By David Gribin – Gribin, Kapadia & Associates

Click below to explore Gribin’s insightful look into the current market perspective.

Attractive Real Estate Investments

Those of us with a bit of “snow on the dome” (or any snow for that matter) lived and worked through the “stagflation” of the Carter years, the market crash of 1987, the dot-com bust, 9/11 and now the Great recession. I remember asking my Mom (who was young and married during the Great Depression) how they coped with the pressure and stress of the times. Her response was illuminating, no more so than in today’s toxic political environment.

She said there was a sense of people working together toward common goals. Few people had much, if anything, so everyone was in the same boat. People thought in terms of what was best for the country, not what was best for them personally. Contrast that with today when I read an article that questioned whether it was preferable for the “super debt commission” to fail or to succeed based on who would benefit and who would not.

That’s pretty calculating.

While all of our yesteryears were not golden years (discrimination, prejudice, etc.), there are some lessons that we can learn and apply in our daily business. These are:

1.       Recognize that at NAI Capital we are individually working towards collective goals.

2.       Appreciate the fact that all of us have struggled over the past few years.

3.       Try to do not just what is best for you, but for NAI Capital too. As we said in my youth, “what goes around comes around.”

4.       Let’s help each other all become winners (no, not like Charlie Sheen!).

I was recently on a conference call with Jeff Finn of NAI Global and a variety of other member principals. While we all bemoaned the volatility of the stock market, the point was made and agreed that to the extent people flee equities, commercial real estate is often considered a “safe harbor” and it is also said that inflation (especially when coupled with historically low interest rates) is our friend. As brokers we should be able to make money regardless of whether the commercial real estate market goes up or down.

I encourage every NAI Capital broker who has not already done so to shake off the cobwebs, have a positive attitude and get to work. By the time those of us who prefer to moan about the lousy market recognize that it has improved dramatically, the window of opportunity to capitalize on the weakness of many of our competitors will have passed. Numbers don’t lie. Each month of 2011 NAI Capital is up between 45-50% YTD. How much have you personally contributed to that success?

By Mike Zugsmith, Chairman, NAI Capital

I don’t know if Mayor Antonio Villaraigosa is a chess player, but to the extent he is promoting split roll taxation (taking away Proposition 13 protection from commercial properties) he is clearly not thinking ahead. I’m always surprised (well, not really) when politicians somehow think commercial property owners have hidden bags filled with cash under their desks. Recognizing that assumption is erroneous, let’s play a little chess with the mayor. Taxes on commercial property no longer have Prop 13 protection and rise, in many cases substantially. Owners, who have already been battered over the past three-years are unable to pay the increase and, as a result, there’s a renewed inventory of properties in foreclosure; however, this time the banks are seeing their capital severely hit as many of these loans are in multiple millions of dollars. So, major bank failures become another very real possibility and banks tighten credit requirements. Mr. Mayor, you’ve lost a rook and a knight and your bishop is in trouble.

If an owner can pay the increased taxes, he will seek to pass it on to his tenants either as an expense pass through or a NNN charge. Of course, business owners have been battered over the past few years too and if they cannot pay the increased taxes, they will go out of business or move to a more tax friendly community. So, California loses jobs and, as a result, tax revenue. Mr. Mayor, you’re in check. Finally, lowered tax revenues contribute to uncertainty, low confidence and deteriorated public services (consider the Mayor’s signature issue, education). Mr. Mayor, checkmate.

Split roll taxation has been eyed as a revenue source in Sacramento for many years. However, during a strong economy politicians on both sides of the aisle have recognized the devastating effect its enactment would have. Imagine for a moment the impact in today’s fragile economy when many commercial property owners and small businesses (the backbone of America) are barely surviving. Maybe Mayor Villaraigosa should stick with games of chance.

David’s smile would light up a room, his enthusiasm was contagious and even when confronted with business and personal challenges, he always took them in stride and never allowed them to negatively impact who he was. David is sorely missed by those who knew, respected and loved him.

