Short & Sweet With No Fluff

Posted: January 4, 2017 by Eli Randel, Director of Business Development

SHORT & SWEET WITH NO FLUFF

No, that is not my order at Starbuck’s or my match.com header, this week’s blog is meant to be short, sweet, and sans any company fluff about why you should visit us at CREXi.com (although you should).

Having grown up and spent my whole career in the commercial real estate industry, I wanted to share some concise thoughts on why I love the industry and asset class:

  1. Low individual barriers to entry. Real estate investing requires no formal education or licensing requirements and while some areas of the business can be incredibly sophisticated, many concepts are very simplistic and intuitive. The result is a colorful and entrepreneurial culture full of unique personalities and personal stories.
  1. Diverse skill sets. Within one day you can exercise your finance chops and underwrite a complicated deal, exercise your marketing muscle and promote your newest project, or put your salesman hat on to win a new tenant. There are a broad set of skills which drive the industry;
  1. Instinct and intuition. While there are many sophisticated nuances, many of the concepts in CRE are intuitive. We all live somewhere. We all shop somewhere. These are not foreign concepts. Recognize that there aren’t enough apartments for rent in your area? Buy or develop an apartment building to capitalize.
  1. Control. Some of us don’t like the idea that unless we are an activist investor we can’t control the value of our equities investments (stocks). Further, the value is at the mercy of someone else’s control. What if the CEO gets caught in a scandal or retires sooner than thought? Most CRE professionals can still directly (attempt to) add-value to their investment or business.
  1. Real estate is a hard asset. Some people (myself included) don’t have the wiring to blindly trust an investment that can only be seen as numbers on a computer screen. Real estate is a real tangible asset you can drive by and touch.
  1. They aren’t making any more of it. I hesitated to include this as I believe this idea can sometimes be a trap. This notion does not mean values always rise and I think it’s underestimated how much untouched land there is. Additionally, technology has blurred the lines of physical and virtual space. However, the fact remains, the population continues to grow while land availability continues to decrease.
  1. Use of debt. Real estate is financeable whereas financing bonds or equities investments is a tricky business. Debt allows investors to lever returns, do more with less, and creates other industry opportunities (lender, servicer, appraiser).
  1. Other people’s money. The use of other people’s money (OPM) is an important component of the industry. Friends and family or institutional capital investors are always looking for avenues where they can find returns and are willing to pay fees and promoted interests to those who can access those investments. This allows investors to further lever returns and/or play in a greater arena than they otherwise could.
  1. It’s fun. For the restless like myself, it’s an industry that often revolves around meetings, looking at properties, driving, or getting a drink with other professionals. It’s a people industry that often puts you on the move as opposed to chained to your desk.

Tell me what I missed or share your thoughts @ eli@crexi.com or 305.331.2881.

Eli Randel

Eli Randel, CREXi Director of Business Development

Eli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.

How Long Should It Take To Receive An OM?

Posted: December 21, 2016 by Paul Cohen, Regional Director

HOW LONG SHOULD IT TAKE TO RECEIVE AN OFFERING MEMORANDUM?

Back in 2002, I was at a conference for a select group of CBRE brokers who were invited to be part of a new division called the Private Client Group. It was an exciting time. Led by a maverick named Glen Esnard, we had one mandate: to design and build a platform within the CBRE network to work with the thousands of private real estate owners across the country. Previously, the company had a more institutional focus, but now recognized the opportunity to service a wider entrepreneurial client-base.

One of our first breakout sessions was led by a forward thinker named Jim Crupi; a consultant to many Fortune 500 companies and a former Army Ranger commander. I was pumped. His first question to us was: “how long should it take to get an offering memorandum?”.  I looked around the room, thought about how long it typically took; figured he was looking for a short answer and suggested one I thought was low but not crazy: “less than 24 hours.” Many of my colleagues could tell by his reaction that he was looking for a shorter time and offered their newly revised responses with the lowest being “one hour.” Of course, an hour was doable but in my experience, was not the norm. By the time a buyer gets a broker on the phone, the broker e-mails an NDA, the NDA is received, printed, executed, and then faxed (yes faxed) back, the executed NDA is then received by the broker and finally the offering memorandum is sent, at least a day if not several has usually elapsed. Crupi then challenged us to a group exercise. Our task was to pass a tennis ball around a circle of 20 people in the shortest time possible. Now we were a very competitive bunch so after three attempts we got it down to under 5 seconds. Crupi commended us but encouraged us to do it quicker. After some brainstorming, strong teamwork, and logistical coordination we finally touched the ball simultaneously. That was Crupi’s point: “Don’t accept the norm but challenge yourself to find new ways to do it better.” He invited us to do the same with Offering Memorandums. My mind was blown. What if we improve on and change the norm in other areas of the business?

Fast forward to 2016, I find myself with the same level of excitement as I did in the early days of the PCG: a member of a band of free thinkers with the goal of disrupting traditional norms. Providing tools to brokers to make them more effective with client reporting, email marketing, due diligence vaults, offer submission, and analytics. Oh, and you can download an OM instantaneously. Check out www.crexi.com and take the OM Challenge.

