When you take a piece of frozen meat out of the freezer generally the meat needs to thaw out before you throw it on the grill. Just because the meat has started to thaw doesn’t mean that it is ready to be consumed.

News around the nation indicates that capital markets for commercial real estate indicate that things are beginning to thaw.

First, the Wall Street Journal is reporting that Harvard Tests Market for Its Property Bets.

Harvard University’s $26 billion endowment is looking to unload a chunk of its $5 billion real-estate portfolio as it seeks better investment opportunities and to reduce its exposure to the troubled property market.

The folks at Harvard Management Company must think that now is a better time to market this opportunity than in the past two years. Stanford tried this approach last year and was offered between 80 and 85 cents on the dollar for their investments.

Second, Simon Property Offers $10 Billion for General Growth. Simon is the nation’s largest mall owner. The majority of their offer, $9 billion, was in cash. Simon would not put $10 billion on the line if they didn’t see commercial real estate markets improving.

Finally, GlobeSt.com is reporting Cautious Optimism for Finance at the 2010 MBA CREF Conference.

Unlike 2009 when the majority of lenders were out of the market, over 90% of the lenders surveyed by the MBA have indicated they have or plan to return to market to lend in 2010.

A good friend told me that while attending the conference, he was surprised by the optimism and the amount of funds available for investment. His concern was that there may be an abundance of optimism that would lead to a repeat of the folly at the height of the real estate cycle.

While none of these items make a case for a hot capital market, collectively they do indicate that markets are changing. By no means are the markets functioning at full speed, but they do seem to be thawing.

What do you think are markets thawing out?

Photo credit: Frozen Steak by stevendepolo.

The news out of New York today is that:

A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom.

The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.

via Tishman Venture Gives Up Stuyvesant Project – WSJ.com.

Unfortunately, this deal was done at the height of the market. The owners were expecting to be able to raise rents on many of the units to market rates. A lawsuit by tenants halted the owners’ plans and eventually the tenants won.

The interest reserve ran out earlier this year and the owners decided to turn the keys over to the lenders.

Now the property is whispered to be worth only $1.8 Billion, less than half the purchase price and less than half the $4.4 Billion debt used to finance the project. Many of the lenders are going to lose money on this project as well as the loss to the equity investors.

This project should serve as a monument to commercial underwriters to be careful when using forecasted rental income to determine value.

(Photo: stuyvesant town by dandeluca)

Page C1 of today’s Wall Street Journal is reporting that Blackstone Group, LP and CIM Group are attempting to acquire commercial real estate assets by buying the mortgages for a steep discount.

Private-equity firm CIM Group has teamed up with New York developer Harry Macklowe to help him regain control of what is regarded as one of the most valuable vacant lots in the world, according to people familiar with the matter.

This strategy is being used in a number of transactions. The success of this strategy depends upon the lenders willingness to take a loss on the property. Lenders that are in need of cash or understand that they are underwater on a property are more likely to take a discount.

In the case of the Drake Hotel site, a vacant piece of land doesn’t offer a lender much to work with. When Mr. Macklowe bought the lot it had a hotel on it which is more marketable. A lender is likely going to avoid a situation where they have to develop a piece of land.

The WSJ article also quotes Keith Barket from Angelo, Gordon & Co., a private-equity firm. Mr. Barket believes that the deleveraging of commercial real estate will take 3-5 years to complete.

It will be interesting to see if it does.

The San Francisco Chronicle is reporting in Commercial real estate market softens that some smaller office buildings are on the edge of foreclosure.

Owners of several small commercial buildings in San Francisco already are behind on payments, and local industry observers are laying odds on which large property could be the first to be seized by a lender.

…

“Real estate fundamentals are softening dramatically,” said Richard Parkus, research analyst at the German bank. “Over the next 12 to 18 months, we expect to see pretty significant deterioration.”

Of particular concern for San Francisco is the fact that nearly 75 percent of the Class A – premier – office buildings downtown traded hands in the past four years, according to Tove Nilsen, director of market research at Colliers International. The flurry of activity propelled sales prices to record highs and drove the ratio of rental income to cost to all-time lows.

According the article vacancy in San Francisco has risen by 32% from the 1st Quarter of 2008 to the 1st Quarter of 2009.

