Commercial Real Estate

Author: Joel W. Baar

Date: 03/09/2009

In this economy, with lending standards and the lending environment having changed, land contracts have become an attractive option for many buyers and sellers of property.

A land contract is a contract between a buyer and seller of real estate where the seller provides financing to the buyer to buy the property for an agreed-upon purchase price, and the buyer repays the contract in installment payments. Under a land contract, the seller retains title to the property, while permitting the buyer to take possession of the property. The purchase price is typically paid in periodic installments, often with a short-term balloon payment at the end of the term. When the purchase price has been paid in full, the seller is obligated to convey valid legal title of the property to the buyer. An initial down payment from the buyer to the seller is often required by the seller. A memorandum of the land contract is typically recorded at the register of deeds, while the deed conveying the property isn’t recorded until the land contract is paid in full.

Although land contracts can be used for a variety of reasons, the most common use is as a form of short-term seller financing. There can be other advantages of using a land contract as well, although there are significant risks attached. Most lenders, in order to protect their mortgage interests, will require title insurance, appraisals, inspections, surveys, etc., which can add significant costs to any real estate transaction. A land contract can avoid some of those costs in some situations, if the parties are willing to take some risks, although those risks are sometimes not advisable. The land contract should be carefully drafted so the parties know the mutual expectations and obligations. At the same time, with land contracts, easy financing and a simple sale transaction may be a good selling point for a seller to offer a buyer, especially a buyer with a limited credit history, poor credit, or an inability to obtain a conventional mortgage.

There are pitfalls to land contracts, especially as they relate to the payment of taxes, the seller’s payment of the seller’s mortgage obligation (if any), and the possibility of the buyer’s default on payments. If the buyer defaults on the land contract, Michigan law has a process for the land contract to be terminated, which can be compared to the foreclosure process for mortgages in default. If the buyer defaults, the land can revert back to the seller, regardless of any improvements made by the buyer, and regardless of whether or not the buyer had any equity in the property. If you are considering a land contract, we strongly recommend that you consult with an attorney prior to signing any agreement.

Consisting of an approximately 6000 square foot main building and a 2300 square foot greenhouse, this property on the East side of Caledonia could be put to a variety of uses.  It currently houses a landscaping company that is in the process of relocating, but could easily be converted to a light manufacturing or light industrial use.   The main building contains 5 overhead doors, with heat run into the bay closest to the office area.  In addition to the 8300 square feet of building space, the property consists of a total of 4.31 acres; exterior space could be utilized for storage or built onto.

The existing greenhouse space can easily be dismantled for additional land space or an additional building.  The property currently is listed for lease for $6.50 PSF annually, with estimated NNN costs estimated at $2.50 PSF annually.  The monthly rent for the entire property would be approximately $4500 gross, as the greenhouse is not included in the rent equation.

The property is listed for sale or lease, in a variety of configurations.  The main sale listing is here, and the main lease listing is here.  Please feel free to contact me if you have any questions or ideas.

Written by Brian Kopp, www.echelonpm.com

Are you satisfied with your employee performance reviews?  Do they adequately measure your employee’s performance?  Ask yourself this question: what message does your employee take away from the performance review meeting?  Sadly, most employees walk out of the reviews with little more idea of their performance than when they began.  At best, they probably walk away with a feeling: “He’s mad at me” or “She’s okay with my work.”

The source of the problem is the performance measurement tool that you are using.  Many companies rate employees based upon “Attendance”, “Relationships with Co-Workers”, “Job Knowledge”, “Creativity,” etc.  Employees are then rated as “Excellent”, “Above Average”, “Average”, “Below Average”, “Poor.”  Comments are added to the reviews like “He/she does well in this area.”  Again, this is a poor way to communicate your performance expectations and evaluate your employee’s work.  In fact, they really don’t measure performance at all, but rather internal rule compliance- something that is better addressed on employee discipline forms.

Performance evaluations should measure performance.  A shocking idea, I know.  Throw out your outdated forms and create your own performance measurement tools for each position in your company.  Determine what each employee does that adds to the profitability of your company.   For example, one indicator of a leasing agent’s performance is his/her closing percentage.  Set a target closing percentage and his/her review will be partly based upon it.  Likewise, one indicator of a maintenance technician’s performance is his/her ability to complete maintenance requests in a timely manner.  Set a target turnaround time for each maintenance employee and his/her review will be partly based upon it.  The key is to develop performance standards that are measurable.  You must give them a target or performance goal.  Then, you need to develop a weekly or monthly tool to capture the information.  Add the performance criteria to your timecard, for example.  Then, schedule regular meetings with your employee and review their performance.  I assure you that your employees work performance will improve dramatically!

