Posted by: NAI Alliance Office Group 775 336 4600
The Office Properties Group is pleased to announce a New Property Listing for Sale and/or Lease:
Posted by: NAI Alliance Office Group 775 336 4600
The Office Properties Group welcomes:
Posted by: Morgan Walsh Multi-Family Specialist 775 336 4646 mwalsh@naialliance.com
Owners, buyers and investors are carefully watching the spring lease-up in Reno for signs that the apartment market bottom has been reached. Market bottoms show a very characteristic pattern-- low sales activity, high bid/ask spreads, negative sentiment widely shared, little new construction, slow absorption, flat rents and little investor interest. Market turns, however, occur unpredictably because they begin when conditions look a lot like the past six months. The period 2008-2010 saw falling occupancy, then falling rents, followed by flat rents and another dip in occupancy, and another dip in rents. Job loss, double-up of tenants, tenants leaving the region, and the rapid expansion of the single-family rental market are critical factors in apartment demand, and the large property owners have reacted by adjusting rents to demand, qualification criteria to the recession tenant, and marketing to a labor force which must reduce housing cost.
In 2011, Class A and B properties have achieved normal occupancy (with some exceptions of distressed property or owners unprepared to adjust). In many cases, utilities have been passed through to tenants in whole or part, and major, new construction has stopped. This spring, those owners will begin raising rents. If successful, the value and attractiveness of their properties as investments will sharply diverge from the rental market segment still struggling with occupancy, declining rents and values.
The Class C apartment market is suffering a dramatic loss of value from three sources—sharply reduced demand for property in location or condition deemed difficult to rent, finance, manage and maintain; falling rents with 7-8% of additional rent reductions required to achieve stabilized occupancy above 85%; and occupancy by tenants most vulnerable to further declines in income and job loss. To the extent these property have been over-leveraged, with debt service levels predicated on high occupancy and rising rents, the risk of distress and default is high and properties have been liquidated at a fraction of their stabilized value.
Meanwhile, the shadow market for single-family rentals continues to grow (10% per year and likely to continue for 3-5 years) but the median landlord for such property is increasingly a savvy investor, not a distressed small investor, so the tenant selection, leasing, property management and maintenance of this housing stock is increasingly sophisticated and able, pushing the housing cost to rent a home up, especially in attractive submarkets. The net effect for rental tenants is a small gap between the high-end apartment and the attractive house, so the tenant seeking convenience will lean toward the well-managed apartment property. Finally, the net cost for move-in is now clearly in favor of the apartment property and will likely continue to grow.
2011 will bring two interesting effects. First, the Class A and B markets will strengthen profitability and gain market share in rental housing. Class C properties will find the rent level needed to maintain normal occupancy, de-leverage as quickly as possible or re-leverage at a lower value under a new owner, but no appreciable increase in Class C property value will occur until jobs return. Many low-end properties will change hands this year, as occurs at the bottom of every recession, with a new owner group bringing capital and expertise to exploit the property’s full potential. Traditionally, Reno’s opportunistic owners have bought and held. This time, we may see a significant fraction who stabilize the property and then exit for a new opportunity.
Financing remains exceptionally affordable, although underwriting has never been more demanding for borrowers and their collateral. We expect favorable financing to remain in place through the end of 2011. Apartment expense levels are highly manageable, with a soft market in property coverage, competitive vendors and owner’s high attentive to cost reduction. Fuel remains the wild card and could ripple into a major headache for apartment owners, as added expenses and reduced demand for tenants whose commute becomes too expensive. Further job loss is likely to affect the Class C market early and hard, and remains the most likely probable negative factor affecting apartment operations in 2011.
Posted by: Dan OsterTip # 8
Trade Fixtures vs. Tenant Improvements
The shell of a building (floor, roof, walls and basic systems like heat) are often called the envelope. Everything inside the envelope falls into one of two categories – Trade Fixtures or Tenant Improvements. Tenant Improvements (TIs) include the office space, restrooms or any other generic improvements to a building that any future tenant will typically utilize. Trade Fixtures are the improvements specific to a user’s business. These might include ovens in a commercial kitchen or machines in a factory. By law, as soon as something gets permanently attached to the envelope, it becomes a part of the building and is owned by the landlord – unless it’s a Trade Fixture which remains the tenant’s personal property.
BROKER INSIGHT: Nothing in life is always black or white. The line between TIs and Trade Fixtures is no exception. If a standard user needs 5 -10% office improvements in a warehouse, and you need 25%, 50% or 75%, the question of who pays for the excess build-out in what proportion will make or break a deal. In practice, a variety of factors may include, tenant’s credit, market condition, LL’s cash position and many others, determine who pays for TIs. Often finding a building with the required improvements already in place will go a long way towards getting a functional space for your business at a price you can afford.
Next Tip.... How Much Space Do You Need?
If you have any questions on Industrial Real Estate in Northern Nevada, please give us a call at 775.336.4600.
