How Bowie, MD Commercial Brokers Network

I received an invitation to join a brokers networking function out in Bowie County, Maryland: 

Trap Shooting!  But take a look at the RSVP slip.

  

Note the bottom "Check All That Apply"...uh, no, I'm not bringing my own shotgun, thanks. LOL!

What DC commercial real estate people REALLY say!

Hilarious take on the DC commercial real estate community!  Take a look at all the who's who in the DC CRE Broker world.

Real Estate in the Movies

I've been meaning to write this entry for awhile but haven't had the brain power to do it.  There's quite a few Hollywood versions of the real estate game.  Here are two of my favorites that come to mind:

www.imdb.com

Goonies Plot Summary: Kids in search of hidden pirate treasure in hopes of saving their neighborhood from evil real estate developers wanting to build a golf course.

www.imdb.com

Up Plot Summary: A curmudgeon old man refuses to sell his house to developers after his wife passes away.  Just before he is forced to move into a retirement home, he goes on a long awaited adventure and taking his beloved house with him.

One of the most recent is none other than George Clooney in The Descendants.  

The basic plot consists of George Clooney, a lawyer in Hawaii, who serves as the sole trustee of a family trust controlling a large area of pristine land on the island of Kauai.  Because of the "rule of perpetuities", the trust will expire after a certain amount of time, and will be forced to sell the land.  All the family trust members have differing motives for selling: yielding the most money, preserving the natural characteristics of the land, selling to local developers, selling to develop the best use of land, etc.

Watching this movie, I can't help but think about the Belward Farm debacle and how sellers ultimately choose who to do business with.  It's not always about selling for the most money and it's not always about the easiest transaction.  Sometimes there are unexplained and complicated dynamics that drive seller decision making.  I oftentimes stress this to my buyers because it helps to think like a seller, it influences their offer strategies and hopefully ends in a favorable outcome for everyone.

Mid-Atlantic ICSC 2013

Don't even know where to begin!  General outlook for the DMV Retail Real Estate? Retailers aren't going anywhere! There will always be a demand for brick and mortar stores.  When was the last time you bought ice cream online.  How can you buy gas for your car?

Here's a few highlights of a MoCo related commercial development:

Downtown Crown
Address: Fields Road, Sim Eig Highway in Gaithersburg, MD
Developer: JBG Rosenfeld Retail
Property Type: Mixed Use
Gross Leasable Area: 260,000

It's going to be massive!  The total Crown retail component features 22 acres of retail including Harris Teeter abd LA Fitness.  Restaurants will include Coastal Flats (YES!), Asia Nine, Roti Mediterranean Grill, La Madeleine, Lime Fresh Mexican Grill, and La Tagliatella.  Multifamily component will be developed by JV partner Bozzutto.

Pike & Rose Update - Rockville

Just got this Pike and Rose update from Federal Realty Investment Trust.

Pike & Rose is more than a new neighborhood. Located at the intersection of Montrose Parkway, Rockville Pike and Old Georgetown Road, an exciting new urban area is under construction. Opening in 2014, it’s a place to live, shop, and work inspired. Here's the latest information on our construction progress. This is what it looks like when 24 acres of strip mall transforms into an inspiring mix of culture, entertainment, cuisine, and shopping designed to engage and enchant.  Hats off to all the workers braving the chilly winter days!

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Block 11 is the future home of iPic Theaters, Salt Bar, and Tanzy.  All you need to know is that this is the block of Ahhhh's.  Prepare to be amazed by a luxury movie-going experience and imagine yourself dining on gourmet treats and a glass of wine or cocktail.  Stacked on top is Class A office space. It's no wonder our workers are inspired--they've completed 270 of 287 caissons.  Underslab drainage system?  Check.  In February we'll complete the caissons and begin pouring the slab and foundation walls.

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Block 12 is our uber-cool, loft-style residential building.  If you are looking for a new apartment, join our residential mailing list for updates.  Dining and retail sits on the ground level--apartments sit above,  Muse Alley will be right around the corner. Our workers are building a solid foundation -- pouring the concrete slab, waterproofing exterior walls, and forming solid columns under the slab.  In February, we'll complete more columns for our retail spaces.

