Marc Realty is a commercial real estate firm offering realty advisory services to tenants, landlords, buyers and sellers of small to midcap value commercial real estate. Our primary focus is on the office market and investment properties ranging in value from $500,000 to $5 million. The business was formed by President and Broker-Owner, Marc Schwartz, in 1996 to represent its clients with the most professional and objective real estate and business consulting services. Our broad and diverse experience in commercial real estate is available to all clients with an emphasis on return on investment. As we like to say, "the art of the deal is in the details."
Please browse through our listings on this site and call me to discuss any interest you have in these or other properties that you are considering leasing, selling, or buying.
THE MARKET ENVIRONMENT
As we approach 2012 , it is helpful to take a look back at the last 10 years to see how the market has made us all little more humble and less certain of the real estate environment in general. As a point of reference, the S&P 500 stock index yielded a flat return over the period with alot of gyrations and head fakes for even the most seasoned investors.
We started 2002 coming to our senses following the e-commerce bubble burst and the recession of 2000-2001. We were all flying little high and without radar as real esatete led the economy into a frothy period in which no one could do anything wrong. Lenders were out in force to fuel the rapid ascent in real estate values through the market top of 2007.
It was quite a different market in 2008 as the Lehman Brothers collapse lead the way to a downward spiral in value and equity loss as the venerable S& P 500 lost 40% in less than a year.
One of my clients summed it all up at a closing in December, 2007 when he commented that "the world had changed" before his eyes. I didn't agree with that dower assessment but I felt the pain that ensued both as a professional broker trying to work deals and as an investor in the markets watching my nest egg unravel along with the bath water (I love mixed metaphors, don't you ?).
With leasing activity grinding to a near halt in 2008 while the stock market drained equity like a growing hole in the bottom of my vinyl lined pool, it was a difficult time to own and sell/buy any type of real estate.
Financing and underwriting of investment property deals has changed and both sellers and buyers must recognize the new environment and work together to overcome general doubt and apprehension of real estate and lender hurdles to financing deals. More equity is generally required (30-40%) on most deals and the pro form numbers must be supported by real market numbers and standards of reasonableness in order to get deals done.
Borrowers need to come to the table with a complete package on their project and anticipate the appraisal guidelines that ultimately determine if the loan will be approved and at what loan to value ratio. Translation, the deal is still controlled by the lender. It is the broker role to balance these numbers and temper the expectations of both the buyer and seller. My price or no deal is not going to work anymore with the investors in the market.
Paradoxically, the low interest rate environment (best rates in 40 years) is a catalyst to stimulate sales which otherwise would not be financially feasible. To take advantage of the low rates, buyers and borrowers must have real numbers in their pro formas and recognize higher standing vacancy rates and longer relet periods.
In looking ahead to 2012, it is clear that the commercial real estate market has changed but is heading in the right direction. Fortunately, there has been no gross overbuilding in the market which will assist in getting to a supply/demand balance faster and with greater upside potential. Class B-C properties will continue to fall out of the competitive supply.Owners that do not work with tenants and continue to demand aggressive rents and unlimited pass through expenses will suffer prolonged and maybe indefinite vacancy. It is our advise that everyone involved in a commercial deal, whether it be a lease or sale, take a collective step back and evaluate all terms and conditions over the longer term.
Finally, we must all recognize that what may be happening in the news as far as broad average statistics like average home prices and foreclosures may have little or nothing to do with the local market you operate in or the particular deal on your table. Commercial rents and property values do not reprice on a daily basis as stocks reported on CNBC. The difference between the asking rent and the net effective rent may have widened but tenants should not expect to see the asking rent adjustments that may be occurring in other sectors and areas of the market, particularly housing prices which have borne little relevance to the commercial market over the course of time. In short, if you want a good deal you will need to explore options and work for it with your commercial broker as your best resource to have on your team.
Good luck and best of success in your real estate pursuits. We look forward to working with you on your real estate objectives for the next year and beyond.
VALUE VS. SELLING PRICE
The difference between the "value" of a property and the selling price can and is often misunderstood, particularly by the seller. When a seller offers its property or business for sale to the market, he typically refers to the "asking price" as the value of the asset or business being offered for sale. The perception of value is intangible yet many in the real estate industry attempt to argue and prove that value=price.
Once a sale price has been set and the property has been exposed in the market , the seller will often be approached by a buyer and discussion will center on the price being too high for the property. The seller will respond that there is great "value" in his property and that the price he is asking is more than "fair". It is interesting that following a lengthy marketing period (sometimes over one year) and negotiations over the price , the buyer will go to its lender for a mortgage and an appraisal will be ordered by the lender to support the negotiated value (price) of the property or business. If the "fair market value" (as defined by the appraiser but not necessarily by the buyer and seller) is determined to be at least equal to the price, then the loan will be approved ; or if not, then some other adjustments may need to be made for the lender to reconcile its exposure ( i.e. if the value is determined to be less than the negotiated sale price).
