[Note: To follow is an excerpt of an interview with students from the CCIM Jay W. Levine Leadership Development Academy. They are: Craig Blorstad, Chief Financial Officer for WS Property Group; Ralph M. Duarte, Managing Director and Senior Advisor for Sperry Van Ness; Jerry Hall, Managing Director for Sperry Van Ness, and Robert E. Lee, President of SIG Equity Partners. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/062409.]
Mosca: Gentlemen, as you know, things happen very fast in today s world. Organizations often struggle to respond quickly to those changes. However, your institute, the CCIM Institute, has implemented an array of resources to provide its members with the tools they need to respond quickly in this ever-evolving marketplace. Of the approximately 125,000 commercial real estate practitioners nationwide, there are about 9,000 that currently hold the CCIM designation and 10,000 or so who are pursuing the designation. What does the CCIM mean to you?
Blorstad: I am a CPA and grew up trying to figure out how to analyze commercial investment real estate properties. As a CPA I found that we are lacking in expertise of the fundamentals of how to parse out commercial investment deals. I stumbled across the CCIM Institute in 2001, about eight or nine years ago, and was an extremely impressed by the process at which they got the information out and the expertise of the persons holding or pursuing the designation. I went through the state chapter process and the national chapter. It is what all the bankers and investment houses around the country are looking to for stabilization of the way of analyzing commercial real estate at all levels, not just pigeonholed at one expertise. It is the best designation for investment in commercial real estate out there.
Hall: CCIM reflects the top commercial practitioners in the country. There are CCIMs in 40 countries around the world, and less than three percent of commercial practitioners have the coveted CCIM designation. When I pick up the phone and call CCIMs around the country, I know that I am getting individuals that have the same knowledge and track record that I had over the last 35 years in commercial transactions. I know that when we are talking numbers, I can rely on information that they are giving me to be accurate and this is really important in today's market that you are talking to someone that understands the investment criteria in the marketplace -- and what is transitioning now to be one of the fantastic buyers markets that I've seen in my career. Owners and investors in real estate have to understand that they would really benefit and maximize the values of their properties by having a CCIM work with them either as a broker or a consultant to bring their markets to or their properties to the markets in today's climate.
Mosca: Today s market offers a number of different opportunities. How does one go about finding a CCIM in the market?
Lee: The best possible way is to go to CCIM.com where there is an online directory of CCIM designated professionals that you can simply type in a ZIP code or the city or the product type that you are looking for help on and it will give you a wide range of options from different CCIMs. Then, it is really up to the individual to interview a few different people and find out who they feel most comfortable working with. Anyone with a CCIM designation definitely qualify themselves not only in formalized education but through transactional volume so that they have the experience that they can back up with knowledge. They don't just have classes under their belt. They actually have done X. amount of dollars in transactions. We are the Ph.Ds for commercial real estate.
Duarte: In the opening comments of this show you mentioned the three areas -- the resources, knowledge and tools -- that will help investors to better manage their opportunities in commercial real estate and that's exactly what a CCIM stands for. The knowledge we have developed through the myriad of courses before we receive our designation, the four or five courses that we have to go through and prove through very stringent testing that we understand the materials and of course the ongoing classes that we go to after we receive the designation to maintain and hone our knowledge on going for the various segments and of course the toolset that the CCIM Institute does provide us with, like The Site To Do Business, gives us a leg up on helping our clients really understand the ins and outs of a particular investment opportunity.
Mosca: Let s turn our discussion towards your indivudal markets. Craig, Bloomington to me, reflects a smaller community with big ideas. You have a beeline trail opening up, a convention center, a new economic development Authority, plus of course you are home to Indiana University. What s happening in your market?
