According to FEMA the National Flood Insurance Program is no longer in effect.  See the post from the FEMA website below and on this link:

"The NFIP will not be reauthorized by Congress by midnight of May 31, 2010. Therefore, the Program will experience a hiatus – a period without authority to:

  • issue new policies for which application and premium payment dates are on or after June 1, 2010, or
  • issue increased coverage on existing policies for which endorsement and premium payment dates are on or after June 1, 2010, or
  • issue renewal policies for which the renewal premium is received by the company on or after June 1, 2010, and after the end of the 30-day renewal grace period, until Congress reauthorizes the Program.

While awaiting Congressional reauthorization, FEMA is issuing the guidance contained in the attached bulletin (PDF 92KB, TXT 21KB). Within this bulletin, is a set of Frequently Asked Questions concerning NFIP authorization to help you in communicating with your insurance agents and policyholders.

The hiatus period is expected to end soon. We will inform you when the NFIP is again authorized to sell new policies, issue increase coverage on existing policies, or issue renewal policies."

If you currently own real property in or around an insurable flood zone you should contact your insurance carrier to determine what sort of coverage you now have, especially in light of the fact that hurricane season is about to commence !

I often think of an African proverb shared by Kip Reader, Managing Partner of Ulmer & Berne:

 
 

Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle.  When the sun comes up, you better start running.

 

 
I leave it to you to decide whether you are a lion or gazelle, because regardless of in which industry you work, the proverb has great meaning.  Whether you are hunting for new clients, new tenants, new retail space, new buyers, new investment opportunities, new employees, new engagements, new whatever – you name it, you are competing with others looking for the same new opportunity.  So, the trick is to be the fastest lion or gazelle every day – stay ahead of your competitors. Particularly good advice as we all navigate through the current economic challenges.

 According to Steve Timmel of Grubb & Ellis West Shell  94% of the Cincinnati area office/industrial deals completed in the last 36 months have been to buyers from outside the Greater Cincinnati area.  This statistic is astounding !  What is it about the Greater Cincinnati commercial real estate market which is so attractive to out of state buyers and investors ?  Could the stability of the economy and lack of large swings have something to do with it ?  After what we have all been through in the last 24 months a commercial/industrial market such as Greater Cincinnati is like a breath of fresh air.  The new normal to coin a phrase ! 

I was recently in the offices of the FBI Cincinnati Division attending the FBI Citizens’ Academy program, and it made me think about a leasing opportunity (in addition to thinking about what an awesome job our FBI really does and how dedicated and effective are our FBI professionals).  The recent economy has resulted in higher vacancies for our commercial properties and less demand for the resulting vacant space.  In a general sense, our government has stepped in as consumer to invigorate the economy.  Maybe our government also represents an opportunity for the commercial real estate market. The government has to occupy space, whether by lease or purchase.  I have represented a landlord who leased space to a governmental office (a state judge), and there are several issues that arise which are not present on a typical retail or office lease.  For example, the background of the Landlord becomes an issue, there are restrictions on the parties the Landlord hires at the site and the terms of such engagements, security is extra important and the tenant may require the right to terminate if its budget is changed.  In addition, certain government offices may not be desirable in a a multi-tenant property.  So while the government may be an opportunity,  be mindful of their needs and the costs to comply with the same.

Parts 1 and 2 of this series on “The Commercial Real Estate Loan Market” examined differing views on the fallout of current and anticipated loan failures in the commercial real estate (“CRE”) industry. While all agree that losses will be significant, just how significant remains to be seen. Unfortunately, we don’t have a crystal ball to let us know which scenario or combination of factors will play out, and, like any forecast, we have to accept that there will be yet unknown events and circumstances which change the outcome. In the meantime, however, it is important for any participant in the CRE industry to understand the economic factors which shape the business decisions and perspectives of the players who hold and/or deal in CRE. These forces will impact all aspects of the CRE market, including, but not limited to, the market for and terms of CRE sales, the availability of financing and underwriting requirements, workout options (or lack thereof) for troubled CRE loans, and local and regional development. Understanding of the macroeconomic and microeconomic environment and acting strategically using that knowledge is an important key to success – or, perhaps, given the current economic climate, survival – in not only the CRE industry but any industry.  Regardless, there are now and going to be abundant opportunities !

In contrast to the recent position taken by the Congressional Oversight Panel in their February 10, 2010 report mentioned in Part 1 of this series, there are economists, businesspeople and policymakers who have a less bleak forecast for the commercial real estate (“CRE”) loan market. One such example of this “non-crisis” position was presented in a research report by UBS Financial Services, Inc. entitled “Commercial Real Estate: Exorcising the Shoe” (the “UBS Report”). Some of the main points in UBS’ Report include the following:

 

(1)   CRE Loan Market Smaller. The CRE loan market is one-third the size of the residential market arguably lessening the reach of any fallout from mass CRE loan failures;

 

(2)   CRE Supply in Check. Unlike the residential real estate market, the CRE market was not overbuilt and therefore does not suffer from the excess supply issues in the residential sector. As a result, CRE valuations should not plunge as dramatically as residential home values have in many areas of the country;

 

(3)   Better Underwriting. While CRE loans certainly weren’t immune from the more liberal underwriting standards experienced during the recent “bubble” or boom years in real estate, the underwriting on commercial mortgage loans were more thorough than residential loans and generally had lower loan-to-value ratios than typical residential loans;

 

(4)   CRE Losses can be Absorbed. Most of the larger banks now have higher capital reserves to handle CRE losses;

 

(5)   Some CRE Losses have already been Recognized. Some argue that the market has already taken into consideration both actual and potential defaults in the approximately $700 billion worth of CRE loans (about 20% of all CRE loans) that are in the form of commercial mortgage backed securities (“CMBS”);

 

(6)   CRE is an Income Generating Asset. Unlike most residential real estate, commercial real estate generates (or has the potential to generate) income making workout options more viable.