You are welcome to call me to discuss this idea further.  I can be reached at 616-669-8586, Option #4.

Brian Kopp works for Echelon Property Management in the greater Grand Rapids, Michigan area.  He has 14 years of property management experience at the property and corporate levels.  He has a Master’s Degree in Education and was formerly an SPHR from the Society of Human Resource Management.

Echelon Property Management specializes in apartment real estate management.  Its mission is to acquire and manage real estate investments and deliver above average returns to property owners.  For more information about our services, please contact Brian at bkopp@echelonpm.com.

Recent economic reports have shown more and more businesses headed for bankruptcy filings or liquidation.  In West Michigan alone, several well-known businesses have closed, many who have reported that their banks have called in their loans due to their business performance being at “risk”.  The business owners had reported surprise and disappointment at their bank’s actions, and reinforced their position by stating that they have never missed a payment on their note.

Clearly the banking industry is facing troubled times and the overall economy is beleaguered by continued negative news.

The critical question for today’s business owners should be “are you on the edge of having your financial institution call your loan?”    In the event your business loan or line of credit is called, what alternatives do you have, and how quickly can you exercise them?  And lastly, when is the last time you have evaluated the strength of your lending institution to determine whether it is the lending institution itself that is in “work out” and therefore, exercising any and all means to put cash onto their balance sheets.  One of the more obvious and immediate solution being utilized by lenders in crisis is to call in its loans.

If you are in business owner in today’s environment there are some basic things you need to do:

1.  Do your homework:  research your current financial institution and know how it is performing.  How did it perform last quarter?  How did it perform Y/E 2008?  Is your lender posting losses? In the Billions?  Millions?  Statistically speaking, your likelihood of having a forbearance agreement delivered to your business is higher with those banks experiencing severe financial challenges.  And herein lies the real secret:  a lender in trouble will call in its loans BEFORE the business starts to experience a serious slide in its own performance.  Remember that cash is king, and it is to the banks’ benefit to collect on a debt early while the asset values are high, rather than waiting for a company to be in serious financial trouble, and thereby have a diminished return on the loan repayment.  Again, the point to note is that your business does not have to be in serious trouble to have its loans called.  And remember, you may be best friends with your personal banker or loan officer and attended each other’s kids birthday parties, but the decisions to call a loan and the administration of that forbearance process is typically made somewhere else, and in many cases out-of-state.  It is all about the process and all about maximizing the performance of the cash. Period.

2.  Know the terms of your loans:  Know them in your sleep.  You should be fully informed as to all terms and conditions of default and whether or not your company has ever been in a position of default over the past year, or whether or not it has been “on the fence” or close to it.  Your CFO, controller, accountant, (and you), should be scrutinizing your company’s balance sheets, deposit accounts, and receivables past 30 days, 60 days, & 90 days etc. for any and all red flags.

3.  Do your homework on your customers:  How have your largest customers been performing?  Are they reporting losses?  Are you having trouble getting paid?  If your customer is a large supplier that in large part is supported by a large automotive company, you may want to reconsider the terms of your contracts.  Or reconsider signing a contract in its entirety.  If the top industry can’t pay its first tier suppliers, odds are that supplier can’t pay you.  Consider renegotiating payment terms for your accounts payable, accounts receivables and current work in progress.  Automotive is an easy example here, but the point is the same; know your customers and know how the current economic conditions are affecting them.  Negotiate your contract terms wisely with shorter payment terms.  In some cases: diversify.

4.  Know your Options:  In the event you are sitting across the table from the legal representative of your lender being handed a forbearance agreement, chances are it is too late to find another source of financing.  Even if you have done your homework exercise and have passed with flying colors, it may be prudent to seriously evaluate the various financing options that are available.  Look to your local lenders where the ownership and the board is part of the community you reside in.  Look to the strength of regional lenders.  Consider alternative financial institutions.  Consider private investors.  Consider downsizing or consolidation to strengthen your financial position over the short term.

In this current climate, a business owner should be proactive rather than reactive.  The strength of west Michigan lies in the strength of its business.  This regional has typically weathered economic storms by conservative strategies and wise business practices.  And the ability to maintain healthy businesses means jobs for our local residents.  Do your homework.  Know your alternatives.  Make necessary changes.

