As reported on www.costar.com,
Article by Mark Heschmeyer
"Maybe it is time we start taking bankers at their word that commercial real estate wasn't and isn't a catastrophe waiting to happen. Maybe, just maybe, as they've been telling us for the last four consecutive quarters, there are serious risks but they are manageable and are being dealt with and disposed of.
Why, now?
Because third quarter commercial bank earnings reports released in the last week seem to back up that talk. Individually, there are definitely still banks in trouble. But collectively banks seem to be on the tail end of their commercial real estate troubles. Distressed loan levels have stabilized, the amount of new delinquencies is decreasing and more banks are beginning to push troubled assets back into the marketplace.
Banks' exposure to CRE loans has been a source of concern for many observers, said James Abbott, senior vice president, investor relations and external communications for Zions Bancorporation, but "so far that is not playing out in our portfolio and has been reasonably benign around the industry."
In fact, there are a lot of indications the commercial real estate market is stabilizing and even strengthening, Abbott said.
"If you look at CMBS spreads and some other indicia of this, it's appearing that maybe we're not going to see the kind of storm some had predicted," he said. "But I think it's going to take another two or three quarters perhaps before it's really clear that there aren't substantial losses around the industry in that product type."
Some banks even reported in their quarterly earnings conference calls that they are gearing up for increasing their commercial real estate lending activity or seeing renewed interest in borrowing. Such banks are still the exception, not the norm, but we haven't heard this kind of chatter since 2007.
"I would say that we've continued to be very judicious in the commercial real estate area," said Jerry Plush, senior executive vice president, CFO and chief risk officer of Webster Financial Corp.
"[We] continue to look for opportunities that make sense for us, and we're continuing to see that there is definitely some build-up in the pipeline there that we could see in the coming quarters," Plush added. "We're not saying that there is going to be substantial growth," Plush said. "It would be either to maintain balances or slightly above, but soon you will start to see the emergence of those small business and middle-market numbers rising in the commercial category."
Rene Jones, chief financial officer of M&T Bank Corp., said her bank is seeing customers paying down debt and repositioning themselves for future expansion.
"We’ve seen in the commercial real estate space a number of pretty well healed commercial real estate folks actually just looking at the liquidity and their portfolio, maybe selling down some projects to improve the overall liquidity position," Jones said. "But overall, our commitments aren't up, so I think people are just on hold. The rates are low, they’re trying to lock in some credit today but they’re not necessarily using it because they’re not yet investing."
Beth Mooney, vice chairman of KeyCorp, said they are definitely starting to see stability in commercial real estate, particularly the middle market loan book.
"We have obviously seen that client base de-lever over the last seven to eight quarters. But if you look into the trends from the first, to the second, to third quarter, we had the lowest level of decline in this quarter that we’ve seen through the cycle and we are actually starting to see, particularly in our Great Lakes and Northeastern regions, signs of increased new business activity and modest glimmers of loan growth," Mooney said. "However, on net you still see pressures in the Western markets. They were late into the cycle, but we do see some pickup in business activity and clearly signs of stability in the middle market book, as well as in the core leasing portfolio, which intersects with a lot of that same client base of renewed activity."
Bank executives also highlighted a greater willingness to sell buildings and reported more success in disposing of troubled assets on their third quarter earnings conference calls.
"We’re very pleased with the overall results of our problem assets disposition strategy, and the momentum we are building toward this effort," said Clarke Starnes, chief risk officer and senior executive vice president at BB&T Corp. "In the third quarter, we actually assembled a team of about 12 sales specialists, together with some significant operational and marketing support to begin a sales program for about $1.3 billion in commercial nonperforming loans that were transferred to the held for sale category."
"Our effort consists of a four-pronged strategy. It’s in this priority: short sales to the borrowers; third-party direct; third-party bulk, and then some other option," Starnes added. "We get our best pricing execution when we’re dealing more directly with the borrowers, but it takes a longer time to do that. At auctions you can do it much quicker, but you’ve got to do your discounts. So what we’re really trying to do is blend these various liquidation alternatives to achieve the best execution that we can, while balancing the time to liquidate."
Bob Kaminski, COO, executive vice president at Mercantile Bank Corp., said: "I think our staff has done a good job of working with borrowers on properties that were even in foreclosure to try to affect sales of those properties so that they may be never make it into the ORE bucket. Loans that do make it into foreclosure due to foreclosure process, many times have buyers that are waiting at the end of the redemption period to complete those sales."
