Commercial Real Estate, Who is still playing?

Changing economic times and recent events in the Real Estate market place had brought about moves and changes in the financial market place. We are witness to the collapse of companies we all thought would never get into serious trouble, to the point of actually going under and closing their doors or being taken over for ten cents on the dollar.

I came across an article just a few days ago about this new market being responsible for forging some atypical unions. Just because it’s difficult to borrow money doesn’t mean development plans need to come to a halt. In fact, the credit crunch–and the resultant drop in available construction financing–has given rise to some new partnerships.

Retail REITs (Real Estate Investment Trusts), with mountains of cash at the ready, are increasingly joining forces with small local and regional developers to enable projects that otherwise might not move forward.

For example, two weeks ago, Santa Monica, Calif.-based Macerich Co. announced a joint venture agreement with DMB Associates, Inc., a Scottsdale, Ariz.-based diversified real estate investment and development company, to build One Scottsdale, a 120-acre mixed-use project in Scottsdale. Macerich will head up the retail component of the project, while DMB will oversee the residential, office and hospitality portions.

In another example, Chattanooga, Tenn.-based CBL & Associates Properties, Inc. broke ground on two large-scale shopping centers in Florida–Pavilion at Port Orange in Port Orange boasting 550,000 square feet and the 750,000-square-foot Hammock Landing in West Melbourne. Both open-air centers result from a partnership with the Benchmark Group, an Amherst, N.Y.-based privately held real estate developer.

REITs have been forming joint ventures for decades. This time around however, the joint ventures are very different. In recent years, REITs primarily have joined with institutional investors, such as pension funds, largely for the purpose of making big acquisitions.

The latest round of joint ventures are horses of a different color. The unions are more for developing projects, rather than acquiring them. And the partnerships are coming at a time when many firms are scaling back projects, delaying construction or scrapping plans to build altogether. Developers are seeing retailers close stores and scale back on expansions. Others are having difficulties lining up the necessary financing to build.

These joint ventures signal that there are still areas across the country that can sustain new construction. Moreover, they solve the financing conundrum by teaming developers that have assembled sites, but have no funding, with REITs that have deep pockets and see an opportunity to grow portfolios without shouldering all the development risk. The joint ventures also minimize the risk for both parties, which is helpful given that projected development yields have dropped from the high double-digits to the mid single-digits in recent months.

There have always been the types of ventures where a small guy with land finds someone to help build, but given that capital is harder to come by now, it makes sense for REITs to get involved with these kinds of developers.

There are still many areas of the country that are experiencing a growing population. That growth signals a need for homes - either single family homes or multi-family units. These folks are NOT going to be living in tents, they are NOT going to grow their own food. They need places to live and stores in which to buy the products they need.

Those players in the Commercial Real Estate Investment industry that are savvy will see opportunities where others are stampeding for the exits. It’s easy if you subscribe to the theory that when one door closes, another door opens. If you can only focus on the closed door, you may miss the other door opening!

REITs continue to have huge amounts of capital and their investors want it put to work for them. This new economy has closed one door perhaps for now, but has opened another where REITS can move from acquisition to development. And developers can move from pulling up the stakes to moving forward with building. It’s another example of a win/win situation.

Be on the lookout. Just when you think there are no opportunities — watch for that new door opening just a crack! Be on the lookout for other investors that have been holding back funds to start moving on projects that make sense and money!

If you want to learn more about commercial real estate and what to look for in today's market. you can start where I started. The training materials are excellent. The support great, from live chat to support tickets as you learn and grow your knowledge. You get exclusive access to the website that offers a quick start program and ongoing training to stay current. Each week they hold either a teleconference or webinar with guest speakers on issues of the day or advanced training to keep you on the leading edge of the commercial world. Be sure to check out www.vip.dirtintocash.com

To your success in life,

Ted