Why Retail Landlords Lose Tons Of Money To Faulty Expense Calculations

Retail real estate has an underappreciated problem: Year after year, incorrect or incomplete tenant expense reconciliations cost landlords an enormous amount of money.

Erroneous common area maintenance and other reconciliations (generally referred to by the catchall term “CAM recs”) can account for hundreds of thousands of dollars in losses over time for landlords. This is especially true of those with large portfolios comprised of dozens of shopping centers and hundreds of tenants. Even for just a single tenant, incorrect calculations or lease interpretations can add up to a five-figure annual loss for the landlord. The longer the mistake goes unrecognized, the greater the damage. Reconciliation complexity also grows exponentially with property size, making inaccuracies more likely. Such mistakes can complicate and delay property transactions and even spur conflicts that sour landlord-tenant relationships.

Important as CAM recs are, however, landlords often fail to complete them on time.

Chalk it up to the labor-intensive, time-consuming nature of the process. Generally speaking, it amounts to a herculean effort for already-busy property managers and accountants. Timing wise, CAM recs are usually conducted right in the middle of spring tax season. As a result, real estate companies’ internal teams work incredibly long hours as they dive into the weeds on expense calculations, caps and modifications in addition to their daily responsibilities. This presumes the team is actually able to engage on CAM recs. All too often, companies run years behind on the process precisely because their internal teams already have too much to do.

There’s a double-whammy here: Let’s say a company is three years behind on its CAM recs. When it does eventually find time to straighten things out, it is likely to frustrate its retailers by asking them to pay back huge sums.

How Commercial Real Estate Landlords Lose Money to Faulty Expense Calculations

Faulty expense reports are costing commercial property owners hundreds of thousands of dollars every year and the problem seems to be getting worse. The problem is created by tenants, who either don’t know how to correctly fill out expense reconciliations or submit the forms without fully completing them. The problem is multiplied, when there are several tenants under a single roof.

Tenants Expectations – CAM Reconciliations

Tenants are expected to file common area maintenance and other reconciliations, or CAM recs, to report their expenses. When just one single tenant files the form incorrectly, it can cost the commercial property owner a five-digit yearly loss. If the landlord owns a shopping center, for instance, and several tenants file their CAM recs incorrectly, that figure can quickly mount. Now, imagine the effect for a commercial property owner overseeing multiple shopping centers, or business parks. Those costs can quickly reach staggering amounts.
Additionally, a mistake that goes uncorrected can continue to increase the cost to the landlord. A single misreported CAM rec can interfere with future property transactions, complicating the landlord-tenant relationship.
The tenant isn’t entirely at fault, however. In many cases, the landlord is often at fault for failing to complete the orders in a timely manner. This can be attributed to the high labor cost, or to the fact that many service requests involve a significant investment of time. For property managers already dealing with a full schedule, this process can become an overwhelming burden.
The situation is further complicated by the fact that CAM recs are usually submitted, during the spring tax season. This necessitates long work hours for real estate teams, who must verify expense calculations and review caps and modifications. These duties are piled onto their routine responsibilities, compelling personnel to work hours of overtime or fall behind. In most cases, the latter is the case and teams can fall several years behind on reviewing the CAM recs for each property.
Another problem arises when real estate teams catch up on the reports. After evaluating their records, they may ask retailers to return enormous amounts of money. This creates more tension between tenants and property managers, making the situation even more complicated.
Finally, teams must act quickly to catch up in some cases, because there are time limitations assigned to CAM recs. If that statute of limitations expires, the property owner will have to take the loss. This is where the landlord ends up losing those hundreds of thousands of dollars. If the error is in favor of tenants, landlords must offer rent credits to the tenants, which disrupts the budget on that property.
The failure to keep current on CAM recs creates a downward spiral of errors that can continue to mount the losses for property managers. Even in instances where a tenant receives a temporary rent reduction, backed up filings can cause the property manager to forget to restore that tenant’s regular rental rate. The tenant may go years paying the discounted rate, which should only have lasted for a few months. Erroneous lease rates are common in these situations, because smaller tenants often pay a rental rate that’s based on the rates paid by larger tenants. One tenant paying an incorrect amount can affect what every tenant pays, resulting in a cascade effect that can cost even more in losses.

