As you can see the quantities add up quickly.  Let’s use a simple example to show the impact of these numbers.

Assume 200 people at 150 SF per person.  The building loss factor is 20% and there are additional space uses of 10%.  The rent for office space is $20.00 PSF and the operating costs are $4.00 PSF.  The table below shows the total cost of occupancy at 150 SF per person and 130 SF per person.

As you can see from the analysis, the annual total cost of occupancy goes up over $100,000 per year and the difference is over $600 per person per year for a small change in the space standards.  For large quantities of people, this difference becomes exceedingly large.  For a ten year lease, this is a $1 million difference in the two cases.  Said another way, the difference between to two cases on a per person basis is about $625 per year and this justifies the purchase of new furniture that typically runs $3000 to $4000 per individual.

“How is it possible to have 25% increases in healthcare costs, which account for roughly 17% of GDP, and not have serious inflation?” said Dr. Linneman. “As inflation takes hold, generations that have never witnessed inflation will experience its destructive power. It is essential that [investors] are aware of the damage that inflation can wreak on [their] net investment position.”

The white paper analyzes the impact that inflation will have on commercial real estate, forecasts the direction of interest rates and provides investment and financing strategies for property owners seeking to shield themselves from inflation’s destructive power.

Beware of Inflation assesses the potential destructive power of inflation and its impact on commercial real estate.

This latest white paper follows A Disastrous Decade, Dr. Linneman’s scorecard for the 10 years from mid-2000 through mid-2010, reviewing how the economy has changed over the first decade of the 21^st century. NAI Global’s white papers and research resources are available for free download at www.naiglobal.com under Publications/Articles & White Papers.

First and foremost understanding Culture; specifically the customer buying behaviors and patterns.  Understanding what people are buying, their socio-economic composition, provides insights’ into Content and what is the best inventory mix to adapt to local market conditions.   Only once a strong understanding of the market place has been achieved can a retailer move to the next cornerstone which is Compliance.  Each country has their own set of rules and regulations regarding foreign expansion/ownership of property.  Compliance is critical to knowing how far a retailer is able to operate in a particular country.

Armed with the knowledge of local culture and compliance, this would enable a retailer to measure Customer capacity or more simply put, “How big is this market for my store or restaurant chain?” Being able to pin point the number of potential customers allows you (the retailer) to then frame Capacity/Competition.  Knowing how many potential locations the market could support in addition to understanding the local competitive presence is critical to framing market expectations and developing a strategic real estate blueprint.

One of the most critical aspects of any sale transaction is to accurately assess the certainty of closing with specific buyers.  The most proficient seller or seller’s broker should personally interview each offeror and buyer’s broker (if so represented) and should request a description of their company, internal approval authority and process, and source of funds and track record over the past several years (including whether they have purchased any property in the last 24 months).  In addition, you should request a list of at least two references from unrelated sellers, who the buyers have previously purchased investment or user properties from in order to ascertain whether or not they have re-traded the price following due diligence.

Armed with the above information, you (or your broker) should then compile a comprehensive spreadsheet, comparing the offering terms and the results of your investigations.  Based on your due diligence and the recommendations of your trusted consultants, develop your best choice for a limited secondary field of offerors.  Once you have made a decision as to whom to move forward with, request a “best and final” bid by a definite date.

Upon selecting the final bidder, try to keep those quality offerors who were not selected in a fallback position, so that, should the chosen buyer decide not to move forward for any reason, you can move on to the next most likely candidate without having to return to the market.

For Instance:

Thus, if you can complete a site search for the correct city, or in part of a city, where you can get the same quality and quantity of labor for $1.00/hour less, then theoretically you can offset your annual rental costs.

According to current economic indicators–and most economists–U.S. business and industry will likely show measurable signs of improvement in 2011. That means the window is narrowing on the opportunity for industrial firms to recognize significantly improved revenue from their leased facilities.

That may seem counter-intuitive at first. But the current economic cycle is rife with opportunity for successful enterprises with positive credit history. Your landlord is loath to admit it, but the fact is, your 

company–more specifically your leasehold obligation–is one of your landlord’s principal assets right now.

Nationwide, commercial properties–including the facilities you occupy now–have decreased in value as a result of the real estate decline and the accompanying recession. With regional and local market vagaries, all properties have suffered. As undercapitalized companies downsized or folded, vacancies spiked and rents from remaining tenants have not made up the difference.

That means the capital value of your monthly rent payment–the relative proportion of your landlord’s mortgage payment or ROI covered by your payment–is substantially greater than the numerical dollar value. Your landlord and your landlord’s lender are both eminently aware of this.

To the extent that you can turn that value differential into cash–or concessions–you can improve your company’s cash position.

But beware the window is closing. As the economy improves and more companies expand, the value differential will evaporate.

If your lease is due for renewal this year, current market conditions are even more favorable. Landlords will agree to substantial concessions to retain a good tenant. Even if your lease is not due for renewal soon, negotiate now and offer to extend the term.