"So it’s really on a page-by-page basis," Kaminski added. "You have some properties that are little bit hard to sell, may be spending a little bit of a longer time in the ORE buckets, and others that are more attractive from a purchasing standpoint tending to spend a lot less time in those categories."
Mary Tuuk, chief risk officer of Fifth Third Bancorp, said they have been very focused on higher risk portfolios such as non-owner occupied real estate.
"We’ve worked hard over time to achieve the best solutions possible on troubled credits," Tuuk said. "As part of that process, [the special assets group] continually identifies the loans most likely to result in a successful workout given enough time and which loans are less likely to result in an acceptable outcome. For that latter group of loans, our options include a long-term workout strategy or a shorter-term solution, one of which is the possibility of selling a loan and the redeploying the resources that would be devoted to a longer-term solution."
"We are marketing these loans in several pools targeted at particular (buyer basis). Land loans in one pool, vertical CRE in another, syndicated loans in another and a final pool that we intend to sell to investors, loan-by-loan," Tuuk said. "These loans, particularly the nonperforming ones, would generally represent the more troubled parts of our commercial portfolio with a high content of commercial real estate in general, particularly land and construction."
Thursday, October 28, 2010
Wednesday, October 20, 2010
National Real Estate Investor Covers New Lease Accounting Rules
From www.nreionline.com
Proposed new accounting standards have been drafted in order to push lease liabilities back onto corporate balance sheets. Such a change would represent a major shift for companies that have typically favored the off-balance-sheet treatment of operating leases, and it could have a significant impact on corporate decisions to lease or purchase real estate in the future.
The proposed guidelines are a joint initiative by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board to create a uniform global standard and greater corporate transparency in lease accounting procedures. The most recent draft issued Aug. 17 would establish one method of accounting that requires firms to recognize all lease liabilities and assets on their corporate financial statements.
Another key component is that companies would be required to record the lease value or rent commitment over the entire lease term, including renewal options. Although the intent is to stop off-balance-sheet activity, the changes would add significant weight to corporate balance sheets.
For example, a firm that pays $1 million per year in rent for its corporate headquarters would quickly see its liability multiply depending on whether it has a five-year or 15-year lease. Companies would appear more highly leveraged, which could affect factors such as corporate credit and existing debt covenants.
Crux of the matter
What makes commercial real estate industry professionals nervous is that it is not clear to what extent the new accounting guidelines would influence tenants’ decision-making process. Based on the universe of leased space, the potential impact is enormous.
Although FASB cites data that values leasing activity at $640 billion in 2008, other industry sources estimate that current volume as high as $1.3 trillion in operating leases for U.S. firms alone. Once the guidelines go into effect, which many in the industry believe will occur in 2013, both new and existing leases would be immediately affected.
One fear is that the new accounting practices could deter companies from signing long-term leases, or encourage firms to own rather than lease facilities. Both of those factors could be a detriment to the sale-leaseback and net-lease finance niche where leases typically extend 15 years and beyond.
Sale-leaseback transactions have accounted for $24.8 billion, or slightly more than 50%, of the $46.6 billion in single-tenant sales globally over the past 12 months from June 2009 through June 30, 2010, according to New York-based Real Capital Analytics.
Please visit www.nreionline.com for the complete article.
The lease accounting changes are expected to effect how companies view their real estate holdings and real estate asset management strategies in the future. Some analysts predict the changes will not be reflected on the balance sheets until 2013, but companies need to start the planning process now. Certainly there is need for a complete lease audit process to determine how many individual leases exist and how they could be impacted when they no longer are considered operating leases.
But important decisions will need to made on excess real estate space. In the past one option was subleasing the space to another tenant. Not a perfect solution but subleasing had some advantages. When the lease accounting rules change, subleasing will not remove the lease from the balance sheet and increases risk for the company in their new role as a landlord to the company that is subleasing space.
A better solution would be a Negotiated Lease Buy-Out or Lease Termination program. These are complicated transactions and you should employ someone with direct experience in corporate real estate finance and taxation. One company that has a long track record negotiating commercial real estate lease terminations is Cambridge Consulting Group. They have saved companies such as Bank Of America and Ford Motor Credit millions of dollars by reducing their lease obligations. For more information please visit their commercial lease termination website- www.commercialleaseterminations.com.
Proposed new accounting standards have been drafted in order to push lease liabilities back onto corporate balance sheets. Such a change would represent a major shift for companies that have typically favored the off-balance-sheet treatment of operating leases, and it could have a significant impact on corporate decisions to lease or purchase real estate in the future.