Commercial Real Estate Management in Chicago, Illinois

Landlords and owners look for a record of solid accomplishment when selecting a competent management company. After all, the idea is to maintain and grow the profitability of a building without having to do the work themselves. So, a careful analysis of each management candidate should reveal whether or not the company maintains a comfortable income for proprietors while keeping the edifice functional, clean and secure. Commercial real estate management firms are especially subject to these fundamental criteria. To be sure, resident businesses depend on property managers to provide an optimal setting where employees are productive and customers feel welcome.

commercial real estate management building for lease

Successful commercial real estate management firms should be expected to deliver in the following areas:

  1. They should negotiate favorable rents on behalf of building owners. This begins with an in-depth analysis of what commercial locations in Chicago and its environs are collecting in lieu of market conditions. Square footage, accessibility, conveniences and neighborhoods will, of course, be primary factors. So will physical maintenance, customer service and incentives for expansion.
  2. The terms of current leases say a lot about a commercial real estate management company. Leases are supposed to protect landlords from loss, rather than expose them. Does the management firm demonstrate a thorough knowledge of how leases work? Is it counseled by excellent legal professionals? More to the point, can the manager expertly explain the terms of the lease to the owner and tenant alike?
  3. Ideally, proprietors desire 100 percent occupancy. More practically, they seek a high ratio of occupancies to vacancies. In response, a worthy property manager develops a business plan to achieve maximum tenancy in even the most challenging markets. Even single-tenant buildings–retail box stores, for example–need a blueprint for how they will grow or sustain earnings over time. Attracting and keeping responsible and reliable lessees can not be left to chance.
  4. No landlord is excited to hear a property administrator ask to make improvements in the design or condition of a building. At the same time, owners must depend on their hired stewards to accurately assess the property and determine its physical and structural needs. An effective management company recommends improvements only when it makes good business sense and demonstrates financial sustainability.
  5. Speaking of which, a reputable firm has a record for meticulous financial accounting and reporting. What sense does it make for an owner to gain some high-paying tenants only to offset those profits with exorbitant management fees? Real estate managers who carefully account for every penny, and honestly represent their activities to their clients, are the ones that landlords can safely entrust their properties.

In addition to the above, the best real estate management firms in the Chicagoland areas will have experience running possessions in distress or receivership. The trust of large banks and government institutions must be earned with diligence and resourcefulness. These are traits that owners should prize, as well. Fortunately, at least one such company stands ready to adhere to best practices and every standard of excellence.

6 Commercial Real Estate Management Benefits You Should Always Expect From the Best

So you have chosen to diversify your investment portfolio by acquiring a two-flat in Irving Park, a vacation house on the North Shore or a pair of condos in Naperville. Maybe you had momentarily considered leasing a Chicago commercial real estate management company but determined that you were prepared to take on every challenge associated with being a landlord and reaping the rewards.

But as you promptly discovered — advertising your rental, studying city ordinances, checking that your tenants pay rent and returning maintenance requests are a lot more time-consuming than you had anticipated.

The short periods of time you allot to your rental can really add up fast! Your day job spends too much of your time and has you too exhausted to respond to the additional tasks.

commercial real estate chicago
Before you think about throwing in the towel on your vision of becoming a landlord, reconsider receiving guidance from a professional Chicago property manager. The National Association of Residential Property Managers accords the following ways property management helps any client with such a process:

1. Staying legal: As well as with keeping up on local structural specifications, property managers possess an extensive knowledge of fair housing issues to make sure you remain right with the law.

2. Pricing strategy: The number you can request for a one bedroom Southside garden apartment in the Loop can be considerably varied than the number for a one bedroom high-rise condominium. A well-versed property manager can assist you in setting the proper price for the location.

3. Tenant screening: You do not just want any person living on your estate. A property manager will conduct the required background and credit checks to make sure you’re acquiring exceptional tenants.

4. Rent collection: Money is the primary motivation for buying a property, but securing funds from tenants is a less than enjoyable task. An expert in Chicago property management will handle rent collections for you, letting you live your life without these stressors.

5. Maintenance: Maintenance problems are an unavoidable aspect for any rental property. If you are not someone who’s handy in this area, a property manager can ensure that all improvements are managed correctly by the correct vendors with proper expertise and certifications.

6. Disputes: Whether you’re looking at service providers, condominium associations or one of your very own tenants, a property manager is able to smooth over a volatile situation efficiently, protecting your money, and most importantly, your time.

In the Greater Chicago Area, property managers are obligated to possess a legitimate real estate broker’s license. It assures the property manager has carried out the proper courses of education and knows the laws associated with the trade. To find out more about the services a professional Chicago property manager is able to easily provide you, don’t hesitate to contact CapRock, a comprehensive, Chicago-based commercial real estate management company.

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Online Companies – Dominating Retail

Grocery stores and shopping centers are rapidly changing in this world of internet-based sales, ease of access, and the drive for even more convenient ways to shop as a customer.
Natomas Shopping Center in Sacramento, California
Recently the Natomas Shopping Center in Sacramento, California was sold. In the shopping center is a CVS, Dollar Tree, and an Ace Hardware. The sale of this center represents the ways that shopping today is changing. The seller and buyer of the shopping center sat down for an interview to discuss this phenomenon and offer their thoughts on the current climate for retail stores in Sacramento, California.

The seller’s representative discussed the advantages of the mix in the shopping center as far as offering a diversity of options to the community. Mr. Fryman, the seller’s representative, explained that shopping centers, for its customers, offers a convenience on a daily basis. This center offers services as well, such as dentistry, which customers cannot find or purchase online. This kind of offering makes centers like this still a necessity for even the most tech-friendly neighborhoods.

