HARP – On This. . .

AN INTRODUCTION TO SoLoMo, SOCIAL, LOCAL, MOBILE SOCIAL MEDIA http://socialmediatoday.com/jacey-gulden/1429651/solomo-what-and-why
FOR COMMERCIAL REAL ESTATE DEVELOPERS/PROPERTY MANAGERS/RETAILERS, This technology could help monetize the THIRD SPACE.

R. Kymn Harp
ROBBINS, SALOMON & PATT, LTD.
www.rsplaw.com
rkharp@rsplaw.com
www.HARP-OnThis.com
Sent from my iPad

Questions abound about where our commercial real estate market is headed. As many suspect, where we were prior to the Great Recession is not where we are now, and not where we’re headed as we move forward. Things have changed. We have entered an era where the so-called “Third Space” will dominate commercial real estate development.

What is the “third space“? Urban planners describe it generally as the space designed for creative social interaction, which lies, figuratively, between home and the workplace.

From a purely economic standpoint, it is difficult to see how brick and mortar retailers in today’s marketplace can effectively compete with internet retailers not burdened with comparable fixed costs. Internet retailers have a huge advantage when it comes to convenience, accessibility, and price-competitiveness as compared to fixed location, brick and mortar retailers. Unlike the pre-2008 marketplace, today’s shoppers enjoy virtually limitless access to online goods and services. Online shopping is easy and convenient.

To remind ourselves, the commercial real estate industry began its skid in the summer of 2008, after the collapse of the sub-prime residential lending market in the Spring of 2007. The commercial real estate market experienced a virtual death knell following the collapse of Lehman Brothers on September 15, 2008.

With this backdrop, and the ubiquity of iPhones and other smartphones in society today, we sometimes forget that the very first iPhone was not even released to the public until June 29, 2007.  The first Android smartphone was not introduced until October 2008.  Twitter and text messaging were in their mere infancy in 2008 as the commercial real estate market crash occurred. Today they are the leading means by which the discretionary income-rich millennial generation (those born between about 1980 and 2000) socialize and communicate.

Yes, technology and our retail culture have changed dramatically while the commercial real estate market has been on hiatus over the past several years. What does that mean to commercial real estate investors and developers?  It means our developments have to change too.

The leading takeaway from ICSC RECON 2013 is the need for commercial real estate developers, retailers, lenders and urban planners to grasp the immense changes to our culture borne by the lightning-speed proliferation of social networking and technology.  Commercial  real estate developments, whether new or retooled, will need to create a reason for consumers to come to our commercial projects to shop and spend. To be successful, our projects will need to be fully integrated, media rich environments providing prospective customers with a compelling reason to come to live, work and play. They will need to provide an enticing third space between home and work for consumers to spend their time and money.

The current push in Congress to mandate collection and remittance of sales taxes on internet-based out-of-state sales may help state and local governments fill their coffers, but imposing this tax will likely do little to help brick and mortar retailers.The fact that online sales may be taxed to the same extent as brick and mortar based sales is not likely to dissuade online shopping.

Rather than begrudge the impact of internet-based shopping on brick and mortar retail, developers and retailers alike will need to wholeheartedly embrace technology to create an enticing, in-person experience that integrates online social networks with face-to-face social interaction and shopping. This is the challenge of our time for retail and commercial real estate development.

Meeting this challenge will require, first, that we grasp it, and, second, that we envision how to effectively integrate fundamental real estate development concepts with new and emerging technologies. To get to the desired bottom line, we will almost certainly need to understand and focus on the third space.

Thanks for listening,

Kymn

May 20, 2013. ICSC RECON UPDATE. Today was an exhausting but productive day. My Fitbit recorded nearly 20,000 steps, or roughly 8.75 miles covered. My feet hurt, so I believe it.

It was great to see friendly, familiar faces, from past and present – happy to be making deals again.  There is, for the first time in a very long time, an upbeat mood in the CRE industry, and an abundance of new construction and redevelopment projects underway.

I was interested to hear what community development directors from communities around the country had to say. To a large extent they are “open for business”, fully expecting to hear from developers seeking development incentives, and prepared to be of assistance.

Interestingly, some communities question whether development incentives should be necessary with development coming back. . . To which I have to respond: Really?

My reminder to communities is that

May 19, 2013. Walking the ICSC RECON 2013 Marketplace floor, I am struck by the relatively few WOW exhibits of innovative products and solutions I find myself interested in. What do I mean by a WOW exhibit? Simply put, it is a product or service solution in a convention floor booth that when I see it I think to myself “WOW” that’s special.

I recognize this may be a function of who I am, the projects I am working on, and what I personally find interesting but, just the same, I am a bit disappointed. This is not to discount the functional value of products like trash receptacles, park benches, valuation services, drainage components, maintenance systems, and the like – I just did not find most of them particularly compelling or interesting.

Be that as it may, there were a few exhibits I was drawn to and did find interesting. These exhibits had varying degrees of WOW-ness, but they did make this day at RECON 2013 enjoyable. I will share my favorites here:

FIRST PRIZE goes to Liquid Fireworks by Waltzing Waters, Inc. of Cape Coral, Florida.

