Monthly Archives: January 2018

The Future of Commercial Real Estate

Although serious supply-demand imbalances have continued to plague real estate markets into the 2000s in many areas, the mobility of capital in current sophisticated financial markets is encouraging to real estate developers. The loss of tax-shelter markets drained a significant amount of capital from real estate and, in the short run, had a devastating effect on segments of the industry. However, most experts agree that many of those driven from real estate development and the real estate finance business were unprepared and ill-suited as investors. In the long run, a return to real estate development that is grounded in the basics of economics, real demand, and real profits will benefit the industry.

Syndicated ownership of real estate was introduced in the early 2000s. Because many early investors were hurt by collapsed markets or by tax-law changes, the concept of syndication is currently being applied to more economically sound cash flow-return real estate. This return to sound economic practices will help ensure the continued growth of syndication. Real estate investment trusts (REITs), which suffered heavily in the real estate recession of the mid-1980s, have recently reappeared as an efficient vehicle for public ownership of real estate. REITs can own and operate real estate efficiently and raise equity for its purchase. The shares are more easily traded than are shares of other syndication partnerships. Thus, the REIT is likely to provide a good vehicle to satisfy the public’s desire to own real estate.

A final review of the factors that led to the problems of the 2000s is essential to understanding the opportunities that will arise in the 2000s. Real estate cycles are fundamental forces in the industry. The oversupply that exists in most product types tends to constrain development of new products, but it creates opportunities for the commercial banker.

The decade of the 2000s witnessed a boom cycle in real estate. The natural flow of the real estate cycle wherein demand exceeded supply prevailed during the 1980s and early 2000s. At that time office vacancy rates in most major markets were below 5 percent. Faced with real demand for office space and other types of income property, the development community simultaneously experienced an explosion of available capital. During the early years of the Reagan administration, deregulation of financial institutions increased the supply availability of funds, and thrifts added their funds to an already growing cadre of lenders. At the same time, the Economic Recovery and Tax Act of 1981 (ERTA) gave investors increased tax “write-off” through accelerated depreciation, reduced capital gains taxes to 20 percent, and allowed other income to be sheltered with real estate “losses.” In short, more equity and debt funding was available for real estate investment than ever before.

Even after tax reform eliminated many tax incentives in 1986 and the subsequent loss of some equity funds for real estate, two factors maintained real estate development. The trend in the 2000s was toward the development of the significant, or “trophy,” real estate projects. Office buildings in excess of one million square feet and hotels costing hundreds of millions of dollars became popular. Conceived and begun before the passage of tax reform, these huge projects were completed in the late 1990s. The second factor was the continued availability of funding for construction and development. Even with the debacle in Texas, lenders in New England continued to fund new projects. After the collapse in New England and the continued downward spiral in Texas, lenders in the mid-Atlantic region continued to lend for new construction. After regulation allowed out-of-state banking consolidations, the mergers and acquisitions of commercial banks created pressure in targeted regions. These growth surges contributed to the continuation of large-scale commercial mortgage lenders [http://www.cemlending.com] going beyond the time when an examination of the real estate cycle would have suggested a slowdown. The capital explosion of the 2000s for real estate is a capital implosion for the 2000s. The thrift industry no longer has funds available for commercial real estate. The major life insurance company lenders are struggling with mounting real estate. In related losses, while most commercial banks attempt to reduce their real estate exposure after two years of building loss reserves and taking write-downs and charge-offs. Therefore the excessive allocation of debt available in the 2000s is unlikely to create oversupply in the 2000s.

No new tax legislation that will affect real estate investment is predicted, and, for the most part, foreign investors have their own problems or opportunities outside of the United States. Therefore excessive equity capital is not expected to fuel recovery real estate excessively.

Looking back at the real estate cycle wave, it seems safe to suggest that the supply of new development will not occur in the 2000s unless warranted by real demand. Already in some markets the demand for apartments has exceeded supply and new construction has begun at a reasonable pace.

Opportunities for existing real estate that has been written to current value de-capitalized to produce current acceptable return will benefit from increased demand and restricted new supply. New development that is warranted by measurable, existing product demand can be financed with a reasonable equity contribution by the borrower. The lack of ruinous competition from lenders too eager to make real estate loans will allow reasonable loan structuring. Financing the purchase of de-capitalized existing real estate for new owners can be an excellent source of real estate loans for commercial banks.

As real estate is stabilized by a balance of demand and supply, the speed and strength of the recovery will be determined by economic factors and their effect on demand in the 2000s. Banks with the capacity and willingness to take on new real estate loans should experience some of the safest and most productive lending done in the last quarter century. Remembering the lessons of the past and returning to the basics of good real estate and good real estate lending will be the key to real estate banking in the future.

Real Estate Leads

Working with a lead generation company has given me interesting insight into both real estate leads and agents. I dealt with both ends: the consumer and the agents themselves, and my job was to make them both happy. Yeah right. Easier said than done.