Retail Climate in Sacramento, CA

When asked about the retail climate in Sacramento, Mr. Fryman explains that it is really strong there still. They are looking to redevelop areas that are not performing well and adapt them to today’s buying climate. The housing shortage coupled with this issue also makes it inter sting when looking at the retail climate.

Mr. Fryman ends the interview by discussing shopping centers that have grocery stores as their main anchor store. He reported that grocery stores are still performing well and there is a mix of companies who can resist the internet buying phenomenon and those who cannot in their centers. They also explained that they try and have a good mix of companies in the shopping centers. This strategy helps prop up the revenue of the center as a whole.

Blending Retail and Online: A More Effective Strategy

It seems that online is replacing retail at every turn these days. However, there is a lot to be gained by using retail to your advantage in unique ways. The key is not to lose out on the benefits that retail or online selling provide by combining the two. Here is how they can be even more powerful together:

blending retail

Integration of Supply Chain

Mastering your supply chain is key in any retail situation. This is true for both online and offline operations. When you leverage the integration of your supply chain by blending your channels, you can have a more efficient distribution that eliminates costs at a fundamental level.

Faster Delivery

Getting your product to your customers faster creates loyal fans of your brand. When someone orders online for instance, you can allow them to pick up their item in your store. This provides a seamless end experience for the customer.

Sales Tracking

Tracking your sales allows you to understand which marketing campaigns work. If you are throwing dollars away on ads that don’t convert, you are losing out. Instead, blend your retail and online strategies to gain insights into higher level marketing campaigns.

Personal Touch with Scientific Data

Retail stores allow you to create a personal touch with the customer. This handles the relationship side of things. Then, using online tools you can build databases of your customer from online shopping that you can apply your personality to as well.

Multichannel Domination

Your competitors are using multiple channels to try and compete in your marketplace. If you are not doing the same, then you could be leaving a lot of your market share on the table. Be sure to leverage every channel available to you, and that includes your website and store locations.

Creative Marketing

The more experience you have with customers in various environments, the more creative your marketing can be. Don’t limit yourself to just one dynamic. Instead, blend your two worlds so that they can give you unique ideas.

When it comes to modern business, you need the right strategy to succeed and overcome the competition. If you are in retail or eCommerce, you should not restrict your business to one side of the equation or the other. Instead, combine them so that you can achieve a strategy that covers multiple channels and reaches your customers in more effective ways.

5 Ways to Find the Perfect Location for Your Business

You already know that choosing a good location is one of the most important factors that will impact the success of your business. But how do you know a good location when you see it, especially if you are not familiar with the neighborhood that you are considering? 

Find the Perfect Location for Your Business

This is where working with a local commercial real estate agent can save you a lot of time and headaches. An agent who is familiar with the area will help you zero in on locations that might be a good fit for your business. When you meet with your local expert, make sure you ask the right questions up front to help her find ideal locations and prevent you from wasting both time and money. 

1. Follow Local Zoning Laws


One of the most frustrating mistakes many business owners make is that they fall in love with a particular location, only to find out later on that the city won’t allow them to set up shop in that spot due to zoning conflicts. There are some cases where the city or county will grant you an exception, but the process can be lengthy and expensive. So it’s generally best to just filter out zoning issues right from the start. 

2. Identify Your Target Demographics


If your product or service is suited to a specific slice of the population, then you’ll need to consider the neighborhood demographics before you sign any lease agreement. Knowing your target market is key to your success, so make sure you have customer personas in mind that describe your ideal customers in terms of several relevant factors such as income, transportation options, gender, language, lifestyle and so forth. 

3. Look for High-Visibility Locations


Many small startups focus primarily on price when looking for their new locations, but that isn’t appropriate for all types of businesses. You want to make sure that the building you choose offers great visibility for your target customers. It’s not much use to set up shop if nobody knows you’re there. 

4. Avoid Low-Traffic Locations


Traffic — both vehicle traffic and foot traffic — will make or break many businesses. Pay close attention to how many cars are driving by these locations and how many pedestrians are passing by. Packed shopping centers and mini malls are ideal for many retailers, since there is built-in foot traffic. If you can locate near businesses that share your target market yet are not direct competitors, that would be ideal. An example might be setting up a vitamin shop or sporting goods store a few doors down from a health club. 

5. Size Up the Competition


While you will likely want to avoid areas that are saturated with strong competition, that isn’t always necessary. Some neighborhoods have such strong demand for certain products or services that there will always be room for one more competitor to move in and thrive. Consider how many competitors are nearby and how long they have been in business. If they’re all raking in the dough, then you might be able to squeeze in and grab a slice of their business, especially if you can differentiate yourself from them in a positive way. 

Finding the ideal location for your small business is a lot easier when you know exactly what you’re looking for. Follow these five tips to help you narrow down your selection, avoid wasting time following dead ends and find the perfect spot to set up your business.