Blorstad: Our market is a port in this economic storm. We don t boom, we don t bust. We are growing at about 1.8% a year. We have not had any net job loss in Bloomington. That s not true for the rest of the Midwest or specifically Indianapolis. The downturn in the automotive industry has hurt the state as a whole but not our community of Bloomington. There has been an impetus at the Indiana University where we are getting out-of-state students, which has put a boom on student housing. That has been a good niche market for us. Also, the students coming in have a lot of money so retail has held up very well. Our residential homes are not trading for prices that persons would've liked to have received but nobody is losing any money in this market. We are steady. We do have a military base that is a good employer. We have Cooke Pharmaceutical Baxter, which is stable in the Indiana University so it's a great place to live and work. Not many properties are trading hands right now. People here don't have to sell. Our cap rates never got below seven on any property class. They have moved up to about 7, 7.5 but there is a lot of people that don't want to necessarily sell in this market, so there's not a lot of transactions going on but there is new product being delivered and most of it is in the student housing arena right now.
Mosca: Ralph, to me Bethesda, Maryland reflects a smaller community with city-type services and amenities. You are home to Bethesda Naval Hospital, the Bethesda Naval Medical Center, and the National Institutes of Health. Of course your proximity to DC is key. What is happening in your market?
Duarte: The Bethesda marketplace is really a part of the greater Washington, DC metropolitan marketplace and as such we are receiving a considerable amount of attention as we see the political winds change here in the last election. In any type of real estate, anytime there is change there is opportunity. Our case is no different. We are seeing a lot of changes going on with defense spending, with the base realignment changes, expansion of the convention centers both in the Maryland/Virginia as well as Washington, DC markets, and consequently we are still having the impact of the downturn on the financial market. We are holding our own although resale markets in our area are definitely on the downturn but certainly not as bad as some other key markets in and around the country.
Mosca: Jerry, when I think Columbus, Ohio I think of the home of THE Ohio State University. You also have J.P. Morgan Chase which just announced a thousand new jobs, and a local REALTOR Association that's doing a great job promoting a Green Columbus. What s happening in your particular area?
Hall: Columbus offers investors a great market to come into. Columbus is the 15th largest community in the country. You mentioned OSU and another large employer is the state of Ohio. There are federal offices and a lot of Fortune 500 and 1000 companies that are headquartered here in Columbus. We have a diverse economy. We dont always feel the pinch that other parts of the country do. However, we are seeing this turn into a buyers market. My specialty is multifamily properties. Just giving you a comparison between 2007 and 2008, 2008 we were down by the total number of properties sold by 32%, however the price per unit increased 55%. There are opportunities in the multifamily market. If you are a buyer in today's market, you've got to look at the marketplaces that will offer you the most for your money and Columbus offers that. There s going to be a lot of wealth created in real estate in the next five to eight years due to the buying climate. Interest rates are attractive. Central Ohio offers you the returns that you're looking for and it's a good long-term hold market. It always has been, and will be.
Mosca: Robert, California is a leader in green, new ventures, businesses, ideas, and your particular market is world-class, cultural institution, the entertainment capital of the award, and the port complex in Los Angeles is the largest one in the country. What s happening in your particular area?
Lee: Los Angeles, while we have been the butt of several jokes on a national basis about being bankrupt, it is still an overall stable market. Stability in the fact that we have so many people living here. If you look at the greater metro area, we re talking more about 25 million people. Only seven other states in the United States are larger than the Los Angeles population alone. People are constantly moving here from around the country. The tourism from around the world and foreign investment is still rampant. Primarily we are focusing on matching distressed assets with investors right now to help try and get things moving again in the market as far as transactions. Apartments are always going to be a great hedge against inflation and probably the best investment you can make in a recessionary market. We are still seeing cap rates really hover in the below 8, really below the 7% range which I think that's going to inch up 100 to 200 basis points over the next year or two. In general, people always need a place to live. There are a lot of jobs here. It's not like the 90s when the economy was heavily based with aerospace. We are very diversified now in our economy with entertainment and biotech and aerospace and technology and entertainment.
Mosca: Following international investors is critical to understanding where we might be as a marketplace here in this country because they tend to have a better perspective, a better view from afar. When international money pours into the country, that s a good sign, isn t it?