The Morgan goes up for Auction

Got a couple million in the bank?  You COULD be the NEW owners of The Morgan in North Bethesda, a Class A 127 apartment Complex going up for Substitute Trustees' Sale on February 1, 2013 at 11am.

Taken from Alex Cooper Auctioneers, Inc. Website

 

This is great real estate but poor visibility.  I believe it was developed by multifamily REIT, AvalonBay but don't quote me on that.

 

What does a Substitute Trustees' Sale mean exactly? Well, it appears the owner of the Morgan has not paid its mortgage and the complex will now go up for auction to the highest bidder.  HOWEVER, most of the time the owner wants to keep the property and will continue to negotiate with their lender, causing them to stall or cancel the auction.  OR another thing that happens quite often is the owner may declare bankrupcy causing the entire foreclosure process to stall completely. 

Did you Know...

According to the Washington Business Journal, Washington DC tops the LEED building list!  LEED stands for Leadership in Energy and Environmental Design which the U.S. Green Building Council uses to measure environmentally friendly and how "green" a commercial building is.  The Green Building Council says that DC has 36.7 square feet of certified LEED building per capita, the highest concentration in the country! Virginia was ranked second and Maryland was ranked 6th.  In 2012 alone, DC added 22.2 million sf of LEED-certified space.

The U.S. Green Building Council's list of top LEED-certified buildings in 2012 are:

1. D.C.
2. Virginia
3. Colorado
4. Massachusetts
5. Illinois
6. Maryland
7. New York
8. Washington
9. California
10. Texas
11. Nevada

Belward Farm - Why people hate RE Developers

Picture from www.scale-it-back.com

A former cattle farm, Belward Farm is located at the intersection of Darnestown Road and Muddy Branch Road, and is recognized as one of the last remaining pieces of undeveloped farmland in the Rockville/Gaithersburg area.  Developers had long tried to buy the land from then owner, Elizabeth Beall Banks.  Opposing suburban sprawl, "Banks once scared county planning officials off her land with a shotgun.", reported the Washington Post.  "Another time she stood in front of bulldozers, hugging trees to stop development around her.  She turned down numerous lucrative offers to turn the grassy fields into a housing development."

In 1989, Belward Farm was sold to Johns Hopkins University for $5 million which was a fraction of the $54 million estimated value at that time.  According to www.scale-it-back.com, Ms. Banks sold the land to JHU in the understanding that the institution would build a minimally intrusive medical or academic campus that would preserve the character of the farm and provide a legecy for the Banks family who had owned it for over 100 years. 

According to the Washington Post article on February 19, 2001, Ms. Banks' relationship with JHU soured during construction on an eastern parcel when bulldozers removed trees in the buffer.  Ms. Banks said "They came, they lied to me" she said.  "It hurt me so.  I had all the faith in the world.  They turned on me.  They stabbed me in the back."

Belward Farm from a presentation by Johns Hopkins

Once Ms. Banks passed away in 2004, JHU saw dollar signs and changed its development plan to a "Science City", a massive university-owned commercial real estate venture boasting over 4.7 million square feet of office and mixed use.  Hopkins is reportedly offering ground leases for commercial development with buildings up to 14 stories tall.  Ms. Banks was ADAMANT that her farm must not be used for residential or commercial development, yet JHU DELIBERATELY ignored this request.  In an effort to see Ms. Banks' wishes, the family brought the University to court however ruled in JHU's favor to move forward with no development restrictions.  The Belward heirs are now appealing the suit.

I admit, as a real estate investor, I too always drool when I see the land: a sprawling 138 acres of land central to EVERYTHING.  But what makes me different is that I have morals.  I am not about to lie in someone's face, disrespect someone's trust, and take advantage of the situation to make a quick buck.  Hopefully JHU will be the bigger person and scale back the project to not further piss off the heirs and the community.  And shame on MoCo to try to "cash in" on business tax revenue!

When it comes to buying real estate, the best thing to do is to keep it as a buiness transaction: do NOT to make it personal.  Writing a clear and concise contract or agreement avoids situations like these where buyer/seller intent is questioned.  When you're SELLING real estate, it's ALWAYS personal.  You think of little Bobby swinging on that oak tree, Skip first learning to ride his bike, or Jenny sliding down the banister.  Sellers tend to have an emotional attachments to their homes so we need to be sensitive towards the situation.  At the end of the day, be respectful of other's wishes and treat others as you would like to be treated.