Chicago Metro Real Estate Still Going Strong

Despite a wide range of social, technological and economic changes, the metro Chicago real estate market shows resilience, according to multiple local experts.

chicago metro real estate

A panel at a mid-year 2018 Chicago year market review—held in Rosemont and attended by over 140 professionals—discussed the Chicago real estate scene. Avison Young’s principal, Danny Nikitas oversaw the panel where panelists talked about how the multifamily and industrial sectors were growing stronger. As they continued, panelists noted that retail and office properties remained steady, even though new technology makes a lot of conventional stores unnecessary and allows for a decrease in the amount of office space required.

There was an optimistic attitude in the air that the diverse, robust economy of Chicago would ensure the market continues advancing into next year and that technology would remain an important factor in commercial real estate.

Dike Realty’s vice president, Susan Bergdoll, mentioned that the industrial market is strong nationwide and that the vacancy rate continues going down each quarter. She quoted that the national vacancy rate dropped from 10.4% in 2010 to below 4% in 2018. In the Midwest, however, vacancy rates hover around 7%, while certain Chicago submarkets have a rate lower than 4%.

Executive Vice President of Cawley Chicago, Rawly Lantz, said the Chicago office market was “slow and steady” in 2017. Suburban office properties have a vacancy rate around 20%, while submarkets such as the East-West Corridor and O’Hare are around 14%, and downtown Chicago’s vacancy rate Is approximately 12% as developing office construction is going on. Lantz mentioned that property owners have experienced problems with lease renewals, although rental rates are going up, which is an indicator that there’s still strong demand.

Managing director of Integra Realty Resources, Gail Lissner, discussed the multifamily sector, noting that at the end of 2018 would result in a “really big year,” with just under 3,000 units delivered. Lissner continued, stating that the majority of developing suburban apartment buildings are located nearby Metra train station in the downtown area, and there are some fringe developments on the way. Multifamily properties in Chicago broke records in 2017, as 4,350 properties were built, and Lissner estimated that there would be three-thousand new apartment units on the market in 2018, as property owners are providing lucrative concessions to raise the number of leases.

To finish the market review, Deena Zimmerman, the vice president of SVN Chicago Commercial, mentioned that although there was a reduction in in-store sales and businesses filing bankruptcy, the retail market would continue growing. She believes that big-box store closures will create vacancies that will be filled by landlords who have a desire to change the asset class. She gave an example of property owners purchasing retail spaces of up to 60,000 square feet and transforming the former stores into distribution centers. Finally, she mentioned that many customers still prefer the experience of visiting a physical store, citing that Target aims to open just under three dozen small-size stores in the coming years.

How Property Managers Are Changing Every Asset Class

From retail and office to industrial, property managers are moving into the limelight at commercial properties, and tenants are taking note.

Property managers are moving into the limelight, and they are showing off just how important they are across asset classes. According to CBRE’s 2018 Global Tenant Occupier Survey, property managers play a crucial role in tenant retention and lease renewals. In the survey, 88% of tenants of office, retail and industrial assets said that the quality of the property management team had a “strong” or “very strong” impact on lease renewal decisions.
In terms of what makes a quality property manager, tenants listed “responsiveness” as the most important characteristic.

Full Article at GlobeST.com

Survey Reveals Retail Tenant Confidence Is At An All-Time High

For the complete article, visit the source at GlobeST.com

The survey, which gauges year-to-date store performance and checks in on the latest technology trends, generated the strongest numbers in its seven-year history.

The first half of 2018 was a healthy period for shopping center tenants, according to participants in Levin Management Corporation’sannual Mid-Year Retail Sentiment Survey.

Some 71% of survey respondents report sales at or above the same level as last year. This compares to a trailing six-year average of 54.2%. Additionally, 64%% report shopper traffic at the same or a higher level year-over-year (compared to a 52.8% trailing average).

“It comes as no surprise that this robust start to the year has retailers confident about the coming months,” says Matthew K. Harding, Levin president. “Nearly three-quarters [73.5%] of our survey participants expect July to December performance to match or exceed the first half of the year.”

Levin’s mid-year survey traditionally explores technology issues impacting the retail industry. The current results reflect forward movement in the ways tenants are responding to e-commerce influences and leveraging tech advancements to serve and engage customers.

“The latest findings are highly encouraging,” Harding says. “Our retail tenants are using technology to their advantage at an increasing rate and in a variety of manners.”

More than half (51.8%) of survey respondents reported that e-commerce has prompted their companies to adapt their business model in some way – or ways. Most notably, 72.7% of those respondents cited increased training and focus on customer service.

This emphasis on enhancing the bricks-and-mortar shopping experience through employees also is reflected in the National Retail Federation/Forrester “State of Retailing Online” study, which reported that 61% of retailers plan to spend more on supporting their store associates’ ability to service clients.

“Personal touch and human interaction will always distinguish physical store retail from online shopping,” Harding says. “The retailers that recognize this will be best positioned to compete moving forward.”

Levin tenants appear to be embracing change in several important ways, Harding says.