Marcus & Millichap predicted in their 2009 National Office Report a rise in vacancy of 400 bps to 15.1% in 2009 for San Francisco. As well, they predict that effective rents could drop as much as 10.7%.

Falling rents and rising vacancies will drive the value on a leased office property lower. Lower values make it more difficult to obtain financing.

Another factor that is hurting owners’ ability to refinance is rising cap rates. Investors are acknowleding the greater risks inherent in real estate and are expecting a greater return. This desire for a greater return is driving cap rates higher.

It may be a while before we see the end of the commercial real estate cycle. Properties that provide a strong cash flow now may still be a good buy. Don’t expect to find financing in today’s market for a property that cannot service the debt at a ratio of $1.10 of income to $1.00 of debt service. More institutional lenders are requiring even hire debt service coverage ratios of 1.3 or greater.

Do you believe in luck? Are you “unlucky”? Do you miss good opportunities?

Your response to this question may play a role in how “lucky” you are according to What It Takes To Survive from Newsweek. (HT: Get Rich Slowly)

Only 10% of Life is Chance

“Luck is not a magical ability or a gift from the gods,” Wiseman writes. “Instead, it is a state of mind—a way of thinking and behaving.” Above all, he insists that we have far more control over our lives—and our luck—than we realize. Going back to the Italian Renaissance philosopher Niccolò Machiavelli, great thinkers and writers have argued that 50 percent or more of what happens in life is determined entirely by chance (or Fortuna, the Roman goddess of fortune). Wiseman says no way. He believes that only 10 percent of life is purely random. The remaining 90 percent is “actually defined by the way you think.” In other words, your attitude and behavior determine nine tenths of what happens in your life. Wiseman has concluded that there are four reasons why good things happen to certain people. [Emphasis mine.]

If only 10% of life is purely random, it removes a lot of excuses.

Sure we can’t change the family we were born into, but we can choose how to live with them. We can’t choose the boss we work under, but we can choose how we respond to them.

We didn’t choose to get into this economic mess, but we can choose how we will act in spite of it.

Characteristics of the “Lucky”

Prof. Wiseman says the four reasons good thing happen to certain people are:

1. First, lucky people frequently happen upon chance opportunities.
2. Second, lucky people listen to their hunches and make good decisions without really knowing why.
3. Third, lucky people persevere in the face of failure and have an uncanny knack for making their wishes come true.
4. Fourth, lucky people have a special ability to turn bad luck into good fortune.

One of the key factors detailed in the article is that survivors and “lucky” people tend to have a great awareness of what is happening around them.

I can attest to the truth of this statement. I found a $100 bill in the parking lot of a major theme park. Other people had obviously walked past it. However, I reached down and picked it up.

Was I “luckier” than these other people? Probably not, I just had my eyes open.

Making Your Own Luck

Based on Prof. Wiseman’s observations here are a few suggestions for making your own luck.

1. Keep your eyes up and your ears open. Notice what is going on in the world around you. When you walk down the street do you notice differences in the buildings? Would you be likely to spot a friend on the street or would you walk past them?
   Listen to what is being said around you. Ignore the gossip and useless banter of fools. Listen for ideas and opportunities. Listen to learn about new markets or ideas you may have previously missed.
2. Learn to make good decisions. Wisdom does not happen on accident. People are not born wise, they become wise.
   Pick up a book or take a class that will help you to make wise decisions. (The Biblical book of Proverbs is full of wisdom.) Learning from your own mistakes and the mistakes of others plays a major part in wisdom.
3. Don’t let adversity or failure discourage you. Thomas Edison had 10,000 “failures” before he found the right filament to make the light bulb work.
4. Look for opportunities instead of obstacles. If our responses determine 90% of what life is, we have greater control over our lives than we know.

In the words of Dirty Harry, “You’ve got to ask yourself one question: Do I feel lucky? Well, do ya, punk?”

Here are a couple of items from around the web on commercial real estate:

• Is this a sign of things to come? Mish comments on Commercial Real Estate Mutiny In Downtown LA where retail tenants held a two week “rent strike”, while they demanded their landlord lower rents and stop charging for advertising.
• Square Feet has noticed that January Unemployment Shoots to 10.1% in California.
  