It pays to be the boss.

Before the "housing bubble meltdown" in late 2008, I briefly worked at Sunrise Senior Living, headquartered in Tysons Corner, as a Development Transaction Associate.  Essentially, I was hired to track the progress of the various community developments around the U.S. including coordinating Purchase Sale Agreements, making sure Debt was lined up, and communicating with equity partners.  After 2+ years at JHU READING about this stuff, I was FINALLY experiencing it first hand.  I was in heaven, working for a great company who fed us ice cream and popcorn, free gym membership, free Starbucks coffee...this was great! Then, after the second week, they made an announcement they were stopping the free Starbucks.  I should have known that was the beginning of the end.

Third week, the entire company was invited to the neighboring Hilton to have a meeting.  They announced Mark Ordan (of The Mills Corporation and Balducci's) was taking over as CEO and also announced voluntary layoffs.  Anyone who felt their position could be consolidated were invited to present their plan and receive a generous package in return.  Uh oh.  Obviously once the markets tanked, I knew my position was in trouble.  A week later, both my boss and my positions were eliminated.  I wasn't worried though.  They gave me a great package (frankly for a month of employment, I didn't think I deserved) and I found a job a week after my layoff working in the distressed market!

Point of the story is that even after being laid off, I knew Sunrise was a winner and I knew the company would eventually be sold.  How did I know? Because they hired Mark Ordan, had a reputation for taking over a company and orchestrate its eventual sale as he did for The Mills.  I knew Mark would do the same for Sunrise.  So after I got laid off, I bought tons of Sunrise stock essentially at a penny stock.  My husband thought I was crazy.  Fast forward 3 years, Health Care REIT announced its agreement to acquire Sunrise for $14.50 per share.  PARTY TIME FOR PATTI (and I told you so for Neil).

Why am I going into all of this? Because I just read in the Washington Business Journal that Mark Ordan will stand to collect $16.7 million for his efforts. Damn.  That puts my $14.50 per share to shame. ;P  But as the title suggests, It pays to be the boss!

Real Estate Development Geeks - Looking for something to do tonight?

If I didn't already have plans, I would want to know what was in store! This affects traffic patterns, real estate values, and most importantlly, my own shopping patterns!  Go check out what's in store for the Pike!

What's a Cap Rate?

Get it?? Cap...Rate!

You see it in the Wall Street Journal, commercial real estate marketing materials, generally any type of income producing real estate lingo.  But what the heck IS it?

In it's simplest explanation, a cap rate (short for capitalization rate) is a ratio that real estate professionals use to summarize a deal transaction.  According to Wikipedia, it is "the ratio between the annual net operating income and its capital cost (the original price paid to buy the asset) or alternatively its current market value."  So for example, you want to buy a building for $1,000,000 sales price and it generates $100,000 in net annual operating income:

$100,000/$1,000,000 = .10 or 10% cap rate (to sound smart, just say "at a 10 cap" =P)

*Note that cap rates can only be used for positive cash flowing properties

Investors use this ratio as a form of valuation or indirect measure of how fast an investment will pay for itself.  It will also be used to roughly compare property values.  For example, if a real estate investment provides $100,000 a year in NOI and similar properties have sold based on 8% cap rates, the property can roughly be valued at $1,250,000 because $100,000 divided by 8% equals $1,250,000.  (I know, brush off those algebra skills...).

What does NNN mean?

In the Commercial Real estate realm, you often see retail rents quoted in terms of NNN or "triple net".  What that means is that the tenant is required to pay, in addition to rent, some or all of the property expenses that would normally be paid by the landlord.  In other words, the rent quoted is net of expenses such as taxes, insurance, utilities, capital expenses, maintenance, etc.  Why triple then? The most common reimburseable expenses include real estate taxes, insurance, and CAM (common area maintenance).  But they could also include additional costs such as administrative fees, marketing fees, trash fees, etc.

So when Mr. Landlord tells you, the rent is $25.00 NNN and the Nets are $4.00, this actually means you would be paying $25.00 per square foot per year and an estimated $4.00 per square foot per year in addition.  I highlight estimated because those Nets will ultimately be reconciled at year end by actual costs. 

At the end of the day, read your lease carefully and speak to a real estate attorney about your ultimate lease obligations.