Specifically:

  • 68% of respondents who have made adaptations have added in-store services and/or incentives.
  • 1% of adaptors have added in-store pickup and returns options for purchases made online.
  • 5% of adaptors have altered their store prototype (i.e. smaller store size or increased focus on showrooming).
  • 2% of adaptors have incorporated “experience” draws such as demonstrations, classes, performances or other in-store events.
  • 6% of adaptors have increased coordination between online and bricks-and-mortar operations.
  • 3% of adaptors have adjusted store inventory (i.e. fewer in-stock SKUs, larger quantities of popular items).
  • According to 60.1% of survey respondents, these initiatives appear to be working. This statistic marks a significant jump in affirmative responses; the trailing three-year average shows
  • 47.2% reporting measurable positive results from e-commerce-influenced adaptations.

The survey also points to increasing connections between traditional and online retailing. Sixty-eight percent of survey participants noted they currently offer an online option for purchasing goods, scheduling appointments for services or placing orders for pick-up, up from 49.8% of respondents last year.

Retailers continue to leverage technology to offer incentives and conveniences for shoppers, both in-store and externally, according to the survey.

Four on-site technology tools ranked high, used by more than one-third of the respondents that embrace tech-based marketing. They include digital coupons, discounts and/or loyalty points (73.9%); free Wi-Fi (43.5%); the option to pre-order items online/pick up in store (43.0%); and in-store, online ordering with free shipping for out-of-stock items: (34.8%). Popular external tech-based marketing tools include Email (80.3%); social media/social marketing (73.9%), banner ads or other internet advertising (42.7%), and text messaging (40.8%).

“Social remains an interesting—and evolving—platform for retail,” says Melissa Sievwright, Levin vice president of marketing. “Facebook and Instagram are the clear leaders for our tenants; 91.1% and 55.1% of mid-year survey respondents that use social media leverage these platforms, respectively. About one-third use Google+ and Twitter. Ultimately, social media has become an active channel for commerce and will continue to play a significant role moving forward.”

Additionally, 43.5% of tech marketing-focused survey participants are enhancing their social media presence with paid options, such as Facebook sponsored content or ads. Many are also leveraging social marketing platforms; Yelp is the most popular, used by 65.1% of respondents, followed by Groupon/Living Social, and Waze and other GPS programs.

Summary

Overall, technology-based marketing continues to grow as a priority for retailers, with 44.4% of survey respondents who employ tech-based marketing saying they have increased their volume in 2018. Multiple survey participants noted they have new tech-based initiatives in the works.

For the first time, the survey asked participants whether they are actively employing technology to analyze customer and/or sales data for the purpose of merchandising, creating services and menu options, planning in-store events, or creating individualized special offers.

“An impressive 64.7% of our respondents indicated they are using the information being captured via technology outlets to influence their business,” Sievwright says. “Our tenants are getting to know their clients’ habits and also preferences and are applying this insight to enhance and personalize their shopping experiences. In that sense, data is driving retail strategy, presenting one more way that technology is helping companies better serve customers and ensure future success.”

Levin’s next Retail Sentiment surveys will be conducted in October/November, gauging expectations as well as plans for the holiday season, and in January, exploring outlooks for the coming year.

Investors for Retail Property Looking to Purchase Assets

How the Retail Businesses are becoming the Right Deal to Venture into in 2018

commercial real estate properties investment

With the numerous changes that our world encounter including globalization, the commercial real estate sector is also rapidly evolving. Consumers’ demands are changing every day. Thus, the need of investors to research and find the right assets which meet the changing demands of the consumers. Attaining such assets necessitates the need of the retail investors to engage in buying mode actively. Today’s retail environment is also rapidly changing, which has led to some of the high profile stores being closed.

This has led to the negative impact in the business domain. However, the investors note other thriving segments in which they aim to venture. For a person to successfully thrive in business in our today’s world, there is a need for embracing new models. Such models do not matter whether they possess a variety of mixed utilization or experiential use. Entrepreneurs have unlimited opportunities if they conduct their research well. Also, if they change their approach to business in accord to the consumers’ change in demand.

One of the most diverse businesses in the commercial real estate is retailing.

One of the significant reasons as to why it is termed by Steve Shanahan as the most bifurcated business is its possession of distinct subsets. These perform well thus pushing the market successively regarding value and price. However, there are a few setbacks with retailing which is what led some entrepreneurs considering investing in other asset types. To understand the retail businesses better, RCM conducted a survey in May 2018 where it analyzed the U.S. database with information concerning the various retail investors in the country. According to this survey, it was found that the Anchored Shopping Centers were the most sought-after retail investment by businesspeople.

