Archives for September 2016

Thanks to all of the brokers, sponsors and guests who attended the September 2016 CCIM NM Deal Making Session and to those who shared the CCIM NM September Properties.

Over 13 million dollars of commercial real estate properties available for sale were presented from all over New Mexico.
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	Name	Property, City	Type	Price
1.	Todd Clarke, CCIM	1700 Indian Plaza NE	MF	$11,000,000
2.	Anne Apicella	7520 Montgomery Blvd. NE	Off/Med	$207,250
3.	Coralee Quintana, MA, MBA	101 Florida SE	Retail/MU	$299,000
4.	Keith Meyer, CCIM, SIOR Jim Wible, CCIM	2420 Midtown Place NE, F&G	Ind/Flex	$560,000
5.	Consuelo Horne	6301 Central Ave. NE	Retail	$650,000
6.	Brian Anderson, CCIM Barbara Morgan	1101 4th St. SW	Retail	$325,000
Closed Deals   ~    Active Investors   ~    Gratitude
7.	Corinna Yonemoto-Brown	4550 Eubank Blvd. NE	Off/Med	$265,000
8.	Coralee Quintana, MA, MBA	2318 Central Ave. SW	Retail	$480,000
9.	Steve Kraemer, CCIM Dave Hill, CCIM	232 San Pasquale SW	Off/MU	Undisclosed
10.	Corinna Yonemoto-Brown	2320 Wisconsin NE	Retail	$350,000
11.	Coralee Quintana, MA, MBA Consuelo Horne	408 Arizona SE	Retail	$190,000
12.	Dave Hill, CCIM	1301 Wyoming NE	Office	$1,100,000

 

While the US economy is creating plenty of jobs, it isn’t growing much.  In the first half of 2016, gross domestic product (GDP) grew at an anemic annualized rate of just 1%, compared to about 2% since the end of the recession, and 2.5% from 2000 through 2007.  Usually, weak economic growth has been associated with weak employment growth. But not now!  Employment growth during the first six months of the year totaled slightly over one million jobs, or a healthy average of 175,000 net new jobs/month.  If the historical relationship between GDP and employment that existed before the Great Recession still held, 40% fewer jobs would have been created since January.  That said, what does slow growth mean for future wages, why is GDP growth so slow, is it likely to persist, and what does this imply about future interest rates?
The prolonged and robust job growth we have been experiencing for the last several years has brought down the unemployment rate from 10% to just 4.9%, low by historic standards.  As a result, workers are finally becoming scarce and labor costs are, at long last, rising, although not as fast as before the recession.  This is because wage growth results from two forces: labor scarcity and increases in labor productivity.  Having already discussed scarcity, let’s focus on productivity growth, or the increase in output per worker per hour.  What we see is dismal labor productivity growth.  It has actually been declining for the last three quarters in a row, the first time this has ever happened outside of a recession.  This goes a long way in explaining why wage growth remains mediocre despite the low unemployment rate.
While labor productivity is expected to improve and return to the 2006 – 2015 annual average rate of 1.25%, that is way below the 2.5% annual growth rate between 1949 and 2005.  This weak labor productivity growth is most likely the result of an aging population and years of weak corporate investment in plant and equipment.  This continued lack of investment has sharply reduced corporate efficiency gains.  As a result, to produce more product to meet virtually any increase in demand requires more hiring.
Importantly, the conditions that have created this weak investment environment will not dissipate soon.  While energy prices appear to have bottomed, it is unlikely that they will soon rise.  Thus, exploration and production activity in the oil patch is unlikely to increase much.  Similarly, mining firms are holding back on investment while commodity prices are weak, and manufacturers that sell their output overseas will continue to face strong headwinds due to the strong US dollar.  In addition, agricultural prices are also expected to remain depressed and auto sales have peaked.  Collectively, this means investment in plant and equipment is likely to remain weak, all but insuring GDP growth of at best 2% for the foreseeable future.
With labor productivity weak, GDP growth sluggish, and inflation correspondingly low, the Fed has reduced how high it sees the long-term fed-funds rate reaching — no higher than 3% compared to 4% or more as recently as 2013!  As a result, it may well take three or four years for the fed-funds rate to hit just 3%.  As for conventional 30-year mortgage rates, they are likely to remain below 4% well into 2018.
By: Elliot Eisenberg, Ph.D. (GraphsandLaughs, LLC)
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With careful planning, commercial real estate professionals can make sure investors, tenants, and properties are prepared to weather the worst.