Lee: When people aren t so close, they can t see the forest for the trees. If you look at Ireland or London or different places the price of real estate is way above that of Los Angeles. So, many foreign investors money may be stronger or they feel like their money is more stable now compared to the American dollar but they still see Los Angeles and California in general as a relatively good value if you look at cost per square foot and if you look at the larger picture of what's going on as far as diversity in the economy and jobs.
Mosca: Our current administration understands and appreciates the value of homeownership and what it means to a community, but they are also actively out there telling people about the value of being renters and how important renters are to stabilizing and helping and recovery in building communities. That approach is unique but is it helping those of you involved in the apartment industry?
Hall: No question. In today s climate, perhaps not everybody should own a home. There are always people that need the flexibility of renting instead of owning. It allows people to get back in into apartments and live the lifestyle that they are used to with the flexibility. Young professionals are looking for more flexibility not wanting to make the commitment to homeownership and multifamily is there for them. There is excellent property here in the Columbus area and at all rental levels. Multifamily is a great investment. People have to live somewhere. They don't have to have an office and they don't have to have a retail space. I appreciate the current administration pushing the multifamily properties and showing the values of being a tenant and also working with the investors throughout the country to provide housing for people in all income categories.
Mosca: Even international investors, through technology and networking, are able to get into what is coined or known as the smaller markets like Bloomington, right?
Blorstad: Correct, they are. We are currently working with Korean investors who are taking advanatge of foreign currency exchanges. Real estate is a great investment. It s countercyclical to weigh stocks and bonds move. It is a good long-term portfolio balancing asset that everyone should own including investors from foreign countries. We have had a lot of foreign money coming in to a small community and we only have 120,000 people and we are attracting those kinds of dollars from investors.
Duarte: DC is international. We have the embassies but also the amount of business that gets transacted in the Washington, DC market because it is home base to about 5000 headquarters for associations and corporations. We have three major airports supporting the Washington, DC market -- BWI, Dulles, as well as National. One thing that's very attractive for the international buyer into the US market is the fact that the things that they may look at is really the attitude of the country, they are looking at the energy level of the people, and they are looking at the innovation. We are addressing our problems, and trying to make things work. That's what the international market sees and because of that they see the risk factor of investing in real estate in the US relatively low compared to other investment opportunities around the world.
Mosca: What is your golden nugget for today?
Hall: The one thing that investors have to look at today is timing their entry into any market they are going to invest in. Don t wait. You are going to be competing against a lot of other investors coming into the marketplace. You want to be a step ahead of all the other investors trying to take advantage of today's market. Be first to the ballgame and get the asset and buy them at your price.
Duarte: Make sure you get the right kind of adviser involved with the transaction. Right now, you've got a lot of people out there that are hungry and they will talk, but they don't have the walk. They don't have the background, they don't have the experience, and they don't have the resources to pull upon to advise their clients effectively. My advice would be for anybody looking to get into any type of this size transaction, make sure you're getting the full value of the adviser at helping you make that decision whether it be lawyers, CPAs, or CCIM members to give you the right information to make a good decision.
Blorstad: Like all business cycles, there are opportunities everywhere. Turn off the nightly news and don't be quite so pessimistic as they want to sensationalize it. It's a good market in a lot of areas, you just have to look a little harder and get the professionals like Ralph just mentioned.
Lee: Like Craig said, turn off the news, don't listen to the doom and gloom, focus on the fundamentals and get back to basics. Find a CCIM wherever you are in your market that you are comfortable with working with. We work with brokers whether they are part of our team or not all over the country. We favor someone who is a CCIM designee. Come to us if you are looking for distressed assets with your local broker. We are happy to cooperate with them. Buy properties based on the basics, actual cash flow at the end of the day and don't get excited, don't get into bidding competitions. There is plenty of stuff out there. We are just starting to see this train derail. I think we have another two to three years of this but in order to buy something in the next year, you really need to start looking now and getting things ready, understanding what makes the most sense for you, what product type, what market based on a lot of different factors.