Block Funds Principal Rallys with the National Association of Realtors

This May, I had the privilege of attending the Mid-Year Meetings for the National Association of Realtors (NAR) to advocate for current legislative issues that impact more than 1,000,000 Realtors across the country. With the upcoming election and critical tax reform approaching in the Fall, 2012 is an especially important year for Realtor advocacy. To highlight the importance of the issues at hand, the Realtors organized the Rally to Protect the American Dream at the National Monument that included 13,500 members in person and more than 14,000 members participating online. Several Senators and Congressional Representatives attended the rally to show their support for many of the issues below. After the rally, Realtors from each state went to the hill to meet directly with their respective Senators and Congressional Representatives. 

Some of the issues impacting residential real estate include:

• Opposing any changes to the current mortgage interest deduction in the tax code

• Extending current tax laws regarding forgiveness of home mortgage debt

• The reasonable and responsible reform of government sponsored entities Fannie Mae and Freddie Mac in order to provide consumers and small banks with a reliable source of mortgage funding explicitly backed by the government. NAR supports tighter regulation and higher loan standards, but opposes several recent proposals to simply abolish these agencies with no replacement. 

• Supporting FHA funding and the expansion of certain FHA programs while opposing newly-proposed, burdensome regulations and restrictions

Aaron Mesmer and other NAR members with Congressman Kevin Yoder

• Encouraging the lending industry to expedite short sales. At the Mid-Year Meetings, Bank of America, JP Morgan Chase and Wells Fargo made a presentation regarding steps they are taking to improve and condense the short sale process.

• Advocating for a long-term extension of the National Flood Insurance Program (NFIP). The issue has been temporarily extended 20 times, creating uncertainty in the marketplace and, in one month where the extension was not completed, more than 40,000 home sales were terminated as a result.  Realtors also met with FEMA representatives to discuss new flood plain maps, which are impractical or arbitrary in many places, creating a hardship on property owners who were previously not included in the flood plain. 

My role was to advocate for commercial issues in meetings with a dozen Senators and Congressional Representatives.  Current commercial issues include:

• Supporting accelerated depreciation for tenant improvements

• Increasing the availability of credit to small business owners through an extension of the SBA 504 Refinance Program and other lending proposals

• Encouraging FASB to reconsider its proposed lease accounting rules and to take into account the negative impact these rules will have on commercial tenants, landlords and investors

• Allowing for the creation of a covered bond market for commercial property loans

• Opposing any changes to the carried interest provisions of the tax code related to “sweat equity” in real estate partnerships

• Preserving 1031 tax-deferred exchanges, a common tool utilized in the commercial real estate industry to encourage reinvestment into the market

• Lowering tax rates of foreign investors to encourage investment in US commercial properties

The legislators from Kansas and Missouri are generally supportive of Realtor issues, many of which enjoy bi-partisan support in both the House and Senate. However, given the slow pace of an election year, it is unlikely that substantial legislation will be enacted before November. This means that Congress will have less than two months in a lame-duck session to sort out a number of tax reform issues and avoid what the Washington Post has termed “Taxmaggedon,” a confluence of scheduled tax increases and deep spending cuts that could have a substantially negative impact on GDP and job growth.

While this presents some troubling scenarios, it is comforting to know that NAR and its representatives will be monitoring these issues closely to help preserve the rights of property owners and Realtors in 2012 and beyond.

 

Contributor: 
Aaron Mesmer, CCIM
Acquisitions and Investment Sales
Block Real Estate Services, LLC
LinkedIn 

Finding the Right Broker: Knowledge is Power

The evolution of Block Real Estate Services (BRES) is a natural progression for a family committed to success through real estate.  Most people know that Ken, Steve and Mike develop and invest in the real estate market.  Many investors including yours truly has had the experience of investing with the Blocks and receiving a regular monthly dividend.  What many people fail to realize is the incredible pool of real estate talent available at BRES.

BRES has an Office, Industrial, Retail, Multifamily and an Investment Group with years of experience and a commitment to service. Agents at BRES learn early in their careers and are reminded every day how important it is to maximize the value for their client.  Knowledge is value in the real estate business and the agents at BRES, due to the large volume of transactions they are involved in, are extremely well versed in all aspects of commercial real estate.  BRES agents are independent contractors who are ready to assist anyone in their efforts to maximize the value of their real estate.

One of our very best assets at BRES is our people. As the Director of Brokerage for BRES, one of the real benefits of my position is the opportunity to help place our tremendous sales people in a position where their individual strengths will be of benefit to everyone and anyone needing a real estate strategy for their business or their property.  BRES has a full-service solution to your real estate needs with a full-service group of outstanding Brokers. Whether it is leasing, managing, selling, retrofitting or building a property, BRES is your one stop company committed to your success.

Your success is our success, so give us a call.

