A Tribute to Fathers

Posted by: Beckie Lewis
Hospitality Specialist
775 336 4647
blewis@naialliance.com

Prior to entering the commercial real estate market, Beckie enjoyed a career in Commercial Lending and Private Equity Lending. Beckie enjoys creative thinking and problem solving which allow her to approach real estate sales in a refreshing manner. Having grown up in the development & hospitality areas in Montana, Beckie was drawn to the Hospitality Specialty with NAI Alliance. She is currently paving the way for this newest specialty at the firm.

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A Tribute to Fathers

We celebrate many holidays around the world, but few touch each of us like Mother’s Day and Father’s Day. This month we’d like to take the time to celebrate Father’s Day together. Fathers are often credited with teaching us about life and business. Fathers are often burdened with needing to show us discipline. As many of the quotes that we’ve gathered in honor of Father’s Day indicate many of us do not realize how knowledgeable and wise our fathers are until we are older. Each phase and decade of my life has brought with it new understanding of what my father gave to me, sacrificed for me and taught me...read more

Download a copy of the NAI Alliance Northern Nevada Hospitality News for June/July 2010 today.

A Different Perspective

Posted by: Scott Beggs
Investment Specialist
775 336 4644
sbeggs@naialliance.com

Scott joined NAI Alliance in March 2008 to assist the company with investment sales. Previously, Beggs spent over seven years with Dermody Properties as Vice President of Acquisitions and Port Management.

Investors are often presented commercial real estate investment opportunities that have either significant vacancy or significant near term roll-over of existing tenants, or both. In looking at these types of projects, investors make assumptions about the likely outcome for these uncertain situations. The application of these uncertain assumptions is both art and science. Using the best information available, investors forecast the cash flows for an asset. In economics, the term used for the forecasting of returns is “ex-ante”

Ex-ante is Latin for "beforehand". In models where there is uncertainty that is resolved during the course of events, the ex-ante values are those that are calculated in advance of the resolution of uncertainty. The opposite of “ex-ante” is “ex-post”. Ex-post is the calculation of returns based on the full knowledge of the actual events and cash flows.

I know what you are thinking, “Who cares?” The reality is that the distinction between “ex-ante” and “ex-post” has a very real implication to commercial real estate investing in today’s market. The value of real estate is the nothing more than the present value of the future cash flows that an asset will generate. But as we sit here today trying to forecast those cash flows, there is considerable uncertainty as to what those cash flows will actually be due to the uncertain economic times that we live in. Investors are forced into taking a conservative view as to the future because the consequences of being overly optimistic could lead to considerable losses for the investor.

So what can a current owner do to address this situation? First and foremost, try to eliminate the uncertainty of those cash flows by getting leases signed on vacant units and extend the lease terms for tenants currently in occupancy. Both of these actions provide the potential buyer of a property with a contractual legal commitment from the tenant. This reduces the near-term uncertainty of the building’s cash flows.

Apart from bringing certainty to uncertain situations, there is another strategy that owners can employ to address the issue of ex-ante return calculations. The owner can retain a “promoted interest” in the project. What this structure will do is provide the current owner the ability to capture a portion of the profits that are created above the conservative assumptions employed by the buyer. In the event that “ex-post,” the property does materially better than the buyer had assumed, then the original owner would be eligible to re-capture some of that value. The amount of the “promote” is based on how the property actually performed and thus can be calculated with exact certainty.

This structure does not work for everyone, but where there is a need to sell and there is a high degree of uncertainty associated with a project, this is one methodology to bridge the gap between the buyer’s uncertainty and seller’s expectations. The NAI Alliance Investments Team would be happy to explain how this structure can be used to the benefit of both buyers and sellers. Email any questions you have to me at sbeggs@naialliance.com.

Is the demand for apartments beginning to fall again?

Posted by: Morgan Walsh
Multi-Family Specialist

775 336 4646

mwalsh@naialliance.com

Morgan Walsh is a commercial broker with 20 years experience in investment sales, multifamily and specialty sales, representing buyers and sellers, institutional and private developers in market rate apartment sales, mixed-use residential devepment and the development of affordable housing projects.

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Is the demand for apartments beginning to fall again?

by Morgan Walsh for the Northern Nevada Business Weekly

“Where are our tenants going? This much we know— it’s not to another complex.” So said the owner of a local, well-maintained, suburban garden style apartment property. Evidence is accumulating that marginal apartment demand is falling again in the Reno market. A glance at the dispersion of apartment vacancy rates tells an interesting story. At the best-run, well located properties, occupancy is at or slightly below 95 percent. Smaller properties quickly adjust rental rates and concessions to eliminate vacancy and run full most of the year. But...read more

Reno/Sparks a Regional Distribution Hotspot

Posted by: J. Michael Hoeck, SIOR

Industrial Specialist

775 336 4621

jmhoeck@naialliance.com

Mike began specializing in industrial brokerage with Colliers International in 1999, and in May 2005, joined Alliance Commercial as a Partner and as Vice President of its Industrial Properties Group. In May of 2007 Alliance Commercial became NAI Alliance and Mr. Hoeck became a Senior Vice President.