Paul Cohen – Guest Contributor

Paul Cohen, Regional DirectorPaul Cohen is a Regional Director with CREXi based in the firm’s Miami office and focused on business development in the southeast. Prior to joining CREXi, Cohen was a Managing Director specializing in investment sales and equity raises at Cohen Financial, a national debt and equity advisor. Prior to Cohen Financial, Paul owned and operated his own independent real estate firm following a 12-year tenure at CBRE where Cohen was a Senior Vice President and led the Private Client Group in Miami-Dade County with a specialty in office and industrial investment sales.

 

Data-Less 2017 Market Outlooks (Analysis Without Paralysis) Part 2

Posted: December 14, 2016 by Eli Randel

DATA-LESS 2017 MARKET OUTLOOKS (ANALYSIS WITHOUT PARALYSIS) Part 2

Read Part 1 Data-Less 2017 Market Outlooks

Despite the moving market pieces and political volatility which could affect the US capital markets, I muted the noise and “what-if” scenarios, spoke to several trusted advisors, and put my thumb in the air to paint a picture of what I think the 2017 CRE capital markets will look like:

Following a flurry of sometimes fruitless activity (lots of squeezing, minimal juice) in Q4 to close investment sales and refinance debt before year end, I expect a brief pause and “holding of the breath” entering 2017 as Trump takes office and investors shake off their added holiday weight. Eventually, the ambitious deployment targets and billions of dollars in unplaced capital will resume the deal chase and direct or LP equity will be plentiful albeit more risk averse. Despite the domestic perception of political risk, foreign economies still view the US as a safe-haven for capital and will continue to gravitate towards the US CRE market to escape their own struggling economies, political risks, and low (and even negative) interest rate environments. Large supplies of domestic and foreign capital competing for deals coupled with strong growth assumptions will mostly offset softening values resulting from upward pressure on cap rates caused by rising interest rates and costs of capital.

The debt markets will become tricky to navigate as interest rates rise and a new regulatory environment mostly for banks and conduits emerges (although Trump has discussed reversing many of the new regulations), but good deals with good sponsors will have no shortages of financing options from debt-funds, conduits, agencies, life companies, and banks. Ultimately lenders will be eager to get to work and to begin deploying their aggressive 2017 targets with balance sheet products from banks and debt-funds continuing to find an opportunity for larger market share. Borrowers will learn to settle for lower leverage or more creative capital structures as rising costs of capital will make debt harder to service and while younger investors will be unsettled by rising costs of debt, more seasoned investors will remember a time when interest rates were well into the teens and will conclude that rates are still relatively low and opportunistic for borrowers.

The last two quarters of the “Wall of Maturities” resulting from the many 10 year loans originated in 2005-2007 will pass mostly as a continued non-event as most maturing loans have successfully paid-off following a sale or recapitalization. Despite some value softening, most asset values remain above their 2007 value or at least above their unpaid loan balances. However, some market softening and the new financing environment may cause a handful of notable maturity defaults, but competition for any deals that emerge will pull returns below opportunistic levels. Distress investors will mostly continue to wait on the sidelines into extra innings. Assets that do default will take a year or two to make it to investors (unless sold as notes) and competition for the deals will push pricing above opportunistic levels.

Transaction velocity will be about even or slightly below 2016 as buyers may increase their yield requirements and sellers are slow to (or choose not to) adjust their expectations and the bid-ask gap – always existent but easier to bridge in a bull market – widens for many deals. However, as repeatedly stated, competition to place capital may offset and shake-off what would seem like a rationale cooling. Pent up capital supply, investors with long time horizons, expiring equity funds, and baby-boomer retirees rightsizing their income, will contribute to transactional movement and deals will still get done at a good pace.

Overall I believe 2017 will mostly mirror 2016 with some signs of softening and plateauing seen in certain product types and markets. I believe a tale of two bifurcated markets may emerge where good product in good markets will remain sought after and yields will remain low and asset values high. In most respects, basic value-add, low-risk profile deals, and core assets will feel similar in pricing to 2016 as institutional capital remains mostly bullish on long-term fundamentals and will look to keep the lights on by continuing to place capital. However, secondary and tertiary markets may initially slow in deal velocity in 2017 as private capital can be less cerebral to value changes (largely because capital is proprietary and not OPM) and sellers will have a hard time dropping their value expectations while buyers have a harder time navigating debt markets causing the bid-ask gap to widen and deals to become harder to execute. However, I think as the year progresses and sellers slightly loosen their expectations while entrepreneurial capital floods secondary markets chasing greater yields than core markets offer, volume in secondary and tertiary markets for sub-institutional product will increase – especially if job creation as promised by the incoming president occurs and infrastructure investment creates new occupiers and tenants armed with government contracts.

To find deals that fit your criteria, please visit www.crexi.com where you will find an aggregated marketplace of over 6,500 commercial real estate investments (and rapidly growing). One-click NDAs, due diligence vaults, and a user-friendly email marketing portal ensures you can immediately begin underwriting deals.

Eli Randel

Eli Randel, CREXi Business Development ManagerEli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.