Contributor: 
Lou Serrone
Vice President, Director of Brokerage
Block Real Estate Services, LLC
816.932.5546
LinkedIn

Commercial Real Estate Funds: The Alternative Investment

Many investors do not have the experience, time or knowledge to invest directly in commercial real estate and have no desire to quit their day job to solely focus on their CRE portfolio. If this is the case for you, a real estate fund may be the solution. Most well managed funds provide the investor with a portfolio of properties that match the investment objectives of the fund and, at the same time, relieve the investor of the day-to-day activities that come with investing in commercial real estate. Not all commercial real estate funds are created equal and investors need to make sure the fund objectives meet their personal risk tolerance, time frame and return expectations before the investment decision is made. Learn more about the benefits and risks of commercial real estate investments and Real Estate Investment Trusts (REITS).

Leverage
Most commercial real estate funds are structured to acquire assets by using all equity or a combination of equity and debt. If a fund uses debt financing, or leverage, the overall risk increases. It goes without saying that the higher the leverage ratio, the higher the risk. Conversely, increased leverage can lead to higher expected returns. Leverage can be utilized in many ways such as fixed rate loans, floating rate loans, or interest only loans. Depending on the interest rate environment and future projections, each form of leverages can have advantages or disadvantages.

Increased Leverage Advantages:

• Fixed rate loans eliminate interest rate risk since the annual debt service is known for the term of the loan.
• Leverage significantly enhances back end pay offs.

Increased Leverage Disadvantages:

• Amortization of the loan requires principal payments, which decreases short-term cash available for distribution.
• Interest rate adjustments may turn a “cash cow” into something much less desirable.  

There are many different types of real estate funds. The two most common are income and value-add funds:

Income funds
Income funds usually have a lower expected return because the properties acquired have relatively stable cash flows from long-term leases and good tenants. They typically have a longer time horizon, or fund life, since the primary objective is wealth building and cash flow over the long-term. 

Value-add Funds
Value-add funds normally have higher expected returns since the overall strategy may entail more risk. As an example, these funds look to acquire empty or partially empty buildings or older buildings that can be converted to a higher use.  Once they execute the strategy of leasing or repositioning the property, they try to sell the property and recoup the investment plus a substantial profit. If the strategy does not work, the investor may lose some or all of their initial investment. The time horizon for value-add funds range from a few months to a few years.

Finding Your Fund Management
The fund management, or sponsor, is one of the most important aspects to evaluate when selecting a commercial real estate fund. The fund sponsor must have the experience and track record to successfully adapt to market conditions and make decisions that ultimately assure that the fund will meet projected expectations. Ideally, the sponsor should have leasing, management and construction teams in house or the ability to hire the best in the business, like we strive to incorporate at Block Funds.

Even though there are no simple guidelines for asset allocation, a good commercial real estate fund may help balance the risk reward strategy for many investors. Keep in mind that like all investments, the basics remain the same --- sound management, strategy and execution.

Contributor:
Brian Beggs, CFA
Principal, Director of Acquisitions
Block Funds
LinkedIn

Recession-Proof Recipe for Growth

In 2006, Block Maintenance Solutions (BMS) began as a simple LLC that was comprised of Building Maintenance Technicians and Engineers in total about 16 employees.  The company remained unchanged until 2009. At that point, BMS began to grow. Over the next three years we grew to over 40 employees, and a full spectrum of building services that include:

 

• Construction / build-out
• HVAC service / installation
• Electrical service
• Plumbing
• Locksmith and security
• Project Management
• Inspections
• General Contracting

The revenues are up from approximately $600K in 2009 to a projected $3.6M for 2012. Anyone that has not spent the last 10 years in a comma, knows that the last three years have been some of the roughest economical times. How did we grow? We followed a simple recipe:

1. Do not actively participate in the recession. This means that you do not create an atmosphere that supports fear or doom. This is not to say it is wise to act aloof or indifferent to the situation; it means to incorporate the present economy as a key part of the plan. To put it simply: When everyone around you is panicking and cutting their losses early; the company that keeps its cool can pick up a lot of bargains as well as a lot of opportunities / market share. 
2. Take advantage of all of the opportunities that are right in front of you. So much of the stuff we do today was simply contracted out to other companies in the years past. If they can do it / We can do it!
3. Take full advantage of the skills that are in-house already. We are a very diverse and well experienced group. Before a call to another company for service is made; we ask: Can we handle it ourselves?
4. Always be selling. Always be selling. Never let an opportunity get missed. Always ask for the business. 
5. Always have a service mentality. It is a requirement for everyone in this company to serve their customers (internal and external).

Growing does not come without its pains. Supporting departments / companies can be overwhelmed with an increase in work. Systems such as accounting, work order, computers, phones etc. all must be increased to not only handle the load of the extra people, but the cumulative loads of the other infrastructures that come with growth. We will continue to take advantage all opportunities and serve our customers for as long as they will allow us.

Contributor: 

RON FREDERICKS,
DIRECTOR OF BLOCK MAINTENANCE SOLUTIONS

T 816.412.8454

Rfredericks@blockllc.com

LinkedIn

Is CRE Prepared for Senior Housing Boom?

Commercial real estate took a deep dive in 2008, and many sectors found their projects incomplete and with lack of capital to continue. However, as Baby Boomers begin to retire, these medical and retirement focused markets are seeing an opportunity in catering to America’s aging population. Investors are beginning to identify a wise choice in putting their money into assisted-living rental properties, which are tied to health care rather than personal housing choices.