The proposed guidelines are a joint initiative by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board to create a uniform global standard and greater corporate transparency in lease accounting procedures. The most recent draft issued Aug. 17 would establish one method of accounting that requires firms to recognize all lease liabilities and assets on their corporate financial statements.
Another key component is that companies would be required to record the lease value or rent commitment over the entire lease term, including renewal options. Although the intent is to stop off-balance-sheet activity, the changes would add significant weight to corporate balance sheets.
For example, a firm that pays $1 million per year in rent for its corporate headquarters would quickly see its liability multiply depending on whether it has a five-year or 15-year lease. Companies would appear more highly leveraged, which could affect factors such as corporate credit and existing debt covenants.
Crux of the matter
What makes commercial real estate industry professionals nervous is that it is not clear to what extent the new accounting guidelines would influence tenants’ decision-making process. Based on the universe of leased space, the potential impact is enormous.
Although FASB cites data that values leasing activity at $640 billion in 2008, other industry sources estimate that current volume as high as $1.3 trillion in operating leases for U.S. firms alone. Once the guidelines go into effect, which many in the industry believe will occur in 2013, both new and existing leases would be immediately affected.
One fear is that the new accounting practices could deter companies from signing long-term leases, or encourage firms to own rather than lease facilities. Both of those factors could be a detriment to the sale-leaseback and net-lease finance niche where leases typically extend 15 years and beyond.
Sale-leaseback transactions have accounted for $24.8 billion, or slightly more than 50%, of the $46.6 billion in single-tenant sales globally over the past 12 months from June 2009 through June 30, 2010, according to New York-based Real Capital Analytics.
Please visit www.nreionline.com for the complete article.
The lease accounting changes are expected to effect how companies view their real estate holdings and real estate asset management strategies in the future. Some analysts predict the changes will not be reflected on the balance sheets until 2013, but companies need to start the planning process now. Certainly there is need for a complete lease audit process to determine how many individual leases exist and how they could be impacted when they no longer are considered operating leases.
But important decisions will need to made on excess real estate space. In the past one option was subleasing the space to another tenant. Not a perfect solution but subleasing had some advantages. When the lease accounting rules change, subleasing will not remove the lease from the balance sheet and increases risk for the company in their new role as a landlord to the company that is subleasing space.
A better solution would be a Negotiated Lease Buy-Out or Lease Termination program. These are complicated transactions and you should employ someone with direct experience in corporate real estate finance and taxation. One company that has a long track record negotiating commercial real estate lease terminations is Cambridge Consulting Group. They have saved companies such as Bank Of America and Ford Motor Credit millions of dollars by reducing their lease obligations. For more information please visit their commercial lease termination website- www.commercialleaseterminations.com.
Tuesday, October 19, 2010
Value Energy Solutions Provides Energy Savings With Lighting Retrofits
Value Energy Solutions recently completed a parking garage lighting retrofit project for the Gables Midtown Apartments in Atlanta, GA. Value Energy Solutions is one of the largest lighting installation and lighting retrofit companies in the nation. For the past 30 years they have provided multifamily owners, developers and property managers with turnkey lighting solutions that exceed customer expectations and reduce lighting and energy costs. Gables Midtown is one of the newest apartment communities in the Morningside/ Ansley Park neighborhood of Atlanta and offers residents numerous amenities including Earthcraft and Energy Star certified apartments.
Gables Midtown management is proud of their focus on energy efficiency and water conservation features. When it was time to upgrade the energy efficiency of their parking garage lighting they contacted Value Energy Solutions. Value Energy Solutions thoroughly reviewed the existing parking garage lighting and the Gables Midtown energy saving goals. Originally, the parking deck lighting was the less energy efficient 175 watt Metal Halide Lights. Value Energy Solutions recommended retrofitting the parking deck with 2-Lamp 54wHO (high output) Vapor Tight Fluorescent lights. Gables Residential selected a 46,000 hour (extended life) rated lamp to maximize their energy savings and reduce lighting maintenance costs.
The projected energy savings for the lighting retrofit project is an impressive 47% and the cost of the lighting upgrade will pay for itself in only 17 months. Originally, Gables Midtown was considering using LED lights in the parking garage but Value Energy Solutions was able to offer a more cost efficient lighting retrofit program using new fluorescent lighting technology. Unlike many lighting companies that offer only one lighting product, Value Energy Solutions works with more than 250 lighting manufactures to provide their customers with the right solution at lower price point.