May 14, 2013:  The Chicago Real Estate Council hosted a panel of experts during a lunch meeting today to discuss the current state of commercial real estate industry capital markets.  The panel was moderated by Dave Hendrickson of Jones Lang LaSalle, and featured panelists Steve Kay, from Cantor Fitzgerald representing CMBS markets, Matt Napoli of PPM America, Inc. representing the life insurance company perspective, Mark Witt of Pearlmark Real Estate Partners, an equity funded mezzanine lender, and Dave Patchin SVP of Fifth Third Bank.

The panelists discussed the tremendous uptick in commercial real estate lending over the past year in all product types, and the prospects for dramatic growth 2013 and beyond. Interest rates in the 3% to 4% range are prevalent with loan to value ratios of 60% to 75% typical.  The spread on LIBOR based loans is typically around 200 basis points above LIBOR.

All primary loan panelists agreed that they prefer to finance projects without the use of mezzanine financing, but in certain circumstances they will consider permitting mezzanine financing.

The consensus was that interest rates are likely to remain flat for the next 12 to 18 months, but that over the next five years interest rates are likely to rise roughly 200 basis points.

None of the panelists expressed concern about the Chicago market overheating in the foreseeable future, but they are being more diligent in evaluating multifamily development and acquisition loans due to rising concerns about absorption of all the recently announced new apartment developments in the City of Chicago.  Generally, however, the sense is that multifamily projects in desirable downtown locations remain attractive, while projects in fringe locations pose rising risks.

Nationally, some markets show signs of overheating – with cap rates and purchase prices skewed. This is likely a consequence of historically low interest rates permitting increased cash on cash rates of return.  The concern is, once again, the potential loss of value when these loans must be refinanced in 3 to 7 years if interest rates have risen significantly.

A general consensus was expressed that the Chicago commercial real estate market continues to have strong growth potential into the foreseeable future, and that secondary and tertiary markets also represent significant areas of opportunity for CRE investment.

Odd things are happening. Did people forget during the recession about the role of lawyers in commercial real estate transactions?

I have been negotiating and closing commercial real estate transactions for over 35 years. Happily, as the market is picking up, I am actively at it again.

For the first time in my career, though, a remarkably odd phenomena is occurring. Clients are scheduling commercial real estate Closings with their lenders, but failing to inform their lawyer. Lenders are sometimes failing to contact the lawyers also. This would be remarkable enough, and even a bit suspicious, if I were talking simply about refinance closings, but I’m not. I’m talking about sale/acquisition closings.

It’s as if the parties have been so focused upon the challenges in obtaining financing over the past five years that they have forgotten that financing is not the only requirement for closing.

I have seen it while representing buyers, and have seen it while representing sellers. Ironically, it seems to occur more often when the buyer is a sophisticated commercial real estate investor. I’m guessing this is because some sophisticated buyers are trying to save money by conducting their own due diligence investigations themselves, or through third party vendors perceived to be less expensive than lawyers.

Be that as it may, there remains, in most transactions, a substantial amount of legal work necessary to gear up for closing. Title clearance; transfer documentation; authority documentation; loan document review; just to name a few areas requiring attorney attention. Legal due diligence is just as important as financial and operational due diligence. And it takes a reasonable amount of time to complete competently.

HERE’S A BIT OF FREE LEGAL ADVICE: Don’t wait until three or four days before closing to contact your lawyer. Contact them when there is still time for them to do you some good!!!

R. Kymn Harp
Robbins, Salomon & Patt, Ltd.
Chicago, IL
www.rsplaw.com
JOIN MY THOUGHTBOARD: www.Harp-OnThis.com

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TIME TAKES TIME . . . Sometimes – lots of it.

Can this massive project get off the ground in the foreseeable future? It’s hard to see how – but time will tell.

Planned redevelopment of Chicago’s Old Main Post Office.

http://www.chicagogrid.com/news/dave-roeder-post-office-plans/

R. Kymn Harp
Robbins, Salomon & Patt, Ltd.
Chicago, IL
www.rsplaw.com
JOIN MY THOUGHTBOARD: www.Harp-OnThis.com

Bottom Feeders – and Bottom Feeder Funds – Our New BFF?

Bottom feeders have a distasteful reputation with some – but, truth be told, they are among the most reliable leading economic indicators of recovery for the commercial real estate industry.

There is a stunning disconnect between equity markets and the economy as a whole. The Dow Jones Industrial Average is at record highs, with 15,000 in plain sight.  Equity investors are betting on a bright future. To gauge the economy by that measure, the economy appears to be healthy and rebounding nicely.

Leave Wall Street, and drive through urban and suburban retail districts, and the picture is not so bright. Vacant and boarded up storefronts are common. Parking lots are in disrepair. Shopping center signs are blank – or filled with half burnt-out signs displaying names of tenants past.

Sure. Commercial deal flow is beginning to pick up, but compared to what? A car travelling three miles per hour can triple its speed, but it is still moving at a remarkably slow pace by most standards.

I went for a drive recently, touring retail shopping centers and office parks to find out where the action is.  The answer?  Almost nowhere.   It didn’t really surprise me. Although deal flow is picking up in my practice, most deals are with cash-rich bottom feeders (or bottom feeder funds)  buying up distressed properties.  Not that I’m knocking bottom feeders. Chances are good they will (more…)

FOREIGN INVESTOR VISA?
Got $500,000 to invest in the U.S.?

READ THIS . . .

http://www.marketplace.org/topics/business/want-us-visa-got-spare-500000

R. Kymn Harp
Robbins, Salomon & Patt, Ltd.
Chicago, IL
www.rsplaw.com