As the tables are turning in spending for homeowners, budgets are being cut, and jobs are being lost, there is one category that deserves to be considered further in saving the family money—Food Establishments Away From Home.

Recession Proof Business?

As restaurants are showing a decrease in sales, pizza parlors in West Michigan are showing increases in their sales. Instead of spending $7-$9 a plate eating out, plus drinks, and tip, some are tightening the belt on how often they eat out and are taking advantage of pizza takeout or delivery. For approximately 33% to 50% the price of eating out, a family can enjoy a delicious hot pizza and even some specialty salads for the evening in the comfort of their own home and still cut costs in their family budget. Many are exhausted, working for lower pay and are still looking for ways to balance the budget. Your local pizzeria is the answer for many, providing a hot meal for a fraction of the cost of eating out.

One pizzeria actually takes food stamps and has experienced remarkable growth. This business is for sale in the Kentwood area of Grand Rapids and would welcome sincere interested parties to contact crazmus@ccmichigan.com for further information. A net asset equity amount of $250,000 is required for qualified interested parties.

Does it seem like new technology slowly affects commercial real estate agents?  Residential agents seem to pursue new technology at a dizzying pace, but commercial tends to lag behind slightly, or so I thought. Take a look at the Sibdu Blog for an interesting article about a few worthwhile CRE apps for your iPhone.

http://blog.sibdu.com/?p=266#more-266

Brian Kopp

Echelon Property Management

www.echelonpm.com

Time management…I’ve always been bothered by this term.  What does it mean?  How exactly do you manage time?  Can you send it home without pay?  Can you add even an hour to your 24 hour day?  Perhaps a new watch is the answer.  No, maybe not.

What we mean when we think time management is really self-management, isn’t it?  What then is self-management?  I think Zig Ziglar, a well known motivational speaker, put it best when he said, “If you do the things you ought to do when you ought to do them, then you’ll have time to do the things you want to do when you want to do them.”   We can assert, therefore, that self-management involves honesty, planning, efficiency, and discipline.

Honesty

To thine own self be true…, William Shakespeare, Hamlet

When I was a property manager, I expected hard work from my employees.  The lists of responsibilities and tasks were often long and challenging.  Thankfully, most of my employees rose to these challenges, and a few even exceeded them.  Yet, not all were so assiduous.  I can think of a few that were masters of excuse making.  When confronted with the question, “Why wasn’t this finished?” I would be treated to a litany of protestations about how hard they were working and how there was just too much work.  I may have given some credence to these explanations if I didn’t see and confront them in lengthy conversation with other employees, frequent sojourns to and from the maintenance parts shop, etc.  My point here is that we deceive no one better than we deceive ourselves.  Honesty is integral to self-management.

How can we practice self-honesty?  Here are two suggestions: (1) As a mental exercise, imagine that your supervisor is following you around each day.  Would your conduct change?; (2)

Keep a daily journal of how you use your 8 hour work day.   You may want to share this journal with your supervisor.  It may give him/her a better appreciation of all that you do and it will certainly help you with your daily goals and planning.

Planning

A wise man will make more opportunities than he finds. Sir Francis Bacon

You will often hear an securities broker remark, “No one plans to fail, but many fail to plan.”  For many of us, this axiom applies to our work days, too.  When you stop to think about it, we plan most of the really important events in our lives, weddings, the birth of a child (with, of course, a few surprises), even death.  Why not our work day?

Some of you may be thinking, “I can’t plan my work day, my manager just tells me what (fill in the blank, e.g. work orders to complete, leases to type, hallways to clean…).”  I admit that certain positions have a greater degree of latitude in choosing work assignments, however, that doesn’t mean that you can’t set your own goals and plans.  For example, let’s assume for the moment that I am a maintenance employee and my manager has given me a thick stack of maintenance requests to complete.  In most cases, can’t I choose what order they will be completed?  If not, can’t I at least plan how to complete the work order most efficiently?

Planning and goal setting is critical to good self-management.  I encourage all of you to set daily, weekly and maybe even monthly or quarterly goals.  You should refer to these goals every morning and rate yourself on how well you completed ones the day before.  It is a medical fact that your endorphin levels (the pleasure gland in the brain) increase when you set goals, accomplish them, and cross them off of your goals list.

How do you plan your work and set goals?  The answer depends largely upon your position.  However, here is a very simple method that I’ve seen used effectively.  This is the first step in goal setting.  It is broad in scope.