About Value Energy Solutions- Value Energy Solutions is one of the largest energy efficient lighting retrofitting companies in the United States. Realizing the need for building owners, property managers and facility engineers to find ways to conserve energy and cut their operating costs, Value Energy Solutions provides improved energy efficient lighting products as replacements for existing higher wattage fixtures. Value Energy Solutions was launched as a new venture by owners Dean Nations and Alan Carlquist as an expansion of their existing company, Value Lighting, Inc., a premier lighting wholesaler and distributor of lighting products.
The Value Energy Solutions lighting retrofit programs are offered for all commercial building types including Parking Garages, Warehouse/Industrial Buildings, Hotels, Retail Chains, Apartments and Office Buildings. For information on Value Energy Solutions please call Chris Owens, Director of Sales at 770.874.2191. Value Energy Solutions is located at 1110 Allgood Industrial Court, Marietta, GA 30066. To request more information please call or email at info@valueenergysolutions.com.
Thursday, October 7, 2010
Lease Accounting Rules Will Have Large Impact on Retailers
As reported in Retail Traffic
Proposed new lease accounting standards from the U.S. Financial Accounting Standards Board and the International Accounting Standards Board have the retail real estate world dizzy with worry as property owners and managers fear the new standards will cripple tenants and lead to shorter lease terms and more conservative expansion strategies.
Financial Accounting Standards 13 (FAS 13) would require all lease liabilities to be accounted for on corporate balance sheets as capital leases rather than as operating leases. That’s an important distinction because operating leases allow tenants to account for lease liabilities as they are incurred. In contrast, capital lease liabilities must be accounted for in their entirety every quarter.
In addition, the new standards would require corporations, including retailers, to account for the full potential liabilities of leases—including options and percentage rent, not just the base rental fee. They would have to provide estimates on all contingency-based payments built into the lease, including lease renewal options, rent based on a percentage of sales and co-tenancy kick-ins.
CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com or call David Worrell at 888.472.5656
So, for example, a retailer would have to account for the entire potential 15 years’ worth of costs on a lease with a five-year term and two five-year options. As a result, retailers’ debt loads could appear to balloon up to ten times their current levels.
The Securities and Exchange Commission has estimated that more than $1 trillion in operating leases throughout the entire commercial real estate sector would need to be reclassified when FAS 13 goes into effect. As it stands, the two accounting boards plan to finalize the leasing standards no later than the second quarter of 2011.
The problem with this is that over the past few decades, retailers, more than any other type of commercial tenant, have become dependent on using various forms of contingency rents, says Vivian Mumaw, global director of lease administration with Jones Lang LaSalle Retail, an Atlanta-based third party property management provider.
The intricacies alone will make it difficult to comply with the rule. Retail leases today typically have five- to 10-year terms, with multiple renewal options. In addition, virtually all retailers pay a portion of their rents based on percentage of sales—meaning they pay more if sales exceed a certain threshold—while many also employ co-tenancy clauses, which trigger decreases in rental rates if other retailers move out of a shopping center.
All of that will make it difficult for retail chains to accurately estimate liabilities for the entire length of each lease, Mumaw says. In order to do so, they would have to forecast macroeconomic conditions, as well as the performance of their brand and the performance of each individual store many years into the future.
To read rest of article please visit :
http://retailtrafficmag.com/news/fas13_means_retail_real_estate_10052010/
Proposed new lease accounting standards from the U.S. Financial Accounting Standards Board and the International Accounting Standards Board have the retail real estate world dizzy with worry as property owners and managers fear the new standards will cripple tenants and lead to shorter lease terms and more conservative expansion strategies.
Financial Accounting Standards 13 (FAS 13) would require all lease liabilities to be accounted for on corporate balance sheets as capital leases rather than as operating leases. That’s an important distinction because operating leases allow tenants to account for lease liabilities as they are incurred. In contrast, capital lease liabilities must be accounted for in their entirety every quarter.
In addition, the new standards would require corporations, including retailers, to account for the full potential liabilities of leases—including options and percentage rent, not just the base rental fee. They would have to provide estimates on all contingency-based payments built into the lease, including lease renewal options, rent based on a percentage of sales and co-tenancy kick-ins.
CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com or call David Worrell at 888.472.5656
So, for example, a retailer would have to account for the entire potential 15 years’ worth of costs on a lease with a five-year term and two five-year options. As a result, retailers’ debt loads could appear to balloon up to ten times their current levels.
The Securities and Exchange Commission has estimated that more than $1 trillion in operating leases throughout the entire commercial real estate sector would need to be reclassified when FAS 13 goes into effect. As it stands, the two accounting boards plan to finalize the leasing standards no later than the second quarter of 2011.