• The Dirt Lawyer  cautions that Before you think there’s no money out there… Blackstone claims to have $12 Billion sitting on the sidelines.
• Ever wonder how to determine a market cap rate? Lucas Rotter Grant Norling has written Scarcity in Capitalization Rate Examples? An In Depth Approach To Find The Right Cap Rate to help answer your question.
• CoStar.com proclaims Market Turmoil Takes Aim at Life Insurers

The weather here in Northern California has been wet and overcast for the past few days. But this morning the sun is shining brightly, the hills are green with fresh growth, and the sky is a brilliant dark blue.

I know that in many parts of the country it can be overcast for weeks not days, but in California a few days of clouds is a big deal.

When the clouds are ominous, the lightning is flashing, the rain is beating down, and the wind is howling forgetting about the sun’s warmth, light, and energy is easy to do.

Stormy Financial Times

At the current time we are living in stormy financial times. The stock market is tumbling, companies are filing bankruptcy, unemployment is rising, and fear is on everyone’s minds.

It is easy to forget in times like this that “this too will pass.” The sunny times will return eventually.

Change Is Difficult

The financial system as we know it is undergoing a cataclysmic change.

Personal finance is undergoing a huge change as well. We are changing from a consuming society, to one that saves.

Change is difficult. It takes discipline. We will hit bumps, plateaus, and  valleys.

On the bright side, adversity breeds character. What will it produce in the generation that experiences this?

The Lens of History Gives Perspective

As I read about the economy and some of the foolish policies proposed to solve this problem, it has been easy for me to have a doom and gloom mentality and attitude.

However, looking at history has provided me with a measure of hope. (Not as much hope as this.)

The Great Depression

My grandparents were born, raised, and survived The Great Depression. Do a search for companies started during a recession.

People were resourceful. They found ways to make it. They lived on less. Worked harder and still found ways to save a little money.

The Dark Ages

From my recollection of the era known as The Dark Ages, the life of the common people was none too pleasant. No running water, indoor plumbing was reserved for the richest of the rich if at all, and personal hygiene was yet to be invented.

Many of the peasants in Europe were serfs and had no ownership rights to the property on which they lived. They were at the whim and mercy of their lord. They worked hard on the land, but the landowner received a portion of all they produced.

Yet, for all this hardship modern Europe still exists. It is not a vast wasteland with few inhabitants.

History provides example after of example of  human ability to creatively adapt to situations and to survive.

The Sun Will Rise …

The current financial turmoil is not permanent. At some point in the future the financial sun will rise again.

A state of normalcy and predictability will again settle on the markets. Industries will begin to grow. That growth will create jobs and wealth.

The storm raging around us is beyond our control. Focusing on the storm raging around us will distract us from the items that need to be accomplished today.

We can control our actions to today. Besides “Each day has enough trouble of its own.”

Photo Credit: phatman

What was your favorite subject in school?

I have a natural proclivity towards math. I enjoyed algebra and solving a challenging problem was always fun. (I didn’t like calculus or trigonometry, too theoretical.)

Writing for me was always more difficult. Whether it was a research report or a story I always had a hard time getting to the minimum word limit. English was not my favorite subject. (Now I can’t shut up.)

It Comes Naturally

Talents and Skills

Each of us has natural talent that makes some tasks easier than others. Solving a complex finance problem is easier for me than for some. Some men are gifted with their hands and can build almost anything. Other men have the ability to design beautiful buildings. Some women are naturally creative and can sculpt or paint beautiful works of art. Other women have an attention to detail that makes them incredible administrators.

Our natural talents often lead us to industries where we will be maximally productive.

Personality Traits

Like natural talents, many of us have personality traits or characteristics that have been present from birth. One child is more gregarious, while the next is more reserved. Some people like their privacy and others will share almost anything with you.

Often time these personality traits determine how we act in our careers, how we relate to others, and our personal lives as well.

The woman with a driven personality may pursue her career at the expense of friends or family. The quiet teenager is less likely to take a sales role. The shy man is more likely to avoid speaking in public. The intellectual college student is more likely to pursue a career in academics.

Determined to Fail

Humans are naturally lazy (myself included). We like to follow the path of least resistance.

Frequently, our pre-determined character traits are the path of least resistance.  We follow them because they make us feel comfortable, we don’t have to change, and it is what we know.

Unfortunately, our determined character traits may cause us to avoid actions that may lead to greater success and a more fulfilling life. Have you ever heard:

“I can’t cold call, I’m not made that way.”