In comparison to the 2017 statistics, the grocery-anchored centers’ preference margin grew greater. Although the grocery retail businesses face many challenges which include setbacks in online orderings and the meal preparation concepts, the stores are likely not to be replaced according to the research. Some of the good grocery stores which cannot be replaced by the online ordering stores such as Amazon include gas stations where an individual cannot order for gas in the online stores, laundry business, or ice cream stores where individuals need the products urgently and at their proximity. To ensure that the retail stores perform even better, Cosenza suggested that the owners of such stores should think creatively to come up with a unique approach of conducting business. Moreover, they should aim at minimizing the amount of retail with the intent of driving the business’ growth.

CapRock Announces Merger with RESolutions

June 1, 2018

S.L. van der Zanden, Managing Principal and CEO, and Brian Goldman, Principal and COO, announced today the completion of the merger of RESolutions with its affiliate CapRock. “We are excited to combine our real estate services and investment activities under one roof (CapRock) to better serve our clients and investors”, van der Zanden said. “We expect the transition to be seamless for our RESolutions clients, with the most noticeable change being the CapRock name.”

CapRock Announces Merger - commercial real estate logo

Is retail really going to be obsolete?

The facts about where retail is going…

The actual ratio of retail closures is 90 to 10. This is according to speakers from the capital markets panel at RealShare Southern California.

There may be a lot of headlines covering the failure of retail stores, but it is not as bad as the media is making it out to be. The reality is 90 to 10 and brick and mortar locations are going anywhere.

Experts state that commodity retail does not warrant caution. B and C class malls are definitely a concern from an investment perspective, but brick and mortar is safe.

So, where one individual states that New York retail is a disaster, with a high vacancy rate. Others advide to look deeper. What kind of retail is it? There are good and bad retail choices for this market, and much of retail’s quality is based on tenant mix and, of course, location.

It’s important to look at the competition. Consumers are shopping, but the majority of this traffic is driven by very strong brands. When looking at the competition, you can best understand what the tenant base is. Investors are not excited to finance a “no-name retailer” for instance.

While there is definitely two sides to this debate, it is agreed that not all retail is becoming obsolete. We are in a different market, and strategies need to be looked at differently before making retail decisions to compete in the market.

Click here for the full article from Globest.com

Struggling Retailers Leads to Industrial Market Health

Warehouse leases are being vacated by struggling retailers, but this is actually helping the market supply.

The last few years has shown the market that eCommerce has created a boom for industrial real estate. The demand for industrial space has drastically increased, driving rates of vacancy to an all-time low. In certain LA submarkets, these lows are sub 1% creating an increased sense of urgency for those seeking more space.

What’s interesting is that fewer and fewer fulfillment centers are in need in order to supply brick and mortar store locations, so these brick and mortar closures are starting to turn into industrial downsizing.

“I represent some large corporations, and they have told me that because online sales are killing their business, they are cutting back on brick-and-mortar retail locations as well as the distribution and fulfillment facilities that support those locations,” Chris Jackson, an executive managing director at NAI Capital, tells GlobeSt.com. “I think you are seeing that across the board.”

Toys R Us is a perfect example of retailers closing all their stores. This then spills the industrial supply into the market, however other retailers are choosing to downsize their industrial needs as their brick and mortar locations shrink in certain areas.

“Some companies are trying to figure out how to downsize,” says Jackson. “They are finding that they need less industrial space. They are keeping a few facilities, and they are shutting the rest down.”

Building Size Demand

The most popular demanded building sizes are for midsize industrial boxes. These spaces are around 50,000 square feet.

“As retail users start to close, I think that could impact the market,” says Jackson. “Larger buildings have been sitting on the market for longer. In the bog box buildings over 100,000 square feet, even though there aren’t a lot of them, those big box buildings are beginning to stay on the market a little longer.”

The forecast from all of this is looking like there is going to be an increase in redevelopment industrial projects. Larger box buildings will be made into facilities for multi-tenants.

“I think the trend that you are going to start seeing is private individuals that own large buildings are going to sell, and the new ownership will divide the building into smaller spaces so that it can be leased out,” says Jackson. “So, the market will open up a little bit. It is hard to find one tenant for those large big box buildings.”

Landlords may face loan trouble after Toys R Us closings

The Changing Landscape Of Retailing

What could the potential impact of selling or closing hundreds of Toys R Us and Babies R Us stores on the commercial real estate market in the U.S. be?

Currently, few retailers are expanding their bricks and mortar presence. Experts in commercial real estate are looking for this added supply of square footage to have a mixed impact on the real estate market, but are generally expecting the closures to push down market rates.

On one hand, landlords who have older leases with stores like Toys R Us in economically viable shopping areas, have the potential to find more profitable tenants. Other landlords will begin the scramble to find replacement tenants or to refinance and redevelop their property. The recent departure of big box stores such as K-Mart, Circuit City, and Sports Authority increases the amount of square footage available, reducing market rates even more. It is possible that some property owners will not survive an economic downturn.

At the same time, however, chains with stores like Homegoods. Ross and TJ Maxx are expanding their presence. Some of the closed big box stores are being redeveloped and divided into smaller retail outlets. This activity is keeping the commercial real estate market in a state of flux with market rental rates continuing to fall in some areas.