The problem with this is that over the past few decades, retailers, more than any other type of commercial tenant, have become dependent on using various forms of contingency rents, says Vivian Mumaw, global director of lease administration with Jones Lang LaSalle Retail, an Atlanta-based third party property management provider.
The intricacies alone will make it difficult to comply with the rule. Retail leases today typically have five- to 10-year terms, with multiple renewal options. In addition, virtually all retailers pay a portion of their rents based on percentage of sales—meaning they pay more if sales exceed a certain threshold—while many also employ co-tenancy clauses, which trigger decreases in rental rates if other retailers move out of a shopping center.
All of that will make it difficult for retail chains to accurately estimate liabilities for the entire length of each lease, Mumaw says. In order to do so, they would have to forecast macroeconomic conditions, as well as the performance of their brand and the performance of each individual store many years into the future.
To read rest of article please visit :
http://retailtrafficmag.com/news/fas13_means_retail_real_estate_10052010/
Tuesday, September 7, 2010
Tuesday, August 3, 2010
AOL Subleasing Space from Google
As reported on www.techcrunch.com
Google apparently has a lot of empty office space in Silicon Valley laying around under long term leases. One three story building – all 225,000 square feet of it – was just subleased by Google to AOL. AOL will be moving their Silicon Valley office, currently in Mountain View, to the new location at 395 Page Mill, Palo Alto, CA.
That’s just down the street from Stanford University, and just a block away from a new Chipotle. Apparently parking won’t be a problem either, based on the satellite image.AOL only needs a third of the space they’ve leased and are moving into the third floor. But instead of leasing a smaller building, they decided to take far more than they need and sublet to startups, Brad Garlinghouse tells me. Garlinghouse is the most senior AOL exec on the west coast.
SSE Labs, a Stanford affiliated organization that operates an incubator, has already signed up to move in. Other companies are moving in as well, says AOL, but they are looking for more startups. Interested? Email Trent Herren at trentherren@aol.com to get the details.
Why all the bother? Garlinghouse says he wants the energy of the startups to rub off on AOLers: “In addition to creating a new convenient space for our AOL employees – we’re all about fostering a culture around creativity and new ideas which is why we plan to sublease our space to entrepreneurs and start-ups in the valley.”
CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Google apparently has a lot of empty office space in Silicon Valley laying around under long term leases. One three story building – all 225,000 square feet of it – was just subleased by Google to AOL. AOL will be moving their Silicon Valley office, currently in Mountain View, to the new location at 395 Page Mill, Palo Alto, CA.
That’s just down the street from Stanford University, and just a block away from a new Chipotle. Apparently parking won’t be a problem either, based on the satellite image.AOL only needs a third of the space they’ve leased and are moving into the third floor. But instead of leasing a smaller building, they decided to take far more than they need and sublet to startups, Brad Garlinghouse tells me. Garlinghouse is the most senior AOL exec on the west coast.
SSE Labs, a Stanford affiliated organization that operates an incubator, has already signed up to move in. Other companies are moving in as well, says AOL, but they are looking for more startups. Interested? Email Trent Herren at trentherren@aol.com to get the details.
Why all the bother? Garlinghouse says he wants the energy of the startups to rub off on AOLers: “In addition to creating a new convenient space for our AOL employees – we’re all about fostering a culture around creativity and new ideas which is why we plan to sublease our space to entrepreneurs and start-ups in the valley.”
CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Friday, July 30, 2010
Pfizer Negotiates Lease Termination in Pennsylvania
MS Health Incorporated (IMS Health) has signed a lease totaling approximately 150,000 square feet at Highview I and Highview II at Providence Corporate Center in Collegeville, Pennsylvania.Highview I and II were developed by BPG in 2002 as a 100 percent build-to-suit lease agreement with Wyeth Pharmaceuticals, which now operates as Pfizer. In 2009, Pfizer chose to exercise its year end 2010 termination option for the lease at Highview II thereby making the space available for re-lease to IMS. Additionally, Pfizer chose to negotiate a termination of its lease at Highview I which ran through 2013 in order to vacate the space and accommodate the expanded transaction for IMS.
IMS Health is a provider of market intelligence to the pharmaceutical and healthcare industries, offering product and portfolio management capabilities; commercial effectiveness innovations; managed care and consumer health offerings; and consulting and services solutions that improve productivity and the delivery of quality healthcare worldwide.
The surrounding area has experienced population and business growth within the past ten years and offers access to highways and commercial centers. Currently, at the interchange, more than four million square feet of office and lab space is occupied by such leading companies as Pfizer, GlaxoSmithKline and Quest Diagnostics.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
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