By: Dan Weil (National Association of REALTORS®)
There are some situations managers and owners of commercial buildings hope will never happen on their property: natural disaster, large-scale theft, sexual assault, or even a terrorist attack. But all these things can happen, and real estate professionals have to be ready for them.
That point was brought home to Luis Alvarado, executive vice president for property management at Newmark Grubb Knight Frank in Boston, during the Boston Marathon bombing of 2013. His previous company, which he declined to name, was managing the building at 699 Boylston St., in front of which the first bomb was placed.
“Thank God we had plans in place, including how to evacuate,” Alvarado says, adding that their manual for unexpected disasters runs near 100 pages long. His company cooperated with the investigations of Homeland Security, Boston police, Massachusetts police, and the FBI. The building was shut down for almost two weeks. “You need to establish communication with every tenant and have three contacts for every tenant.”
So how should you prepare for such emergencies? “It’s important to have a written policy manual covering all those foreseeable events, so that standards of practice can be adhered to,” says Neil Merin, chairman of NAI Merin Hunter Codman, a commercial real estate services firm in West Palm Beach, Fla. “There has to be a reasonable approach that mitigates the problem but doesn’t inconvenience tenants excessively.”
The range of crises that could arise stretches long and wide, which necessitates thorough preparation. Jesse Holland, president of Albany, N.Y.–based Sunrise Management and Consulting, has virtually seen it all: “a bomb squad, a hurricane, fires.” He’s happy to note they haven’t had any reported cases of sexual assault, but have had to deal with “sexual offenders who didn’t belong on the property.”
Holland says there are four crucial steps in preparing for crises, and the first step is compiling pertinent information. “Where are the locations of the water shut-offs and gas mains? Who needs to be contacted in case of emergency and what are their phone numbers?” Holland says.
Being prepared can also help you deal with smaller emergencies. For example, when the computer system Holland’s company relies upon crashed, they were saved by the fact that part of their disaster plan is to print out the rent roll for apartment complexes each month. “All the information was there to rebuild our records,” he says.
The second major issue for Holland is relationships. “All emergency situations involve a lot of other agencies and stakeholders,” he says. For example, if there’s an active shooter on your property, you’re interacting with the police department. “That’s a lot easier if you already have a relationship with the police.”
When Sunrise puts up a new building, it invites the fire department during construction so officials can see where things are and how they are put together. “We have relationships with town officials and assessors too,” Holland adds.
Don’t forget to build relationships internally, too. Brian Davis, cofounder of Baltimore-based rental education site SparkRental.com, cautions property managers against drafting emergency plans with only lead staff members in mind. “They need to make sure that every staff member knows and understands the plans,” he says.
Then there is the task of gathering trusted vendors. When Hurricane Irene hit the Northeast in 2011, Sunrise had a 192-unit apartment complex that was underwater and had to stand vacant for three days. “We had contracts lined up so the minute we were given clearance, we had eight dumpsters arrive on site,” he says. It might sound like a minor detail, but Holland notes that their efforts to do this massive cleanup right away made the area feel less like a disaster zone. “Food and everything else that was in flooded units had to go. If there hadn’t been a place to put it, it would have been everywhere.”
They also made sure there were specialists to deal with the electric and the pump station. Holland says some who saw the complex thought the place hadn’t been damaged by flood at all but was merely being renovated.
The third important factor Holland cites is security. “How are you going to control the site and deal with tenants? If you have an active shooter, the whole place is a crime scene.”
Owners and property managers have to make sure parking lots and common areas are safe, Merin says, suggesting they bring in a security firm to look over the property and point out vulnerabilities and necessary updates. In one of the buildings his firm manages, thieves were stealing laptop computers, gaining access to floors through fire escape stairwells, so they decided to make security improvements that targeted that structural vulnerability.
Technology can also assist in tightening security. “You have a lot more access to video monitoring now,” Merin says, noting that this can help eliminate common problems with relying on staff and locks only. “You can catch your own security guards stealing on videotape.”
And finally, you need to be prepared to deal with the aftermath. “For example, after a fire in cold weather, you have to winterize the pipes or they will freeze,” Holland says. “You’re dealing with insurance and relocating tenants. What needs to be rebuilt?”
Insurance is a big part of the aftermath, too, and a must-have for property managers and building owners. “Property managers should have insurance to cover their own liability, and they should aggressively push building owners to have comprehensive insurance that includes strong liability coverage,” Davis says. Managers should keep copies of the owner’s insurance policies, in addition to their own, in a secure location.
Finally, keeping a detailed account during the crisis will make your job easier in the long run. “That’s the first rule of property crises. Property managers should document every detail as early and as thoroughly as possible,” Davis says. “That could mean photographs; it could mean voice or video recordings; it could mean taking recorded statements from tenants or specialists.” Lawyers and insurance officials will eventually look at every detail, so thorough it’s vital you have evidence to prove every staff member behaved appropriately.
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