How long could this process of adjustment take? The time estimate from closing out one physical store to locating and negotiation with new tenants could take one and a half to two years, depending upon the amount of redevelopment required. Because of existing lease structures and commitments, along with declining demand for brick and mortar retail space, it could take even longer. One shopping center could be profitably redeveloped and another center nearby could simply fail altogether.

Regardless of the amount of time this process takes and who survives and who doesn’t, changes to the landscape of retailing will be with us for a long time.

Two Mall Owners Offer to Save Bon-Ton with Buyout

Bon-Ton is on the verge of closing all its’ department stores after filing for bankruptcy. The cost to buyout? $128 Million.

bon-ton buyout

Namdar Realty Group and Washington Prime Group have come together to offer the $128 million cash bid to buy Bon-Ton Stores out of bankruptcy.

Bon-Ton filed for Chapter 11 bankruptcy in February 2018. The bidders are looking to purchase Bon-Ton through a court-supervised bankruptcy sale process. Following Bon-Ton’s actions to file bankruptcy, several entities have been interested in buying out Bon-Ton and liquidating the stores. The investor group and Bon-Ton are preparing to finalize their asset purchase agreement which needs to happen before the auction currently scheduled for April 16, 2018.

The courts also approved the $500,000 work fee paid by the investor group, in order to cover the due diligence cost.

No comment has yet been made by either Washington Prime or Namdar Realty.

The details of the buyout

Namdar Realty and Washington Prime would acquire nearly all of Bon-Ton’s assets. There is one exception, a 743,600 sq. ft. distribution center located at 115 Enterprise Parkway, West Jefferson, OH. AM Retail Group Inc. would buy this exception property separately.

Bon-Ton is currently Washington Prime’s tenant in 15 properties. The size of these properties totaling 1.48 million square feet. In addition, Bon-Ton is also a tenant of Namdar Realty in 13 properties.

There are 250 stores operated by Bon-Ton in 23 states across the United States.

 

According to Morgan Stanley Research analysts, Ronald Kamdem and Richard Hill, Washington Prime and Namdar Realty’s bid makes complete sense due to several reasons. If the investors were to lose their tenant, Bon-Ton, their malls’ cap rates would most likely widen if given the risk of co-tenancy and capex requirements to redevelop.

 

 

In addition, the investors could be positioning the move in order to place the Bon-Ton stores where they have big box vacancies in their malls.

 

“We can’t help but think this would be a competitive advantage for these two mall landlords relative to their peers,” said the two analysts. “First, they could choose to keep open stores at their properties while closing others at competing locations. Second, it could provide them an opportunity to buy malls from their competitors at more attractive valuations if there is a risk of losing a major tenant.”

 

The Retail Property Management Market is Changing

The retail market is changing, and commercial real estate managers are significantly adding to property value.

Retail Property Management - Commercial Real Estate

With the understanding of their tenants’ business, commercial real estate managers are driving immense value in retail assets. It has become obvious that retail properties which are successful, are made from successful retail tenants. However, there is more to it than simply finding a daily-needs anchor that promises internet resistance.

Perfect example…recently, a five-building automotive retail property traded hands in Chula Vista for a whopping 176% over the original investment. The property is located in a retail-zoned corridor. This type of location is rare for automotive properties today, which of course made it that much more of a desirable opportunity. Although the property was rare due to zoning, it was the property management team that was integral in driving value. Thus, turning the failing and mostly vacant asset into a profitable automotive center.

CapRock Celebrates its 10th Year

February 24, 2018

10 years CapRock commercial real estate chicago

“We are proud to have served our clients by delivering superior results to enhance the performance of over 4,000,000 square feet of commercial real estate over the past ten years. Our focus on maximizing asset value has allowed us to build deep relationships with our portfolio of real estate owners, private equity funds, special servicers

and banks.”

S.L. van der Zanden, Managing Principal  |  Brian Goldman, Principal & COO

 

Thank you also for the generosity of your time, effort and professional assistance throughout the year with Centier Bank’s property management/liquidation assignments, periodic note sale needs and availability to answer all of our general inquiries. Your firm is second to none in people resources, capabilities and responsiveness. It has been my privilege to work with all of you and your extended team. I look forward to our continued, and long-term relationship.

Brian D. Miller, Vice President Group Manager Risk Management, Centier Bank

224 des plaines - commercial real estate chicago

224 Des Plaines

Chicago, IL

211 w wisconsin ave - commercial real estate chicago

211 W Wisconsin Ave

Milwaukee, WI

There are lots of receivers, and most are good at working the court

system and chasing tenants for rent, but CapRock brings a true asset management perspective which is a big differentiator – that adds a

lot of value to the equation…

Gianluca Montalti, Senior Vice President, Torchlight Investors

glen town center - commercial real estate chicago

Glen Town Center

Glenview, IL

medical mutual headquarters - commercial real estate chicago

Medical Mutual Headquarters

Cleveland, OH

CapRock is a very professional and experienced commercial property manager. They increased our occupancy to 100% with an aggressive tenant retention as well as leasing strategy.