1.      Take a legal pad of paper

2.      Write down the goals of your property (if you don’t know them, ask your manager)

3.      Identify those goals that directly involve your position

4.      Write down the routine tasks or activities that you perform in your position

5.      Ask yourself the following questions:

a.       Are my tasks and activities directed toward my property’s/company’s goals?  If not, why?

b.      How can I help make my property/company successful?  Write down your ideas and share them with your manager.

c.       If my position was terminated, what would happen?  List examples.

d.      Where is most of my time and energy spent in my job?  Does this match what you’ve identified as your goal oriented tasks?

e.       How will my success or failure in this position be determined?  What is the criteria or rubric by which I am being evaluated?

f.       How much do I know about my field relative to those I work with?  Could you learn more?  In what areas?

Efficiency

Experience is not what happens to a man.  It is what a man does with what happens to him. Aldous Huxley

I’ve always thought of efficiency as a dance on the razor’s edge of speed vs. accuracy.  I’ve known very, very few employees who were a perfect complement of both.  The key is to balancing the two is to make the time spent on a task equivalent to its level of importance.  That is, don’t spend 2 hours dusting all of the electrical sockets in an apartment; no one will likely notice your efforts.

Efficiency in action first involves planning (mentioned above) and then prioritizing your goals and tasks.  Prioritizing is the practice of ordering your daily tasks and activities in order of importance.  I use a computer program developed by the Franklin-Covey Institute that involves classifying my tasks in to one of three broad categories: (A) tasks that need attention today; (B) tasks that need attention this week or next week; and (C) tasks that need attention this month or in the coming months.  Though there is much more to the program, you can use this system with a simple piece of paper.

Discipline

Many are stubborn in pursuit of the path they have chosen, few in pursuit of the goal.

Friederich Nietzsche

Finally, all of our plans, goals, and prioritizing are wasted if we don’t practice self-discipline.  I would venture a guess that this area of the four poses the greatest difficulty for employees.  I know that it does for me.  Unfortunately, I don’t know of any exercise or formula that can help you with self-discipline.  It simply requires a person to make a promise or commitment to him or herself and to stand by it.

I read once that a man (or woman) who is reluctant to make a promise is one who is intent on keeping it.  I hope this is true of you as well.

Brian Kopp works for Echelon Property Management in the greater Grand Rapids, Michigan area.  He has 14 years of property management experience at the property and corporate levels.  He has a Master’s Degree in Education and was formerly an SPHR from the Society of Human Resource Management.

Echelon Property Management specializes in apartment real estate management.  Its mission is to acquire and manage real estate investments and deliver above average returns to property owners.  For more information about our services, please contact Brian at bkopp@echelonpm.com

As the examination into the true value of all property types has gone into full force, it should be every real estate professional’s duty to revisit every aspect of the due dilligence process. A couple of articles that can help you do that: here and here.

Prudential Callander Commercial - in the Atwell Hicks Building

661 Eden Rd., Mason-Jewett Airport Hangar Available

This is a 26,000 SF building that was built in 2000.  It’s simply outstanding, but it needs to be sold, and quickly.  We have dropped the price numerous times; it’s getting to the point that the first bidder is likely to own the building.  Airport properties, hangars, and special use properties like this are like a world of their own, and it seems as though everyone knows everyone else in this subculture.  All details about the buidling are viewable here: www.cpix.net.  Please direct any questions to me: clafleur@ccmichigan.com.

Welcome to WordPress.com. This is your first post. Edit or delete it and start blogging!

It seemed fitting to include the welcome that WordPress offered as we begin this service for the Grand Rapids Commercial Real Estate Community.  Twitter, LinkedIn, Facebook, blogs, RSS Feeds, dynamic content delivery, new technologies that have been developed have truly changed the way people connect and do business.  On top of the new technologies, the “experts” pop up, individuals claiming to deeply understand and harness the new tools available to reach others and help you expand your business.  But content is what it is, and it cannot be invented or simply made to fit our industry by individuals that do not have the experience in local real estate.  West Michigan, and Grand Rapids specifically, is a very unique market, and we can see that simply by looking at the way our association cooperates and competes.  It’s an open structure, with commission fees clearly outlined for our competition / cooperating brokers, and an open venue with sold and leased transaction data for the use of the entire real estate community.

So this is a work in progress, hopefully it will bring some benefit to clients, customers, and even the competitors as a venue to learn and discuss what is happening right now in the industry.  I look forward to hearing from everyone.  I hope our service brings some value to the readers.