A reputable offer of terms and conditions from a new landlord will inevitably lead to stronger concessions from your current landlord.

From your current landlord’s perspective, the only meaningful differential is an estimate of your relocation costs versus his cost to lease the space to a new tenant.

Well-informed–and well-represented–tenants are cutting very good deals now with pragmatic landlords, fixing advantageous rates, lengthening lease terms and negotiating improvements and upgrades.

In the current market cycle, most companies will benefit from lease negotiations conducted with the expertise of a good tenant representative. Almost every commercial property firm today retains associates whose specialty is representing the interests of tenants.

Such specialists have the capacity to research properties, landlords and local market conditions, and know which concessions are most reasonable.

They also know the conditions landlords face. A newly built industrial property may have minimum lease requirements imposed by lenders, and thus might be more flexible granting improvements or upgrades than lower lease rates.

Landlords of older properties may be in a better position to wait out the recovery and thus be less inclined to negotiate generous concessions of any sort. A good tenant representative will know the inside story.

The end result is the same. Time is of the essence. Act now and you can lock in rates and terms that fit your business plan and substantially improve your bottom line.

George Livingston is founder and chairman of NAI Realvest, based in Maitland, one of the most active commercial real estate brokerage firms in Central Florida. He is a principal of CommerCenters, LLC, which ranks as one of the region’s largest developers of industrial facilities.

Located at 2301 East Allegheny Avenue in the Northeast section of Philadelphia, Northeastern Hospital spans one full city block comprised of several buildings and 14 acres of surface parking. Northeastern Hospital, in operation for over 100 years, has been owned, operated and fully occupied by Temple University Hospital Systems (TUHS), since 1963.   As part of the sale, TUHS has signed a long term lease to occupy first floor of the building, approximately 80,000 square feet, where they will continue to provide the community with out-patient services.   

Once complete, the newly repositioned property will include 1/3 modern hospital space and 2/3 Class A medical office space. There is 130,000 square feet available, with 60,000 square feet currently under advanced negotiations. The redevelopment plan will preserve a significant number of existing jobs and create hundreds of new quality healthcare positions. 

“The plans for Northeast Hospital will create new and exciting economic opportunities for tenants and local residents with new jobs and commerce that will contribute significantly to the area’s re-vitalization,” said Matthew McManus, chairman of Bluestone Real Estate Capital.  “The facility’s location, amenities and access to one of Philadelphia’s largest customer base make this one of the region’s most desirable properties for healthcare service providers.”

The report will be available as a PDF starting next week, so stay tuned!

Ownership of commercial real estate in Canada is concentrated with the large pension funds, REITs and large domestic corporate investors.  Our best assets remain in strong financial hands and do not readily trade.  A relatively small commercial real estate sector with this type of concentration leads to a product starved environment for Class A assets.  So large pools of capital have always looked outside Canada for high quality real estate opportunities.

Currently, Canada emerges from recession with good economic fundamentals.  This is reflected in a Canadian dollar at or near parity with the U.S.  The “loonie’s” strength at the same time when U.S. real estate assets are “on sale” has not occurred in a generation.

The result is keen interest by Canadian investors for U.S. real estate, from the largest corporate investor to individuals seeking a condo in a distressed market like Las Vegas.  The Canada Pension Plan Investment Board (CPPIB) with a portfolio of $138 billion made major purchases in Manhattan and Washington this year.  The healthy REIT sector has also been broadening its mandates to include U.S. real estate.  Riocan REIT was a huge buyer with eleven U.S. acquisitions in 2010.  Artis REIT has also been active in the U.S. for the first time.  They acquired seven assets in the Minneapolis/St. Paul area.  Their stated focus is in the U.S. Mid-West.  Smaller corporate investors have also been active.  Onni Real Estate from Vancouver has acquired 688 multi-family units in Phoenix this year and Sunstone Advisors acquired 484 units also in Phoenix. And the list goes on…

Canadian investors are finding ample supply of good assets and in some markets little competition for product.  So as long as the Canadian dollar remains strong we expect Canadians to be active investors around the globe and very competitive in the U.S. market.

-Greg McPhie

Greg McPhie is a Managing Partner with NAI Commercial Vancouver, NAI Global’s member firm serving the Vancouver market in British Colombia, Canada.

Transaction volume is on the rise. Sure, the largest properties aren’t moving yet, but brokers are working with clients across the U.S. who are taking additional space, moving headquarters, purchasing industrial production/distribution facilities. And the pace is increasing.

The recession rocked the industry to its core fundamentals, and it will take another few years before we see anything close to the transaction volume we witnessed in 2005-2007. But as investors come off the sideline, cap and interest rates stabilize, jobs come back, and consumer demand picks up, the commercial real estate market worldwide is starting to heal.

It won’t be an easy recovery, but we are on our way back!