According to a New York Times Article, “Demand for nursing homes, assisted-living facilities and retirement communities is expected to balloon in the next two decades as baby boomers retire and the incidence of progressive illnesses like Alzheimer’s disease increases. The number of Americans over the age of 65 is expected to double to 71 million by 2030, and 7.7 million of them will suffer from Alzheimer’s.”

The Kansas City market is no exception to the overall increase in demand for senior living centers. In January of this year, Hunt Midwest Real Estate Development, Inc. announced plans to build an 80-bed assisted living facility at the site of the former Somerset Elementary School in Prairie Village at the intersection of Somerset Drive and Belinder Avenue. 

There are also opportunities to find success in other sectors that cater to this Baby Boomer market, like tenant representation for medical professionals and retail near senior housing developments. CRE brokers and property managers need to be prepared in dealing with this growing demand.

Contributor: Chris Cargill, Sales Associate
LinkedIn







Block Real Estate Services, LLC

Not Everything is Peaches in Georgia: Challenges and Success of BRES Atlanta

Although we have been purposefully quiet for the past nine months, the 1.4 million SF Block Atlanta portfolio came under the management of BRES Atlanta in the summer of 2011 and we took off. With budget season coming on for the 19 building portfolio, a load of planning and learning the portfolio was a warp speed experience to be able to meet the budget deadlines and offer up accurate and timely work product. Well, as you can see, we did survive and we did pull it off—but that is why you have not heard a lot out of us here in the Peach State.

The BRES Atlanta management team consists of 

• Bert S. Calvert, Managing Director, Atlanta Operations
• Renee Harrison, Property Administrator

Our engineering team consists of

• Michael Granberry, Building Services Engineer 
•  John “JD” Duncan, Maintenance Engineer

Our combined years of experience will tell you more about our ages than we care to disclose but suffice it to say, we all thoroughly enjoy what we do since we have been doing it for so many years.  

But it hasn't been all peaches in Georgia. I will share with you one unique challenge we experienced. We located the BRES Atlanta office in Mansell 400 Business Center in Roswell, Georgia.  Roswell is an affluent suburb roughly 20 miles north of Midtown Atlanta. It made a lot of sense to locate the BRES Atlanta office in the park, so we located in a 9,790 sf vacant office in one of the 2-story buildings. 

This happened to be more space than we needed. One of our challenges was to get the spare space leased---hopefully to an executive suites operation to minimize the expense of having to refit the space for a standard office use. After three failed attempts at trying to lease the space with the appropriate incentives, it became clear that we would be hard pressed to find an operator who would take the risk of a suites start-up in this economy. We did find an operator who offered to operate the suites on a “fee” basis. So, we negotiated a management agreement with a local suites chain that has been in business for 33 years and operates executive suites in several other Atlanta office sub-markets. 

While that puts BRES Atlanta in the executive suites business, with the associated risk that goes with it, we believe we can make this a real success at a cost less that we could refit for a standard office operation and the associated concessions that would be required to fill a 9,790 sf space in today’s market.

So, yes, we have been extremely quiet here in Atlanta—but it is not for lack of anything to do.  Once we come up for air, we hope to get to meet those of you we have not had a chance to work with and as always, we look forward to being a big part of the success of Block Real Estate Services.

Contributor: 
Bert S. Calvert, Managing Director, Atlanta Operations, CPM, CCIM, RPA, LEED GA
Bert came to BRES with over 30 years of property management experience representing many geographical locations across the U.S. Bert is a Certified Property Manager, Real Property Administrator, CCIM, LEED Green Associate and is a past president of BOMA-Atlanta.  He is a licensed real estate broker in the state of Georgia.

Block Real Estate Services, LLC

Concerns For Office Properties Rise As Leases Roll Over To Reduced Rates

Despite forecasts of decreasing vacancies and increasing rental rates in 2012, there are still major concerns for owners of office properties. In a recent Wall Street Journal article, authors Craig Karmin and Eliot Brown cite that the national delinquency rate of securitized office loans increased 1.4 points from 7.4% last June to 9.0% in December. This is familiar news to real estate professionals in Kansas City who recently witnessed owner Hertz Investment Group default on their $21.5M note for Commerce Tower in Downtown Kansas City. Karmin and Brown explain this trend by saying that due to the typical 5 year office lease, leases signed at peak rates in 2007 are now rolling over with tenants signing at drastically reduced rates.  

Owners who have been able to stay afloat on loans signed just before the recession as a result of these above market rates are now seeing income levels fall below debt service thresholds. Adding to owners’ problems is that prospective new tenants are demanding big concessions and high capital outlays in the form of free rent and tenant improvements.

If there is one thing the Great Recession continues to teach us, it is that investing in fundamentals and using leverage wisely is paramount. For more than 70 years, BRES has taken this message to heart.  

Contributor:

Max Wasserstrom, Sales Associate
LinkedIn

  

Block Real Estate Services, LLC