Many people don’t know that when looking at distribution points the Reno/Sparks area is located within a 500 mile radius of 16% of the US population. That’s the highest percentage west of the Rockies (tied with Las Vegas). In comparison Phoenix is 12%, Orange County 15%, San Jose 13% and Salt Lake, Denver, Seattle and Portland are all under 9%.

That’s probably also why there are more square feet of warehouse space per capita than anywhere else in the country.

NAI Office Properties Team Takes Home Three Prestigious Awards

Scott Shanks, SIOR and Dominic Brunetti, CCIM of the Office Properties Team took home three prestigious awards presented at the 5th Annual Summit Awards.

Awards included:
Office Brokers of the Year (2009), Largest Lease Transaction (2009), and Largest Sale Transaction (2009).

Posted by: NAI Alliance Office Group
775 336 4600

Cap Rate Confusion

Posted by: Scott Beggs
Investment Specialist
775 336 4644
sbeggs@naialliance.com

Scott joined NAI Alliance in March 2008 to assist the company with investment sales. Previously, Beggs spent over seven years with Dermody Properties as Vice President of Acquisitions and Port Management.

Brokers love cap rates. They are intuitive, easy to use, and there is no such thing as a “right” or “wrong” cap rate. What’s not to love?

Absolutely nothing, as long as you are mindful of the pitfalls of their use. Bear with me while I put on my pocket protector for a bit. From a valuation perspective, a cap rate is nothing more than the mathematical simplification of a perpetual discounted cash flow analysis under the assumption of constant growth in cash flows. Who cares? Well, investors should. And if investors care, so too should their brokers.

The reason that investors care is that a cap rates is not the same as investor’s return. To illustrate let’s look at a property that generates $100,000 in cash flow in year one. Let’s further assume that those cash flows stay constant (0% growth) for the next five years and the investor is able to sell the property for a 9.0% cap rate. Under this set of assumptions then the investor’s total return is 9.0%. Seems easy.

But most investments have some amount of growth in the cash flow stream (due to contractual rent bumps or increases in market rents). So what if the cash flows grow at 3.0% per year and then the investment is sold for the same 9.0% cap rate? The total return to the investor is 12.0% (9.0% cap rate + 3.0% growth). Again, pretty straightforward, but the total return that an investor earns is significantly different from our first scenario (9.0% vs. 12.0%).

Okay, but what happens if the sale cap rate (after 5 years) differs from our going-in cap rate? Let’s assume the same 3.0% constant growth, but rather than selling at a 9.0% cap rate we will assume that the building is sold at either an 8.0% cap rate, or a 10.0% cap rate. If the exit cap rate goes down to 8.0% the total return to the investor is 14.08% and if the cap rate increases to 10.0% then the total return earned by the investor is 10.21%. That is a considerable difference in investment performance.

Finally, what happens if the in-place rents are above market and after the first year cash flows decline by 15.0% and then grow by 3.0% per year thereafter (in light of what has happened to rents this is a very real situation). Let assume further that after the 5-year holding period the project is sold for that same 9.0% cap rate. Under this set of circumstances the investor’s total return is 7.47%

So under all scenarios presented the property was bought at a 9.0% cap rate on year-one cash flow. However, depending upon the assumptions we used for growth (or decline) in cash flows and the exit price the investor’s total return could be as high as 14.08% and as low as 7.47%. And this analysis excludes the use of debt which only magnifies the results.

So,”yes” cap rates are a nice easy tool to quickly compare initial yields between investments, but if you stop there you are not seeing the full investment picture. And it is the complete picture that most buyers of commercial properties should be concerned with.

A happy client

Posted by: Dan Oster

Industrial Specialist

775 336 4665

doster@naialliance.com

As a member of the Industrial Properties Group, Dan has participated in the sales and leasing of a wide variety of Industrial properties from 1,000 to 700,000 sqft in Northern Nevada. Dan's primary goal is to provide unsurpassed customer service to the clients he represents.

I recently received a letter from one of my clients. It's feedback like this, that makes me happy to do what I do.......

This is a letter to acknowledge Dan Oster for his performance on the purchase of a recent property. I feel that Dan put the deal first, which allowed other things to work themselves out. This would have never happened if Dan put himself as a priority.

I appreciate the professionalism & patience he put into to this deal. I consider Dan my agent for all commercial deals!