As of January 1st, NAI is downtown in the Bank of America building. We have expanded our office and moved into the heart of Reno. Our new address is:
Posted by: J. Michael Hoeck, SIORTip # 7
Representation (why choosing an agent to represent your interests helps)
Can you think of a single complex task you got 100% right the first time around? Sure, it gets done, but by the 10th time through it gets done much better (and quicker), and by the 100th time you’ve worked through almost every eventuality. The challenge in representing yourself in lease negotiations is that you only do it every 1 – 5 years. Typically, your landlord is likely more practiced and has an information advantage based on their experience as well. What’s a tenant to do???? You can hire a broker to represent your interests in the transaction. A broker (or better yet a team of brokers) typically has the experience from seeing lots of deals, and they can often avoid pitfalls you might not have thought to address.
BROKER INSIGHT: When a tenant is clearly represented by a broker, and there is a trust between those two parties, deals which are outside the formal Commercial Leasing Market can get done. If the perfect space for a tenant is somehow in a grey area (say it won’t be vacant for another 3 months), but a broker knows the tenant will protect them absent a landlord’s listing agreement, maybe a better deal gets done that otherwise wouldn’t have. These grey area deals can be great. They can also be a disaster. Without a broker you really trust, it would be difficult to know the difference.
Next Tip.... Trade Fixtures vs. Tenant Improvements
Posted by: NAI Alliance Office Group
775 336 4600
The Office Properties Group welcomes:
Posted by: NAI Alliance Office Group
775 336 4600
Posted by: NAI Alliance Office Group
775 336 4600
The Office Properties Group is pleased to announce New Property Listings:
Tip # 5
Personal Guarantees
When you start a small business, it often feels like it owns you. Your financial health and that of your business are initially one and the same. As the years pass and the business grows, it can eventually take on a financial life of its own. From the other perspective, landlords give legal control over an asset (often worth a million dollars or more) in return for a promise from you to pay rent. They want to know they will get paid from the entity or its owner. So when and how can you avoid Personally Guaranteeing your lease?
BROKER INSIGHT: If you’re a startup company, you likely won’t avoid a Personal Guarantee. What you can try to do is structure an out after a period of time to limit your personal exposure. If this is your second lease or you have some operating history, phasing out the personal guarantee over time becomes much more likely. An alternative to a Personal Guarantee, particularly when a new venture is well funded, is to offer a surety bond or a letter of credit guaranteeing the lease. This will tie up some of your operating capital, but is often preferable to a Personal Guarantee. Recognize that as with individuals, businesses build credit worthiness over time. If you have to give a Personal Guarantee on your first deal, work toward building the business credit to the point you won’t have to in the future.
Next Tip.... Option to Purchase
Tip # 4
You Covet Your Neighbor's Space:
When you pay your lease on time every month and want to grow, landlords are usually all too happy to give you more space. Typically 50% growth (or more) in square footage will compel a LL to tear up your existing lease for a new one in larger space within their building or portfolio. If they have the space, that’s easy. Let’s imagine a more complex case. You’re moving into a space, your business is growing and the adjacent unit is vacant. You’d like to wait until your actual business supports the extra space before you commit to it, but you’re nervous the owner may lease the unit to someone else. What can you do?
BROKER INSIGHT: You can ask for a Right of First Refusal (ROFR) on the space which would give you the opportunity to match any qualified offer presented on the space in question. The owner may be reluctant to grant one citing the effort and expense they must go to in order to generate an offer for you to match and possibly lose an otherwise qualified prospect. In that case you might structure a “Staged Take Down” of the adjoining space which would contractually bind you to take the expansion space after a given period of time (say a year or two). The LL may ask for some type of consideration for holding that space off the market for you. If the adjoining space is occupied, and you want the first crack at it when that tenant’s lease expires, you can ask for a Right of First Offer (ROFO) which would obligate the owner to offer it to you prior to taking it to the market. Be aware that ROFR, ROFO or other options are usually “one time” exercises – either use them or lose them.
Next Tip.... Personal Guarantees
Posted by: J. Michael Hoeck, SIOR~10 Leasing Insights ~
Broker tips to better deals
Posted by: Dan Oster
Posted by: Dan Oster~10 Leasing Insights ~
Broker tips to better deals
A jobless recovery. "Absurd," you say? Not in the apartment world, leaders of four of the country’s largest multifamily REITS said at mid-year. And they had the numbers to prove it.
"Increased renter demand from the baby boom echo, falling homeownership rate and historically low new supply almost offset the worst drop in employment in over 60 years," said Camden Property Trust CEO Ric Campo, who expects the nationwide apartment REIT’s same-store NOI to see positive year-over-year numbers in Q4.
"This cycle, which included the Great Recession, produced a peak-to-trough revenue decline in our portfolio of eight percent and an NOI decline of 10.5 percent. It lasted for six quarters and came with a total employment loss of 8.4 million jobs. By comparison, during the 2001 to 2003 downturn, our portfolio experienced a roughly six percent revenue decline and an 11 percent NOI decline. It lasted five quarters and we lost a total of 2.7 million jobs," he said.
Back in the bad old days of 2003 ... read more
The Office Properties Team is proud to announce our team member, Dominic Brunetti is a honoree to receive one of the Twenty Under 40 Awards presented by the Reno Tahoe Young Professionals Organization in partnership with the Reno Gazette Journal. Congratulations Dominic!
Q: What is the role of a listing broker?Bed & Breakfast (B & B): Posted by: NAI Alliance Office Group Posted by: NAI Alliance Office Group
