Schaumburg and Chicagoland: Tenant Representation & Office and Commercial Space for Sale and Lease

Is an Auction an Option?

One of the strongest reasons for an auction, or accelerated sale, is to relieve a property owner of the enormous expense of holding costs on an under-performing asset. Many people believe an auction is only for distressed assets, but this is not necessarily the case. Many properties are in good condition and are still financially viable. Those properties hold their value at the market, even though the owner may be subisdizing it financially. An auction allows owners to shorten the hold time that would be required to sell a property in the open market, which reduce out-of-pocket expenses, i.e. real estate taxes, insurance, association dues, the cost of money and/or vacancy. A property can become distressed due to losses that accumulate over time, and waiting for a market sale can be costly for that very reason. Distressed properties may not recover there value for the owner for 10-15 years, even if a strong economic recovery occurs. An auction creates a competitive market situation where a property can, and some do, bring prices of 85-100% of the market value. This ‘accelerated marketing’ comes with potential losses, but they must be balanced with the losses by time and erosion of the asset.
In short, if you own a property that is a drain on your capital, an auction may be the answer for you. Please feel free to contact Kevin or Olivia to discuss your options.

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By: Alby Gallun February 14, 2011, Chicagobusiness.com

The local commercial real estate market is coming back, defying expectations of a prolonged collapse like the one that decimated the housing market.

Loan delinquencies are falling, property values are rising and leasing is picking up at the area’s office buildings, shopping malls and warehouses, signs that the market is in the early stages of a broad-based recovery. Though it is far from reclaiming the ground lost in the deepest downturn since the early 1990s, Chicago clearly will avoid the devastating crash many predicted two years ago.

“Eighteen to 24 months ago, people were saying commercial real estate was the next shoe to drop,” says Bob Bach, senior vice-president and chief economist at Santa Ana, Calif.-based commercial real estate firm Grubb & Ellis Co. “We’ve come a long way from there, where the worst seems to have passed.”

For landlords struggling to make mortgage payments, the latest real estate data suggest that finding new tenants and keeping old ones will get easier. For businesses, it’s an end to bargain-basement rents as the pendulum of power slowly swings back to landlords. For lenders, the figures show that the mountain of bad loans that piled up over the past two years is starting to shrink.

But the implications go beyond the real estate market, offering further evidence of a local rebound from the credit crisis and recession.

Delinquencies in two key categories—commercial mortgage-backed securities loans and bank loans—have fallen in recent months after rising for more than two years. The local delinquency rate on CMBS loans, which are packaged and resold, declined to 6.75% in January, the fourth straight monthly decline from a peak of 7.60% in September, according to New York-based research firm Trepp LLC.

The national CMBS-loan delinquency rate, meanwhile, continues to climb, hitting a fresh high of 9.31% in February. The Chicago area’s rate is lower than metropolitan areas such as Philadelphia and Houston, although higher than premier markets like Washington, D.C., and San Francisco.

LOOKING UP

The delinquency rate on local commercial real estate loans held by banks also fell in the fourth quarter, to 7.3%, down from 7.7% in the third quarter, according to Foresight Analytics LLC, an Oakland, Calif.-based research firm.

Chicago’s bank-loan delinquency rate is higher than the national average, which also fell in the fourth quarter, to 5.3%, from 5.5% in the third quarter.

The rates are falling as lenders resolve troubled loans faster than they stack up. With leasing slowly starting to pick up, more landlords once headed for trouble are now able to cover their loan payments. And more are showing a willingness to recapitalize their properties.

“As the market has turned, owners have gotten more bullish on their properties and more willing to invest their money to either restructure their loans at more favorable terms to the lender or offer more to the lender in a discounted loan payoff,” says real estate lawyer David Neff, partner in the Chicago office of law firm Perkins Coie LLP.

Many property owners slipped into the danger zone during the credit crunch of 2008-09 as plunging property values and a lack of lending made it impossible to refinance maturing loans. The biggest local victim was General Growth Properties Inc., the Chicago-based mall owner that emerged from Bankruptcy Court protection in November after defaulting on billions of dollars of debt.