The consumer side is easy – real estate leads want a home value, they want information on the market, they want a real estate agent and we get them that. The real estate agents? Well that’s another story – they pretty much wanted everything under the sun when it comes to real estate leads. They wanted to be handed people ready to list their homes with them asap, with no work involved on the agent’s part. They want listings, not real estate leads.

Well, if I could provide that consistently, all the time, I’d either have a multi-million dollar company, or I’d be doing real estate full time myself. Get this through your heads agents: there is no magic service out there that will hand you listings for a low fee. Instead, these services provide you with real estate leads and it is YOUR job to turn them into clients. Got that? Real estate leads + you = clients!

YOU went to the classes, YOU studied up on sales and marketing techniques and YOU printed up all kinds of trinkets with your name and logo on them for your real estate leads. Ergo, YOU must convince your real estate leads to work with you. And if you’re not converting them, maybe you need to take a look at your own methods, rather than immediately blame the source of the real estate leads.

By now, I’ve probably heard every excuse under the sun as to why online real estate leads are bad or bogus. And that’s all it is, an excuse, a cop out to make you feel better about not being able to turn your real estate leads into listings. That being said, here are the top 5 cop-outs I’ve heard over the years about following up with real estate leads and my responses to them.

1. I’m a new agent and no one wants to use a new agent.

Well, how do they know you’re a new agent? Did you announce it the second you spoke with your real estate leads? You don’t need to tell all your real estate leads that you’re new. If they ask, tell them, and be honest, but don’t just volunteer the information. And how to you know “no one” wants to use a new agent – sounds like a gross generalization to me. You won’t know until you get out there and try – convince your real estate leads that to be new means you’re cutting edge, the best thing out there right now, show them what an expert you’ve become, even if you’re new to the business. Just TRY to convert them. Assuming from the start your real estate leads won’t want to use you because you’re new doesn’t even give you a chance.

2. Some real estate leads are on the Do Not Call Registry.

So? There’s no such thing as a Do Not Knock list. If your real estate leads are on the DNC Registry and you feel THAT uncomfortable risking a call, you should have your butt in the car, directions in your hand and preparing yourself mentally for your introduction once you knock at their door. And actually, as per the basic rules of the Do Not Call Registry, if a consumer on the lists makes an inquiry (which is what online real estate leads are!), you can contact them for up to 3 months after the inquiry. So you’ve got 3 months to get them on the phone, after that, there’s still always that door! Don’t use the DNC as a cop-out method with real estate leads. It’s a flimsy excuse.

3. It’s unprofessional to go knock on someone’s door.

This is the line I usually got after suggesting stopping by the property. My thing is, who said so? Who told you it is unprofessional to go visit your real estate leads’ homes and drop off the information they requested? That is a matter of opinion and as long as your real estate leads don’t think it’s unprofessional, you’re good. And by showing initiative and going out of your way to meet your real estate leads, you may have just earned a client for life.

4. These real estate leads are too far from my area, or it’s in a very bad part of town.

This is probably my favorite cop out, because it just sounds ridiculous to me. If your real estate leads are too far, why did you sign up for that area? Or, if you are getting some real estate leads out of your area, how far? Most of the time, agents complain about having to drive 30 minutes away. To me, 30 minutes of my time is DEFINITELY worth the fat commission check I could get. And if some real estate leads are too far, haven’t you EVER heard of a REFERRAL COMMISSION? Find an great agent in the lead’s area and send it on over. That way you’ll still get a portion of the commission AND you’ve saved 30 precious minutes of your time.

When real estate leads are in a bad part of town, it usually means it’s a very low-value home and is located in either a ghetto or backwater somewhere. It pisses me off when real estate agents say that the home isn’t worth their time. Guess what buddy? When you got your license, you gained knowledge that others don’t have, but will need at some point. You should be willing and open to share this with your real estate leads, no matter what the economic status of their home and income is. If you don’t want to help them, no one can force you, but you are a BAD agent if you’re not at least willing to find someone who will your real estate leads.

5. If they wanted to be contacted, they would have given all their correct contact information.

This is a tough one, because on one level I do agree with this SOMEWHAT. Real estate leads who give a good name, number, address and email seems to be more approachable than real estate leads that have fake names, or fake numbers, etc. But again, this statement is really a matter of opinion. You have NO idea what’s going through the consumer’s head when they filled out their information. Maybe they’re not technologically savvy and thought if they put their phone number over the Web, everybody would get it. Maybe they mistyped something. Maybe they don’t want to be hassled daily by telemarketer calls but DO still want the information. Until you actually touch base with your real estate leads, you have no idea where their head is at. What would hurt worse, getting a phone slammed in your ear, or missing out on a $15,000 commission because you THOUGHT they didn’t need anything since they gave a wrong phone number?

These 5 objections are really just cop-outs and excuses in disguise for not following up with your real estate leads. And pretty flimsy ones at that. If these are your objections to your real estate leads, you need to stop sitting around thinking up objections and just get out there and GO. Start contacting those real estate leads, start making phone calls and sending postcards. You may not convert them all, but I guarantee if you put your all into following up with every single one of your real estate leads no matter what objections you may have, you will see a HUGE increase in your conversion rate. You just have to get in there and TRY.