I would be remiss if I didn’t also note that during Dave’s final months, NAI Capital’s Pasadena office was there for him 24/7. We often refer to NAI Capital as a “business family” and, led by Scott Martin, our Pasadena team epitomized that philosophy, whether it was trips to the hospital, food or any other services Dave needed but could no longer access.  Our eternal thanks to Scott and our Pasadena team of brokerage professionals and staff for their sensitivity and caring. — Mike Zugsmith, Chairman

Recently I read an article that was discussing the dog days of summer. It made me think about a meeting I recently attended with a client who asked, “Where have all the brokers gone?”   In answer to that, let me share with you a little about the discussions I recently conducted with NAI Capital’s various offices about my perception of the current marketplace –   that now is our time.

We now have fewer competitive brokers and brokerages due to the “great recession” and a slow recovery. Our opportunities have increased dramatically and in many cases we have become the “safe choice” for clients — opening up opportunities and invitations to presentations.  However, unless we take advantage of this window of opportunity we all know that real estate is cyclical and at some point in the future the window will close.

I had lunch with one of our managers last week and the comment was made that the brokers in his office who are performing are doing so by working hard as well as smart. The brokers who are not performing are making excuses, but the bottom line is that they are not working hard; in fact, playing golf is the preferred activity to working. What are these brokers waiting for? Do they expect in the near future that they will be able to place a property on the market, whether for lease or sale, and have multiple offers in a matter of days? That’s unrealistic. Does any one of us expect in the near future that the economic recovery is going to accelerate dramatically? Again, that is equally unrealistic. Deals are being made and commissions are being earned.

NAI Capital gross commissions received increased at the end of May 2011 versus May 2010 by over 45%. We currently have three times the members of Capital Club limited for all of 2010, with almost half the year to go. There is not a week that goes by that we do not close a number of escrows when last year it was a rare event. Lessees are opting for longer-term leases in order to lock in lower rental rates for extended periods of time. The glut of foreclosed commercial properties, contrary to the opinion of many, never went to market as many loans were restructured or the notes were sold. With no meaningful new construction in our market and again pointing out that we have fewer competitive brokers and brokerages, we should all be spending the time necessary to build our business.

Proactive brokerages and brokers who embrace the current opportunity and aggressively go after business are going to do very well over the next several years. Reactive brokerages and brokers who are sitting back and waiting for the market to return to 2005 – 2006 will be sorely disappointed. In fact, I think we will still see attrition in both categories. So, which type of broker you?

NAI Capital intends to be proactive and to continually improve our service delivery to our clients (who are also our brokers). With the merger of NAI Global and C-III we should be the recipient of the significantly increased flow of business, in particular dispositions of owned property. As they say, “timing is everything” and now is our time collectively to seize the time and maximize the building of the foundation of our business.

Recently I had the opportunity to participate in a presentation made by two of NAI Capital’s industrial brokers to a major industrial developer and owner. The meeting went very well and we received the listing (taking it away from CBRE). The most compelling part of the presentation was a promise by our brokers to attend each showing and to be present.

As brokers, many of us have used the promise, “We will represent your property as if it were our own.” That sounds great, but what does it really mean?

As brokers, we also want to make our business as efficient and effective as possible.   In other words, if we can get a potential buyer or lessee (with or without a cooperating broker), to view the building or space without actually being in attendance, this will maximize our time management, right?  Well, actually, no.

This approach limits an opportunity to make a deal — to the detriment of a client’s best interest. That is because without the ability meet with the prospective buyer/lessee, we miss the opportunity to engage in a conversation which will allow us to qualify, understand and counter any issues, concerns and/or problems.  Not being present is a disservice. Without attending the showing, we lose that opportunity and potentially the deal.

It was clear to me during our meeting that the concept of not just throwing a lock-box on the property and waiting for a cooperating broker to bring an offer was compelling.  The senior managers with whom we were meeting came back to this point several times. Does this place extra time constraints on us as brokers? Of course it does.  But, is it necessary if we want to prevail over the competition? Absolutely!   Word to the wise: Be present.