Gerald Nudo, Principal, Marc Realty

enterprise corporate center - commercial real estate chicago

Enterprise Corporate Center

Andersen, IL

valparaiso walk sc - commercial real estate chicago

Valparaiso Walk SC

Valparaiso, IN

 

CMBS (Conduit) Loan Defeasance Drops Rapidly

February 15, 2018

A CMBS Loan, also known as Conduit Loan, is a type of commercial real estate loan secured by a first-position mortgage on a commercial property. These loans are packaged and sold by Conduit Lenders, commercial banks, investment banks, or syndicates of banks.

The legacy CMBS market has been shrinking rapidly, which has affected defeasance activity profoundly. Last year, only 449 CMBS loans ($6.4 billion) were defeased. Compare this to 2016, where 1,059 loans ($15.9 billion) were defeased.

Why did the number of defeasances drop?

Last year, market conditions were perfect for defeasance transactions. However, there simply was not very many loans to defease. When interest rates are low, and property values high, we see higher defeasance activity. This was what happened in 2016.

Between 2013 and 2016, a spike of defeasances occurred when approximately $70.6 billion of loans were replaced by government securities.

This increase in defeasance activity occurred simultaneously with the CMBS Wall of Maturities.

What fuels the defeasance fire? Maturing Debt.

Bottom line, there are fewer maturities, so there are fewer defeasances. This is best explained when looking at the financial crisis that happened almost a decade ago. After the fall, so to speak, not as many CMBS loans were issued.

The decline of maturities = The decline of defeasances.

What is the expectation?

Steadiness. This expectation isn’t a strong one when looking at the scarce amount of loans issued in the last 10 years, following the 2008 financial crisis. Let’s break the numbers down…

2008 – $12.1 billion of loans

2009 – $3.6 billion of loans

2010 – $11 billion of loans

The Big Variable

In short, expectations of major interest rate hikes. Rate increases motivate borrowers to “lock in” current rates, as well as defease existing loans. However, for this to happen, the increases would have to be dramatic. 1% is not enough to scare a borrower into completing these transactions. Instead, it would have to be a much higher number that would cause them to defease, even if they only had a few years left on the existing loan.

Prepay or Defease?

Securitized commercial mortgages are usually structured with prepayment restrictions. This is to make sure that the lenders receive the cash flows that were expected for the life of the loan. If a borrower decides to pay off their loan before it becomes available to prepay, they could face serious penalties. These payoff cases typically happen when there is a sale of the property or a dramatic drop in interest rates.

Alternatively, the borrower could replace their mortgage collateral with government securities that copy the mortgage’s cash flow. In short, the lesser amount of time left on the loan, the lower the cost to defease. As with the opposite, the longer amount of time remaining on the loan, the more it will cost to defease. This is why most wait until the last two years of the maturity of the loan to defease.


If you have questions on defeasement or the maturity of your loan, contact CapRock to guide you to the most appropriate steps for your situation.

CapRock News 12/2017

December 13, 2017 – CapRock sells Peoria apartment portfolio and hires Patrick Schenk.

CapRock commercial real estate chicago - logo
COMPANY NEWS:

ANNOUNCEMENT:

CapRock represents Asian buyer in purchase of Peoria multifamily assets.


NEW HIRE:

Patrick Schenk has joined CapRock.


REFERRAL REWARDS:

Contact us to learn how you can easily monetize your real estate network by referring business to us.



CONTACT US:

CapRock

Property Management,

Investment Sales & Leasing

  Send us an Email

Phone: (312) 257-3252

Web: www.CapRockemr.com

Address:  79 W Monroe, Suite 905, Chicago, IL  60603


SOLD: Peoria Apartments Purchased by Asian  Investor

(Peoria, IL) – CapRock is pleased to announce its representation of an Asian buyer in the recent purchase of a 33 unit apartment portfolio located on Moss Avenue in Peoria, Illinois for $1.3 Million. While not exclusively leased to students, the properties’ location between the University of Illinois Medical School and Bradley University, results in a strong student occupancy.

Brian Goldman and Saar Schnitman identified the opportunity and represented the buyer in the purchase. In order to complete the transaction, we also negotiated a release of a potentially detrimental easement over the property by the owner of the land next door.

NEW HIRE

Patrick Schenk

Associate

Property Management & Leasing           

patrick schenk - CapRock real estate

CapRock is pleased to announce that Patrick Schenk has joined the company in the Property Management & Leasing group. 

Patrick graduated from DePaul University’s Driehaus College of Business this past spring after successfully completing his degree in Real Estate Finance. Patrick comes to us from The Walsh Group and will be initially working on property management and leasing.

Please note:  This is an opt-in newsletter and is only received by those who joined it or have had interactions with CapRock EMR.  CapRock EMR respects your privacy and will never share your email address or any other personal information with anyone.