Overview
The Big Picture
Even the most astute commercial real estate investors are no doubt perplexed as to what strategies and tactics will best serve them in 2009...So, what makes 2009 different than any other year for real estate managers and investors? A recession, a capital and credit crisis, a new administration, an unfavorable public opinion of the real estate market, and perhaps what is the toughest competitive environment in decades. Will 2009 be a banner year for principals and sponsors or will it be a total bust?
I suspect that for many who read this paper, that the poor economic outlook and the severe disruption in capital and credit markets might seem to indicate that it's a good time to stand pat until there is clear evidence that economic and financial markets have stabilized. However it is precisely this type of cautious behavior that keeps downward pressure on markets, creates no value for investors, and most importantly gates your ability to catalyze wealth creation.
Although many things can be learned as a result of analyzing other down market cycles from the past, history clearly tells us two things about falling market conditions: 1.) that the more severe the downturn, the greater the opportunities for those who are prepared to execute, and: 2.) More lasting and substantial wealth is created in down markets than in bull markets due to shifting equilibrium and the resultant transfer of assets which always occurs.
It has been said that "adversity breeds opportunity," and so the fundamental question you must ask of yourself is this: will you take a defensive posture and stay on the sidelines managing risk, or will you get in the game and play offense by seeking out and exploiting opportunities? In this white paper, you'll find a business case for developing an investment strategy that positions to you to take what the market is willing to give. You'll have the opportunity to read about how to create a blueprint that will prove a business case for identifying investment opportunities not despite market uncertainties, but because of them...
I hope that you find the information contained herein to be beneficial and I look forward to serving your commercial real estate investment needs in the Western Kentucky market in 2009. Thank you for your consideration.
Bo Barron
Introduction
Successfully Navigating the Down Market
Unique market circumstances require extraordinary planning and execution. While there is no doubt that commercial real estate is a very special business, it is nonetheless still a business, and as such, deserves to be treated as one. Those commercial real estate managers and investors who don't have a sound business model delivered with a certainty of execution in 2009 will find the market to present what appear to be almost insurmountable barriers, obstacles, and challenges. The six pillars of any good business model are as follows:
•1. A clearly articled vision;
•2. A sound strategic plan;
•3. Great tactical execution;
•4. Properly acquiring and leveraging talent and resources;
•5. The creation of a strong brand, and;
•6. The development and protection of competitive advantages.
You'll notice that when reviewing the Sperry Van Ness brand that there exists a subtle, yet all important distinction in how we approach business...We are not just commercial real estate "brokers" schlepping deals, but rather we are skilled commercial real estate "advisors" who take great care to add significant value to our client's business initiatives.
While many "brokers" tend to lead with deals hoping that if they throw enough of them up against the wall, something will eventually stick, Sperry Van Ness advisors take the time to align your goals and objectives with current market conditions so that while your competitors business plans have stalled, yours has increased velocity and momentum.
I will personally commit to not only understanding your investment guidelines, return hurdles, acquisition and disposition models, etc., but to also do everything in my power to help you align them with current market opportunities and to execute your strategy as seamlessly as possible.
The difference between an "advisor" and "broker" is that the advisor is interested in the client first and the deal second...not the other way around.
Creativity Equals Success
Kentucky 2009 - Operating Outside the Norm is the Norm...
As far as the Western Kentucky commercial real estate market is concerned, keep in mind the statement mentioned earlier that "adversity breeds opportunity." While the Kentucky market certainly doesn't resemble the frothy climate of 2005, it is nonetheless better off than many markets around the country. The difference today is not that opportunities don't exist, but that it takes more effort to identify them, and more savvy and sophistication to close them.
There is little doubt that we are currently experiencing one of the toughest markets in recent history. Today's investment sales market has been reduced to an environment of the "haves" and the "have-nots." Many will point to the economic woes, tight credit, and the constrained flow of funds in the commercial capital markets as being the main reasons for the tough commercial market. However while there is an element of truth surrounding the logic contained in the previous sentence, I believe it is simply easier for many buyers and sellers to blame the market and follow the crowd rather than adapt their acquisitions and dispositions plans.
As an example, the real opportunities in today's market are not found by following the herd mentality but can be found in the application of any of the following strategies:
•1. "Off-market" transactions: I routinely help my buy-side clients seek out assets that are not listed by retail brokerage firms. Going the extra mile in approaching principal owners on a direct basis negotiating with them on assets that are not publicly for sale pay big dividends for clients.
•2. Change Market Focus: Both buyers and sellers alike are benefiting from focusing on secondary and tertiary markets where there will be less competition for assets. Many of the Western Kentucky sub-markets have particular appeal during economic downturns.
•3. Change Asset Class Focus: Be open to asset class rotation to take advantage of market opportunities as they arise. Diversification has never been more important than it is in today's market. Look across multifamily, retail, office, industrial, hospitality, self-storage, net-leased, and raw-land asset classes.
•4. Think Trophy Assets: Only a few years ago, many trophy assets were simply not affordable. Take advantage of higher vacancies, lease roll-over risks, and financing issues to acquire a trophy property at less than premium pricing.
•5. Look for Joint Venture or Recapitalization Opportunities: Many of the best opportunities in today's market are not found in out-right acquisitions. Explore joint ventures that will allow you to co-invest with existing owners of assets in a fashion that will allow them to free up trapped equity or fund new developments.
•6. Renegotiate with your Lenders: If you debt is non-CMBS debt, but is portfolio debt still on the balance sheet of your lender, don't hesitate to inquire about buying the debt out at a steep discount. It is sometimes possible in today's market to buy-out the debt for only a fraction of the outstanding loan balance. This not only improves your balance sheet and your cash flow, but it frees you up to acquire other assets.
•7. Change Your Acquisition Process: Traditional acquisition time frames that were competitive 12 months ago will leave you on the outside looking in with today's bottom feeding environment. Be willing to make unsolicited offers, put up meaningful earnest money deposits and close quickly where it make sense to do so.
Bottom line...There is no better time to shed the herd mentality instinct to wait-out the market. True portfolio growth, enhanced return on assets, and increases in personal net worth are rarely achieved by sticking your head in the sand, and waiting for better times. I invite you to contact me to schedule an appointment to review your current portfolio and discuss strategies for maximizing opportunities in Kentucky in 2009. Best wishes for continued success...
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