.

Stick to the Plan. A well-crafted marketing plan helps CCIMs remain focused when the economy throws curveballs. Concentrate on how your core skills differentiate you in the marketplace. Incorporate your core competencies into major marketing messages and convey those catchphrases regularly in your verbal and written communications.

Be a Social Butterfly. Leverage the power of online social networks to expand your professional contact base. Become familiar with LinkedIn, Facebook, Twitter, and other online business networks. Apply your branding and provide value-added content to your posts. Add new contacts to your database as you go, and put your network links in your e-mail signature to help build your own “following.” The best part about these networking sites? They’re free!

Become an Expert. One of the best ways to gain business is to become the go-to expert in your market. Volunteer to speak at local industry events. Develop relationships with key media contacts and pitch yourself as an interview source. Prepare press releases to announce your completed transactions. To make the most powerful impact in the market, present only newsworthy information and ensure your final product is polished and error-free.

Exercise Your Online Options. E-mail is an inexpensive way to put your contact database to great use. But forgo hard sell tactics. Prospective clients are more apt to associate with professionals who educate and assist them. To accomplish this, incorporate your major messages along with timely and useful information, such as market data and observations or interesting industry articles, into your electronic communications.

No matter how the economy is performing, these simple, low-cost strategies can expand your network and improve your position as an industry leader. And that will pay dividends in all market conditions.

—by David Ebeling, owner of Ebeling Communications in Orange County, Calif., and Stacey Hershauer, co-owner of focusAZ in Phoenix. Contact them at david@ebelingcomm.com and stacey@focusaz.com.