“I’ll never be able to do that. I was never good at …”

“I could never do that. It is beyond me.”

Self-Imposed Limits

These statements, and others like them, limit our inclination to change. We are limiting ourselves to what comes naturally and what is easy.

“No pain, no gain” is the colloquial saying. It is true. Without discomfort we will not change from our current status.

In essence we are saying that we are determined to fail because of our natural characteristics. We are admitting that our given character traits are too powerful for us to over come.

Breaking the Cycle of Failure

We can loose the chains of our natural tendencies and change how we act. We no longer have to be a slave to our predispositions.

It starts with a choice to act in a way that is consistent with what we want to achieve or to become, no matter how uncomfortable we feel. Over time the action will become more and more natural.

It is a bit like breaking in a new pair of shoes. The first time you wear them they may be uncomfortable for a bit, but as the leather stretches and becomes pliable they begin to form to your foot, and in two years’ time you may be sad to have to replace them.

In Your Personal Life

If you are shy, choose to talk to a stranger. If your natural tendency is to follow, find a role to be a leader. If you are timid, develop courage. Take a class to develop a skill or hobby. Read a book that stretches your mind and soul.

Your life won’t improve on accident. It takes discipline and dedication. But it can be done.

At Work

Choose to pick up the telephone and make those cold calls. Choose to give the presentation to the group of strangers, but potential clients. Choose to take a difficult course that will allow you to better serve your clients. Develop new habits that will bring value to your employer.

Choose to do what does not come naturally, but will be profitable for your work goals.

Today Is the Day

Make the choice today. Otherwise, you may be determined to fail.

Photo Credit: Akash K

In need of new sources of funding, brokers are calling lenders they have never reached out to before. Too often, the broker in the first 30 seconds is unable to make a solid impression on the lender to establish a long-term relationship.

Phone Etiquette

In the first 30 seconds you can make a good impression with the lender and establish a solid relationship with them. Or in the first 30 seconds you can demonstrate incompetence and a lack of civility towards the lender.

Here are some tips of what to do in the first 30 seconds of your initial call to set up a solid long-term relationship with a lender.

Repeat and use the name of the person who answers the phone. This helps you to connect with the person. If you have a short memory or forget names, write the name down so that you can reference it throughout your conversation.

Keeping the person’s name may help you the next time you call with a loan request. You will know with whom you spoke previously and can use your previous contact to build rapport.

Do not ask how the person is doing. Most of the time we ask out of a sense of “social propriety”, not out of genuine concern. What would you do if the person on the other end of the line answered “Terrible!”?

This can be awkward:

Lender: Hello this is Frank.

Broker: Frank, how are you?

Lender: Fine. How are you?

Broker: Good thanks.

Lender: Who is this again?

Next, clearly state your name, company, and briefly describe what you need in 30 seconds or less. “This is Peter from Owens Financial Group. I am calling regarding an office complex in Seattle worth $4 million in need of financing for $2.75 million.”

This is your “elevator pitch” of the project. In order to effectively make the pitch, you must have studied the financing request. You must know the location, loan-to-value ratio, loan amount, and property type in order to make this statement in 30 seconds.

Finally, end with a question about the lender’s ability to do this deal. You don’t want to leave the lender wondering what they can do for you.

“Can you finance an office property at 69% of value?” Or “Do you handle commercial construction projects like this in Idaho?”

I would advise against asking a question about pricing. If the lender is unable to finance your project, price doesn’t matter. You are requesting them to answer a fruitless question.

Summary

By knowing in advance the reason of your call and details of the deal, you evidence your professionalism and that you value the lender’s time. It also prepares you to leave a detailed message for the lender if they are unavailable at the time of the call.

When making a phone call, you want to establish rapport and accomplish the purpose of the call. Getting off on the right foot is imperative to achieving this goal.

ContraCostaTimes.com is reporting that Foreclosures loom over East Bay hotels.

Two East Bay hotels that boast prominent locations are facing foreclosures on mortgages for the properties, making the operations some of the newest casualties of a widening economic debacle.

The Sheraton Pleasanton Hotel, in the Tri-Valley area, relies heavily on conferences for its source of revenue. As businesses have scaled back travel and conference, this hurts the hotel industry.

The plight of hotels may further decline as jobs are lost and families decide to tone down their vacation plans. This will further dampen the hotel industry.