Today, rising property values and the return of lenders are saving some borrowers from the dire circumstances that existed just months ago. Included is the partnership that owns a half-empty, 540,000-square-foot office building at 111 W. Jackson Blvd. It defaulted on a $24-million loan last March after failing to pay it off at maturity. The 24-story building was appraised at just $21.7 million in January 2010.

Still, the story could have a happy ending: A group led by New York investor David Werner is buying the building for about $35 million to $40 million, sources say. The partnership, which includes north suburban investor Richard Colburn, is loaning money to finance the purchase.

GOING UPSCALE

Investors also have jumped back into the high end of the market, bidding up prices on some of the city’s premier apartment buildings and office towers, like the Hyatt Center, a 49-story high-rise in the West Loop that the Pritzker family sold in December for $625 million. Unless interest rates jump, investment activity here is expected to stay on an upward path.

Yet it will take longer for leasing markets to fully recover. While the financial markets drive investment, demand for office, retail and industrial space is more closely tied to economic fundamentals.

“We’re going to see continued capital flows (into real estate) and a continued healing,” says Bruce Cohen, chairman and CEO of Wrightwood Capital LLC, a Chicago-based real estate investment firm. “We obviously need job growth and consumer spending, the things that induce tenants to want to pay rent.”

To recover fully, ‘ We obviously need job growth and consumer spending, the things that induce tenants to want to pay rent.’

— Bruce Cohen
chairman and CEO
Wrightwood Capital LLC

That process has begun, according to recent data for the major property sectors—office, retail, industrial and apartments, which are leading the way. Rents at downtown Class A apartment buildings rose 7.2% in 2010 and may rise another 7% to 8% this year.

The 389-unit apartment tower at 215 W. Washington St., which opened in April, is more than 74% leased, ahead of a projected 71%, says Jerry Ong, a principal at Jupiter Realty Corp., its Chicago-based developer.

“Our partners are happy, our lenders are happy,” he says.

Other property types are turning around, too, although their recovery is fragile. Downtown and suburban office vacancies have fallen the last two quarters, while local retail vacancies have fallen for three quarters and local industrial vacancies have fallen two out of the last three.

Developers in most sectors won’t get busy again until leasing fundamentals improve further, but the apartment market already is strong enough that as many as six downtown projects comprising more than 2,000 units could get under way this year.

Fear has not disappeared, however. Some observers worry about another wave of loan defaults in the next few years as a big batch of loans made during the boom come due and borrowers struggle to refinance them. Nationally, Foresight Analytics estimates that as much as half the loans maturing from 2011 to 2015 exceed the value of the property secured by them.

Others say the risks are overblown, comparing them to widespread predictions of computer meltdowns because of the 1999-2000 date change. “We’ve been calling for some time this ‘tsunami’ of debt maturities Y2K,” Wrightwood’s Mr. Cohen says.

Read more: http://www.chicagobusiness.com/article/20110212/ISSUE01/302129982/chicago-commercial-real-estate-market-dodges-collapse-begins-recovery#ixzz1DxtBmJFU

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This is a rather unique time in the real estate market. It is almost impossible to put a deal together, but there are increasingly more closings. Money is scarce and yet there is a lot of capital ready to be spent. Every market downturn proves that there are basic rules that dictate why some people survive and some… The investors that are still standing focused on the fundamental elements of purchasing real estate. They took enough time to evaluate the property and never agreed to buy unless the financials were in balance.
There are many investors and companies that have survived the last few years intact. They did this by making sure the current cash flows could accommodate the future risks. Anticipating increases in taxes, operating expenses and declines in income, either from loss of a tenant or downturn in business, were an important part of their calculations. Investors and property users have different reasons for purchasing property, but the fundamentals are similar. The survivors all have one thing in common; they hunted for the right properties, made multiple offers and calculated the financials thoroughly enough to leave some breathing room if bad things happened.