Why would the appraised value not be equal to the negotiated price? The intangible factors that make up value are not often accounted for in the appraisal process. A classic example of this is the sale of a business which by the numbers may "value out" at a cetain price, but the Buyer knows has more "value", perhaps for an exclusive product or franchise territory or for limited entry by competitors as in the case of liquor licenses in certain municipalities. In this case, the buyer may be willing to "overpay" for the business or property vis a viv the appraised value of the business. An alternative example where the sale price is often less than value is in a condemnation transaction. The condemning authority is required by constitutional law to pay "fair market value" for property taken in eminent domain for the benefit of the public. However, there are few satisfied sellers in this process who feel that the price and value of their condemned property have not been reconciled.
The ultimate sale price of a property or business is typically less than the initial asking price set by the seller. Rarely, will a commercial property sell for more than asking price in contrast to some residential deals where emotional factors and intangible qualities of the house can combine to foster a bidding war atmosphere, driving some offered prices higher than the asking price. Commercial deals tend to be evaluated more objectively and with less emotional baggage in tow, except where the seller is concerned. For some reason imbedded in the human species, sellers usually see more value in their property than do buyers.
It is the process of the deal and the art of negotiation that seeks to reconcile the seller's perception of "value" with the Buyer's. The price may or may not reflect either and therein lies the negotiation and the work of the brokers. While there may be some correlation between value and price, the arguments that ensue are often about other properties and what they were sold or leased for. Trying to conform to "market comps " is not necessarily the answer to the issue, particularly for the the seller or landlord. The "comparables" that all too many brokers point to are not really comparable and the intangible aspects or incremental value of the subject property or of the "comparable" may be discounted in the process. Or they may be overstated (translation, "your price is still too high").
A good example of this disparity between the concepts of value and price is in the stock market. After you buy Cisco for $15 per share, do you really think the value of that share was and remains $15 when the very next day the price may be $13 or $17 ? Did the company's value really change by 13.33% overnight? How could a company such as Lucent be valued one day by the buyer (stock investor) at $75 per share and in less than one year be "worth" $1 per share ? Has the price=value concept lost all rationale? In the case of the stock market , it seems so. While the real estate market does not price itself on a daily basis (exception publicly traded REITS) as does the stock market or the bond market, the concepts of value and price remain similar and remain at odds.
On balance then, the "fair market value" of a property cannot be as accurately determined as can the sale price between a buyer and seller. What one buyer may pay for a property can and will be different from another buyer. Who is to say that one buyer has correctly reconciled value to price compared with another buyer/seller? Value/price is often in the eye of the lender/buyer. Until a seller has a buyer to deal with, it can be argued that the value of the seller's property is prospective only. Land for sale follows this pattern more than improved and leased property. Land is without current value since there is no income or other use of the property for commercial profit (excluding productive farm land). Now try selling that idea to the farmer who wants $400,000 per acre for his obsolete farm that you (the developer) wants to construct an office park or retail strip center on.
If you would like to debate the above or discuss your real estate project, please give me a call. Until then, best of luck in your search for value at the price you want.
Marc Schwartz, President Marc Realty
TENANT REPRESENTATION SERVICES
Marc Realty is uniquely positioned and qualified to consult with office and retail tenants in pursuing new locations, sites or renegotiating current leases coming up for renewal. With the market in a soft state and Landlords looking to fill long standing vacancy, a tenant in the market today has a good opportunity to negotiate its lease and lower operating costs for the current and near term. With the help of a tenant broker such as Marc Realty, we can evaluate deal terms and position the client in a solid lease. Rent is only one aspect of the deal and too often, the tenant's focus only on rent may turn off a deal or can short change the tenant in the longer term on real savings. An example would be a build to suit lease deal where the tenant may want both a low rent and a full build-out from the landlord. Since the costs of the build-out are often worth 2 years or more of the annual rent, the Landlord is not always in a financial position to meet the demands of both low rent and full delivery of the renovated space. Contrary to what many tenants think, the owner of the building does not have unlimited resources to subsidize the tenant's occupancy costs. The amortized costs of the buildout must be evaluated in addition to the rent to arrive at an "effective rent" to compare to toher opportunities under consideration. If the tenant can shoulder more of the cost of the project, then there is usually more room to lower rents and perhaps keep increases to a minimum over the length of the lease term. Perhaps more important than the initial rent, the rent in future years may be more of a factor to consider.
In working as a tenant rep, we can assist in the negotiation of your renewal which may be at "market value" rents as stated in the lease. If a tenant recently signed a lease in your building and received a deep discount and other incentives (build-outs, free rent, etc) one may jump to the conclusion that this is the "market rent". This may not be the case and therefore a major disagreement will arise between you as the tenant and the landlord as to your renewal rent. In some strange twist of fate, the existing tenant in a building may often be paying higher relative rent when compared to new tenants entering into leases r. The art of the negotiation is then to bridge the perceived gaps and arrive at a fair deal with the landlord or seriously consider relocating to take advantage of the "deals" out in the market. Of course, the costs of relocating and the tremendous distractions involved in moving a business often preclude relocation.
Marc Realty is available to assist the tenant or the landlord in this process and does so with over 20 years of leasing experience working on both sides of the table. We encourage tenants to designate a broker to be their exclusive representative to evaluate all options and work toward a favorable resolution to the renewal vs. relocate decision.
For a free consultation to discuss your particular matter, please call us.
Marc Schwartz, President
All information contained on the website is subject to change, error, omission and or withdrawal without prior notice. No express representations are being made by Marc Realty. Please call for updated information and current availability.