Even amidst the worst recession since the Great Depression, NAI Capital has continued to recruit brokers, many from other firms that shuttered during the storm.  Over the past three years NAI Capital has hired and retained 88 new brokers.  “Throughout the recession, NAI Capital has prevailed as a “safe choice” for clients and also for brokers looking for a new home,” noted Zugsmith. “NAI Capital has become a regional powerhouse, even in the toughest of times and we look forward to continuing our growth in 2011.” About NAI Capital

NAI Capital is a leading Southern California commercial real estate firm headquartered in Encino, California. With 14 offices throughout Los Angeles, Orange, Riverside, San Bernardino and Ventura Counties, NAI Capital is the Southern California affiliate of NAI Global, a worldwide real estate service network with 325 offices spanning the globe. Since 1979, NAI Capital clients have built their businesses on the power of our expanding network. Our extensive services include: multi-site acquisitions and dispositions, sublease, tenant representation, lease administration and audit, investment services, due diligence and related consulting and advisory services. To learn more, visit www.naicapital.com.

# # #

By using a proprietary approach to compare state and local government fees, the Survey provides objective comparative data to businesses that are considering a move or expansion through a review of fees, taxes, and economic incentives and programs that business would encounter in each city. Cities are ranked into one of five “Cost Rating” groups, ranging from Very Low Cost to Very High Cost. Then, the most expensive and least expensive cities are listed both nationally, within California and within Los Angeles County.

The ten most expensive U.S. cities for business in 2010 (in alphabetical order) are: Akron, Ohio; Chicago, Ill.; Columbus, Ga.; Jersey City, N.J.; New York, N.Y.; Newark, N.J.; Philadelphia, Pa.; Phoenix, Ariz.; Portland, Ore.; and San Francisco, Calif. These cities represent some of the highest property and business taxes in the country.

The top twenty least expensive cities are all west of the Mississippi River, with sixteen of them located in states that do not impose personal or corporate income tax. The ten least expensive U.S. cities for business in 2010 (in alphabetical order) are: Abilene, Texas; Austin, Texas; Cheyenne, Wyo.; Corpus Christi, Texas; Eugene, Ore.; Everett, Wash.; Fort Worth, Texas; Houston, Texas; Reno, Nev.; and Yakima, Wash.

Within California, the Bay Area and Los Angeles County remain high cost locations for business, with three of the ten most expensive California cities for business located in the Bay Area, and half in Los Angeles County. San Diego County remains the least expensive area in the state for business. California’s high unemployment rate, deficit budget, and rising taxes are having an adverse effect on business development in the state, with thirteen of the 40 most expensive cities nationwide located in California. However, many local governments are considering tax breaks and reduced fees to create a more positive environment for local businesses.

The ten most expensive California cities for business in 2010 (in alphabetical order) are: Berkeley, Beverly Hills, Culver City, Inglewood, Los Angeles, Oakland, Rancho Santa Margarita, San Bernardino, San Francisco, and Santa Monica.

The ten least expensive California cities for business in 2010 (in alphabetical order) are: Apple Valley, Costa Mesa, Dos Palos, Hesperia, Moorpark, Roseville, Sutter Creek, Unincorporated El Dorado County, Unincorporated Lake County, and Unincorporated Merced County.

Within Los Angeles County, over half of the cities received either a High or Very High Cost rating; three received a Very Low Cost rating. Half of the ten most expensive cities in California are in Los Angeles County, due in large part to high sales tax rates.

The ten most expensive Los Angeles County cities for business in 2010 (in alphabetical order) are: Bell, Beverly Hills, Compton, Culver City, El Segundo, Hawthorne, Inglewood, Los Angeles, Pomona, and Santa Monica.

The ten least expensive Los Angeles County cities for business in 2010 (in alphabetical order) are: Agoura Hills, Bell Gardens, Diamond Bar, Glendora, La Mirada, La Puente, Lancaster, Santa Fe Springs, Walnut, and Westlake Village.

The Rose Institute of State and Local Government at Claremont McKenna College is a public policy center providing research and management experiences for students while conducting and publishing research on a wide variety of issues related to California government and politics. The Kosmont-Rose Institute Cost of Doing Business Survey is produced in collaboration with the Kosmont Companies.

http://rosereport.org/kosmont/