This type of analysis and deal making are not for the faint of heart. Thorough understanding of the market along with the ability to work out the numbers involved is needed to create a balanced financial picture. Purchasers who sought out properties with potential to be excellent investments structured the cash flows to create strong long term growth potential. These good opportunities require a lot of research to locate and a good deal of skill to make functional.

This is how fortunes are made and lost. The winners will do their “Due Diligence” and build their empires; losers will hastily go on gut feel. Time and caution (and a good real estate broker) are partners in any real estate transaction and will pay rewards commensurate with the effort put forth.

If you are considering a real estate investment, consider us to be your partners. We will help you evaluate the market and provide the due diligence you need to be a winner in this business.

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Is Now A Good Time To Buy Real Estate?

Current market conditions put great doubt in the minds of many business owners as to how to handle office space requirements.  Is leasing a better solution?  Is purchasing a property realistic?  Many factors can affect the decision and outcome of purchasing property in a down economy.  There are still options for property purchases that can afford the opportunity to invest in your company right now, and capitalize on lower payments as time inflates rental rates.

Purchase price is the primary consideration over all, in any market.  It will determine the success or failure of the investment, whether it is an owner occupied investment, or an income producing multi-tenant building.  The property needs fit well into your financial model, considering factors like current revenue, anticipated growth, projected expansion of work force, and the appreciation and tax benefits a purchase could provide.

That being said, the market is currently full of distressed properties.  Prices are anywhere from 20% to, in some cases, 70% down from the highs of 2007.  Foreclosures, short sales and bank owned real estate, are creating some of the best opportunities to invest in real estate since the early 1990’s.

The other critical piece of the puzzle is financing.  The media is full of bad news about the lack of funding or the difficulty of being qualified for loans.  Yes, qualification has become much more stringent.  Gone are the days of no doc, and stated income loans.  There are still alternatives for lending though.  The SBA is offering terms at 10% down, with interest rates in the hi 5% to Low 6% range, and additional money may be available to do repairs, or operate your business, for those that do qualify.  They are also waiving some of their application fees, though that program may be ending soon.  Some banks are beginning to underwrite loans again too; consult your lender to see if they are willing to assist you, and of course, consult with your tax advisor for all tax related advice.

The bottom line is that it may actually be a great time to look for a property to purchase.  The search is not simple and requires the help of a professional real estate advisor to locate and negotiate terms, but you can find some extremely good properties for outstanding terms.

If purchasing a property is an avenue you’d like to look into pursuing, let the advisors at Sperry Van Ness help you. Olivia Czyzynski and Kevin Baran specialize in the suburban Chicago market and would be happy to help you with any questions you may have.

Below, please find a sample of some of the current suburban properties we have available for sale.

1600 Colonial Parkway, Inverness

                                              4,300sq. ft. Private Office Building

38 N. Broadway, Des Plaines

   2,000sq. ft. Newly Remodled Office Building

1300 E. Irving Park Road, Hanover Park

                               2,000sq. ft. Freestanding Retail Building with 20,000sq. ft. Pave Lot

Located On High Trafficked Road

For information on these properties, or to see more of our listings, please visit our corporate website: www.svn.com, or our office website: www.svn112.com

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If your company is looking for bargain office space and doesn’t need to be located on Main Street nor have a “corporate look”, I suggest looking at office spaces within warehouse or flex space buildings. Often, these properties are located within industrial parks, which, while not right on Main Street, tend to be convenient to most town centers and close to highways and major cross roads.

Though these buildings may not be your Class A, heavily-upgraded, multi-story offices, you will often find well-maintained and perfectly comfortable office suites within these industrial complexes. Additionally, many warehouse buildings have office space incorporated within them, and often times the building owners simply don’t need the offices for their business or they purchase investment properties with additional offices within the property.

The biggest difference is the price! These spaces are valued at prices much lower than your typical office space, but other than the type of building and location, the spaces may be identical to any other office you may have an opportunity to rent. Typically, rents run several dollars per square foot less than an identical space in an office-only building. These are the bargain deals and should be on your search list if your criteria allows!

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