Thank you,

Dave McCombs
Palletech

Put the Client First

Posted by: Dan Oster

Industrial Specialist

775 336 4665

doster@naialliance.com

As a member of the Industrial Properties Group, Dan has participated in the sales and leasing of a wide variety of Industrial properties from 1,000 to 700,000 sqft in Northern Nevada. Dan's primary goal is to provide unsurpassed customer service to the clients he represents.

You should feel your broker is your confidant. You should feel they are looking out for you in the Sale/Listing/Leasing process. If you don’t, run!! If you’re my client, and you don’t feel I’m putting your interests in a transaction ahead of my own, please fire me.

The team of professionals who brought me into the business started with a simple lesson – put your client first. When you’re trying to build a career in this field, the best way to fail is to get the reputation for a “me first” attitude. I’ve just seen some folks behave otherwise, and it felt good to say this out loud (digitally speaking).

The Landlord/Tenant Relationship

Posted by: Dan Oster

Industrial Specialist

775 336 4665

doster@naialliance.com

As a member of the Industrial Properties Group, Dan has participated in the sales and leasing of a wide variety of Industrial properties from 1,000 to 700,000 sqft in Northern Nevada. Dan's primary goal is to provide unsurpassed customer service to the clients he represents.

My wife often jokes that the fella she married hardly resembles the one she dated. It’s human nature to put your best foot forward when a relationship is new, but over time the relationship matures and behaviors change. The relationship between tenant and landlord is like a marriage in many ways.

Fortunately, it’s also very different. There is no moral taboo against looking at multiple buildings right up to the point you sign your lease. Once you’re in a lease, there’s nothing wrong with looking at other spaces. When a landlord knows you have other options, they are likely to offer you the minimum price they will take instead of the highest price they think you will pay.

First Quarter Retail Market Report | Reno, NV

Posted by: NAI Alliance Retail Group
775 336 4600

The First Quater 2010 Retail Market Report is now available for download

Tale of Two Cities

Posted by: Scott Beggs
Investment Specialist
775 336 4644
sbeggs@naialliance.com

Scott joined NAI Alliance in March 2008 to assist the company with investment sales. Previously, Beggs spent over seven years with Dermody Properties as Vice President of Acquisitions and Port Management.

A “Tale of Two Cities” is Charles Dickens’ famous novel set during the French Revolution. “A Tale of Two Cites” might be a better title for the story of today’s commercial real estate market, where the pricing between “first-tier cites” and “secondary markets” is dramatic.

Commercial real estate assets located in primary gateway cities such as Los Angeles, San Francisco, Washington DC, and New York are attracting significant interest from a variety of well-healed investors including sovereign wealth funds, REITs and pension funds. Multiple bids are being received for high-quality assets in these select markets. However, interest in secondary and tertiary markets is limited at best. The prices offered for assets in the secondary markets are reflective of this limited interest.

This dichotomy in pricing is the result of a flight to quality. In the face of uncertainty about the viability of economic recovery in the United States, investors are trying to avoid all forms of perceived risk. Due to the lack of tenant depth, secondary markets are exposed to significantly higher levels of risk relative to their first-tier cousins. As such, investors are more comfortable paying higher prices (lower cap rates) for projects in cites that are perceived to be relatively immune from recession. Conversely, investors are demanding much higher returns (cap rates) to compensate them for the perceived risk of smaller markets.

Is a risk premium warranted for assets in these smaller markets? Absolutely! However, the appropriate size of the required risk premium is open to debate. The difference in opinion amongst buyers and sellers in the Reno, Nevada market has led to a significant decline in transaction volume over the last 18 months. Buyers expect significant return premiums, whereas sellers expect pricing more in line with major markets.

Which group is correct will vary transaction to transaction. Sellers that have pressure points will be forced to accept the realty offered by cautious buyers. On the other hand, buyers in need of placing capital may move closer to the seller’s asking price, as long as the risks of the project are limited. As an investment sales broker in Reno, Nevada this difference in pricing is important to understand. The NAI Alliance Investment Team tracks all sales and listings in order to better understand this difference and appropriately advise our clients.

Hotel occupancy beginning to rise, booting optimism

Posted by: Beckie Lewis
Hospitality Specialist

775 336 4647

blewis@naialliance.com

Prior to entering the commercial real estate market, Beckie enjoyed a career in Commercial Lending and Private Equity Lending. Beckie enjoys creative thinking and problem solving which allow her to approach real estate sales in a refreshing manner. Having grown up in the development & hospitality areas in Montana, Beckie was drawn to the Hospitality Specialty with NAI Alliance. She is currently paving the way for this newest specialty at the firm.

Hotel occupancy rising, boots optimism

by Rob Sabo of the Northern Nevada Business Weekly

featuring Beckie Lewis

Early signs point to a rise in tourism in the Reno-Sparks region. Beckie Lewis, who follows the hospitality industry for the real estate brokerage NAI Alliance, says hotel room rentals in February were...read more