 

The UBS Report considers the distinctions between CRE and residential real estate to be important factors in why we won’t see a repeat of the severe credit crunch created by the residential loan market in 2008 and 2009. Let’s hope they’re right!

 

 

 

 

 

 

The commercial real estate (“CRE”) loan market is floundering and is expected to increasingly experience high levels of losses over the next several years. The question on interested minds is whether the fall-out from CRE loan failures will mimic the devastation caused by the crisis in the residential mortgage loan market. Recently, the Congressional Oversight Panel, established pursuant to the Emergency Economic Stabilization Act of 2008, issued a bleak, if not frightening, report on the implications these anticipated losses in the CRE market and repercussions to the greater economy. The report, entitled “Commercial Real Estate Losses and the Risk to Financial Stability” (the “Report”), cautions that we could soon face a wave of CRE loan failures as approximately $1.4 trillion in CRE loans become due sometime between 2010 and 2014 causing our already weakened economy to suffer prolonged negative effects. The Panel believes the impact of a fallout from the CRE loan industry will be far-reaching, affecting not only those in the commercial real estate industry, but also small business owners, communities and the general public.

 

Notwithstanding the grim picture painted by the Report, there are some economists who argue that while the forecast from the fallout from the CRE loan market will be cloudy, it won’t be “the perfect storm” envisioned by the Report. Retail Traffic Magazine, for example, a leading authority on retail real estate trends, finds that “according to many real estate economists,…[the] fear [that fallout from the commercial real estate loan market will do as much damage as that done from the residential real estate loan market fallout] is largely misplaced. Commercial real estate debt will likely stall the recovery in the credit markets, they note, but because of a combination of factors, including the limited impact of commercial real estate loans on the overall economy, it won’t bring about the same wave of distress as the housing downturn did."  Watch for upcoming posts which provide a snapshot of each of these positions.

The Ohio Department of Development has announced the availability of $8,000,000 in grant funding for qualifying energy efficiency projects undertaken at existing multi-family, commercial, and institutional buildings. The goal of the program is to encourage the installation of energy efficiency equipment that will measurably improve the energy efficiency of existing multi-family, commercial, and institutional buildings. The program is competitive, and awards will range from $125,000 to $1,000,000 per project. The funds available under this program were originally allocated to Ohio under the American Recovery and Reinvestment Act of 2009. 

Individuals and businesses within Ohio may apply for funding, although government agencies, individual residential building owners and schools are generally not eligible.  Applicants must have match funding equal to at least 50% of the total project cost. Additionally, projects should demonstrate job creation or retention through: (1) retrofit or installation hours; (2) new jobs directly created through the project; or (3) retention of existing jobs at the site. 

 

Funds may be used on energy efficiency improvements such as:

 

·        Insulation

·        LED Lighting

·        Energy Efficient Lighting Technologies

·        Efficiency Equipment

·        HVAC Upgrades

·        Weather Sealing

·        ENERGY STAR Appliances

·        Replacement of Windows and Doors

·        Installation of Geothermal Heat Pumps

·        Energy Audits/Commissioning/Retro-commissioning

·        Retrofits with Green Energy Techniques

·        Above Energy Code Pilot Projects

 

Applications for funding are filed in two stages. First, the applicant must submit a project summary on the http://recovery.ohio.gov website by April 23, 2010. Next, a complete proposal must be submitted to ODOD by April 30, 2010. Grants are to be announced around May 28, 2010.

 

 

Almost all new build shopping centers are mixed use – they include some combination of office and residential in addition to the retail space. Elizabeth Hamilton, in house Real Estate Counsel at Office Depot, recently reminded me of the special problem this presents in allocating CAM, taxes and insurance. Some portion of each must be allocated to the office and residential components, but should it be on a strict per square foot basis for all users?  Taxes and insurance should be allocated among all users equally on a per square foot basis.  This means the dominator of the fraction defining a tenant’s pro rata share should include all retail, office and residential space. (Of course, creating separate parcels eliminates or reduces the problem.) 

CAM may be more complicated. The operating expenses attributable solely to the office component (such as the maintenance of an elevator or lobby area) should be allocated only to the office tenants, meaning that those costs should be deducted from the CAM allocated to the retail tenants. But then should the balance be spread over all tenants, retail and office? Retail tenants use more CAM than office tenants so that may not really be fair. Some landlords analyze it item by item to allocate between office and retail tenants. Some simply figure out what the market rate for office is and deduct that off the top. Others deduct based on a per square foot or percentage reduction and a general application of how they think CAM should be allocated. In any of these methods, the denominator of the fraction is just the retail area (because the aggregate CAM is reduced before the fraction is applied.)
 
The key here is to recognize the issue and have the Landlord explain how it allocates each item and then to make sure the Lease reflects this methodology. There is definite room for disagreement as to how to allocate, but the actual cost difference is probably not material. However, is this not another reason why fixed CAM is better?

 Recently, Crain’s Chicago Business  published an article about Vienna Beef’s Hot Dog University.  Given the continued state of the commercial real estate industry many of our colleagues have had to "look" for new opportunities.  Hot Dog U struck me as just about the most entrepreneurial idea I have seen in a long time.  All of the skills a real estate professional has acquired are necessary to be successful in operating a hot dog stand:  drive, personality, street smarts and the ability to calculate cap rates on the fly, or at least make change for a $20 bill !  But the most important skill to make a success of a hot dog stand is LOCATION, LOCATION, LOCATION !!!  Watch the video below: