Public REITs Benefit from Property Management Services

According to a newly released report by CBRE, public REITs can achieve cost savings by outsourcing property-level services. Based on an internal study regarding third-party property management for public REITs, the goal was to discover how expanding external property management services can benefit REITs. The study involved a review of CBRE’s relevant company financial data, internal tools, software, management manuals and online systems used to run properties. As a result of the study, CBRE now believes internal property management for REITS needs a re-examination, according to Drew Genova, CBRE’s executive managing director, based in Washington, D.C.

“It is as much about a study of our property management services and benefits as it is about asking public REITs to consider their property management options, internal or external, on the merits of what is most accretive to their overall strategy,” said Genova. “The message is about providing best in class property management services with a key focus on delivering property level savings, increasing asset value and delivering a great experience for the tenants. The goal is to improve occupancy levels and maintain above market average tenant retention rates.”

Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said his firm manages the fastest-growing property management service on the Emerald Coast and is responsible for more than 1,000 properties. He said that recommending external property management for REITs would significantly add to NBI’s growing list of properties.

Six of the report’s most important points include:

The public REIT sector is rapidly evolving. It recently crossed the $1 trillion threshold in total capitalization. There are many new REITs in registration under the Jobs Act, and public REITs had record industry index investment returns in 2014. Collectively, these events have raised the profile of a once niche sector—yet public REITs still remain committed to doing things “the way they have been done forever,” including property management to be managed internally.

REITs can save money by outsourcing property management services. In fact, a REIT with less than 10 million sq. ft. in a given market can realize significant efficiencies with professional, third-party, property management.

Smaller REITs actually lose efficiency—and therefore margin—due to excess capacity at some level, or inability to spread costs across enough sq. ft.

REITs with externally managed assets have more flexibility to move capital between property types and locations.

The scale of a large, specialized management company makes it possible to spread costs for training and development for a fraction of what similar functions would cost a REIT.

External property-level IT deployment allows a REIT to focus on its investment and portfolio management business, while the external manager maintains the latest in property management technology and software.

Source: CBRE

Emerald Coast Summer Retail Sales Remain Strong

Retail sales enjoyed solid gains in July as consumers began spending more on new vehicles and dining out. According to a report from the Commerce Department, retail sales rose .06% in July after a disappointing .03% decline in June. On the Emerald Coast, NBI Properties co-founder Craig Barrett said area retailers from Fort Walton Beach to Destin have been pleased with summer sales.

“There’s no doubt that consumer confidence is up, and we always see it during the summer months when locals and tourists give our many shopping areas a boost,” Barrett said.

The uptick matches economists’ forecast of a 0.6% rise in retail sales, according to a survey by FactSet, and surpasses a 0.5% forecast by economists surveyed by Reuters. Other experts noted the retail report “was solid rather than spectacular,” but upward revisions to sales in May and June showed that real consumption growth started the third quarter on a stronger footing previously believed.

Gains reported in July included automobile sales, which rose 1.4%. Home and furniture store sales increased 0.8%, while sales at building supply and gardening retailers such as Lowes and Home Depot rose 0.7%. Restaurants were also popular with consumers with a .07% increase over June. Barrett said the demand for restaurants on the Emerald Coast remains strong and he is working with several investors on new projects.

“We can’t seem to build them fast enough here,” he said. “There has been a lot of interest in restaurants throughout the area and particularly on the waterfront in Fort Walton Beach.”

Investors Explore REC Funds

“RECFunds,” or also commonly called real estate based equity crowdfunding, is rapidly growing in popularity among investors as an alternative. The benefits of RECFunds are obvious, and include access to multiple types of projects, smaller barriers to investment, and portfolio diversification. However, while RECFunds can be a good bet for investors, (especially those who might be unable to obtain financing using traditional methods) it doesn’t come completely risk-free. One of the biggest concerns is that such projects might not be underwritten properly, according to Craig Barrett, co-founder of NBI Properties.

“Many of the of current RECfund portals review and offer projects from across the nation,” he said. “But while the underwriting teams usually have experience in vetting projects, it isn’t possible for these portals to know, or have time to examine all of the critical factors that go into evaluating a potential RECfund project.”

Barrett added that the main problem with RECFunds is the profitability of such projects is highly susceptible to numerous potentially unknown factors, including school district boundaries, spiraling project costs, and unemployment rates. These factors apply to all kinds of investments, but the problem with crowdfunding investment projects is investors often don’t have the time, patience or experience to properly research and evaluate these risks.

“We tell investors that it’s really important to rely on local expertise,” noted Barrett.
“National services, don’t have the necessary local expertise to examine every possible factor that could have an impact on a project’s profitability. Local real estate brokers will know more about school districts, zoning laws, crime rates and other factors that could increase or undermine property values.”

Another way to mitigate risk is to use a more locally-orientated crowdfunding portal. Often run by experienced, local realtors, these sites tend to have more accuracy with important variables such as vacancy rates, demographics, and comparable pricing.

Rent-to-Own Options Attract Investors

Investors are warming up to rent-to-own programs once again as consumers with less-than-stellar credit attempt to qualify for mortgages and get on the path to homeownership. Wall Street firms are offering the option to more consumers, allowing them to rent a home with the option of buying it later.

Popular during the 1990s, rent-to-own programs faded when lenders eventually loosened underwriting standards and allowed more borrowers to qualify for mortgages. With credit tightening in recent years, rent-to-own programs are making a comeback.

“Investors are always investigating trends and looking for opportunities,” said Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida. “Rent-to-own options are attractive to some investors because it offers another way to diversify portfolios.”

Barrett adds that most investors find rent-to-own a win-win. They can get consumers to pay a higher rent in the beginning and usually demand a higher purchase price the longer a tenant waits to move from renting to owning. He said that consumers who would otherwise be shut out of the housing market can ultimately benefit from renting to own.

Typically most programs involve a mortgage brokerage purchasing a home and leasing it to a consumer, usually giving him or her the right to purchase the home within five years. During the rental phase, consumers have the opportunity to work on repairing their credit and saving for a downpayment.

Barrett added that the longer a resident rents, the more they can expect to pay in the end to purchase the home. However, he said consumers can also choose to opt out of purchasing the home if it becomes too expensive for them.

New Loan Disclosure Rules Create Confusion

Recently added consumer disclosure rules are creating confusion, and at least one primary lender is refusing to deal with some loan products. Created by the Consumer Financial Protection Bureau, the rules have not yet gone into effect. However, Wells Fargo, one of the biggest mortgage lenders in the country, has already advised correspondent lenders that based on the proposed changes, after August 1 it will not purchase single-close construction loans used for homebuilding. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said he’s keeping an eye on the situation just in case other banks decide to follow Wells Fargo’s lead.

“Since Wells Fargo is one of the biggest investors in single-close construction loans, their decision could significantly impact and reduce the availability of these loans,” Barrett said. “We’re keeping a watchful eye on what develops so we can advise our investors about the best course of action.”

A single-close construction loan allows borrowers to close on short-term construction loans used to cover expenses during the building phase, coupled with a longer term and permanent financing as one transaction. This “all in one” option is not only less expensive, but more convenient than requiring two closings.

Barrett added that it is too early to tell how lenders will handle the loan disclosure under the new regulations along with stand-alone construction loans. He said that typically when new and unproven regulations are introduced, lenders tend to stay away from the margins to ensure no compliance violations occur.

“New disclosures make many lenders skittish,” he said. “Until they have time to adjust to the new regulations and get more comfortable with them, there won’t be nearly as much loan activity.”

On the bright side, Barrett predicted the situation might ease up within the next several months. He said that usually construction loans and other short-term financing is 12 months or less. The issue is that while these loans are not part of the current disclosure requirements, they would definitely fall under the new rules.

“I believe we’ll see some pressure from industry leaders and also from lenders,” he said. “Some lenders have said they have not been given enough time to adapt to the changes, so the consensus seems to be that they will be given a grace period to get used to the new rules.”

Commercial Real Estate Lending Improves

A few years ago, some investors were scrambling to find sources of capital as banks and lenders were reluctant to fund projects. Fortunately, a new age of more stringent underwriting by banks and other lenders combined with greater diversity in sources of commercial real estate capital has helped ignite a rush of confidence among CRE executives. The 6th annual Akerman U.S. Real Estate Industry Outlook Survey recently found that nearly 60% of real estate executives are more optimistic about the market this year than they were in 2014.

Nearly half of the executives interviewed predicted that banks will drive commercial property financing over the coming year, and for the first time since 2011 they indicated that insurance companies will also be a main source of real estate financing. Foreign capital, already funneling equity into U.S. property deals, will also be a key driver of growth in the financing space as well.

Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said the days of searching for alternative sources of financing are over.

“During the recession, we worked with a lot of investors who were frustrated by traditional lenders and banks,” he said. “We had to get creative and look for other sources of capital, but now the tables have finally turned and it’s much easier to obtain funding for developments and projects.”

A surge in institutional capital is leading deal volumes, with an upward trajectory predicted in 2015. However, executives believe that foreign capital will continue to pour into the U.S., and CMBS, private equity, REITs and pension funds will serve as sources of an even greater volume contributed through non-traditional investment vehicles. More than half, or 58%, believe multifamily will continue to lead CRE through the recovery. Seven out of 10 agree apartment development will drive multifamily activity.

Executives also said the single-family homebuilding market will be the second most active real estate sector at 10%, followed by hospitality, retail, industrial and office.

Florida’s CRE Brokers Optimistic on Growth

Optimism is running high in the Florida commercial real estate market among those in the business, at least according to the Survey of Emerging Market Conditions conducted quarterly by the Kelley A. Bergstrom Center for Real Estate Studies at the University of Florida’s (UF) Warrington College of Business Administration. UF’s Commercial Real Estate Sentiment Index, an overview of respondents’ opinions about their own businesses, improved to 7.45 out of 10 – its highest level since the third quarter of 2006. Craig Barrett, co-founder and broker with NBI Properties in Fort Walton Beach, said the future for commercial real estate is especially bright on the Emerald Coast.

“The tourism industry continues to grow by leaps and bounds and we’ve also seen a surge in job growth in the area,” he said. “Interest from investors spiked heavily this spring and shows no signs of slowing down during the summer months.”

The survey found that brokers and practitioners throughout the state expected occupancy and rents across property types to remain stable in the next quarter. Multifamily property occupancy continues to be positive, increasing at a rapid pace over the past few years. However, inventory increases from new construction, along with current capacity units, means this trend may level off soon.

Current capitalization rates have remained stable across most property types, though uncertainty over interest rates remains with certain property types. For now, however, low interest rates continue to drive capital to real estate.

Overall, survey participants felt that despite uncertainties, the state’s economy and its real estate markets continue to improve. UF says that trend should hold true for the near future.

The survey included 97 participants representing 13 urban regions of the state and up to 15 property types. The UF Bergstrom Center for Real Estate Studies supports the UF real estate courses and degree programs housed within the Warrington College of Business Administration.

Destin’s CRE Destiny Debated

What’s Destin’s destiny? Some investors mistakenly think there’s no available land for commercial development, but NBI co-founder Craig Barrett disagreed when he was interviewed recently for an article in The Destin Log.

“It may look like every smidgen of land is already developed, but in actuality there are some prime commercial lots still available,” he said. “The lots are designated as prime because in Destin there’s only one main road and everyone wants to be on Highway 98.”

When he was asked to name the top five most valuable properties on the market in the area right now, Barrett brought up five parcels in the space just around the Okaloosa/ Walton County line. He said he believes this is the next area Destin’s commercial buyers are getting ready to move to.

“The growth is growing into each other. It is growing east from the Destin Commons and growing west from the outlet mall. It is just a matter of time,” he said.

Investors looking for other options beyond Destin are frequently inquiring about available land parcels in areas such as Grayton Beach, Miramar, and Santa Rosa Beach. Barrett added that interest in land and properties on Highway 30A has spiked dramatically during the past few years.

“Destin is far from being played out,” noted Barrett. “But investors are realizing there are lots of other opportunities for development in other cities and towns on the Emerald Coast.”

Citizens Announces Rate Increase for Coastal Property Owners

Life’s a beach until sticker shock from insurance rates kicks in for some property owners. And that’s exactly what will happen when more than half of Citizens Property Insurance customers face rate increases next year, according to a proposal going before the insurer’s Board of Governors this week. The biggest increases are expected to hit coastal policyholders throughout Florida.

“We’ve seen increases for commercial and residential property owners on the Emerald Coast,” said Craig Barrett, co-founder of NBI Properties in Fort Walton Beach. “We’ve spoken with several insurers who have confirmed that rate increases are due to more water loss claims and the fact that some property owners have found adequate coverage with private market insurance companies.”

Citizens is proposing an average rate increase of 3.2 percent for personal lines policyholders. However, the actual amount will vary depending on location and home. The proposal includes an average increase of 8.6 percent on coastal multi-peril homeowner policies and Citizens says the rates reflect the higher risks associated with living along the coast.

For inland policyholders, the news is a bit better with a 1 percent drop proposed in multi-peril rates. Of the approximately 573,000 personal lines customers now with Citizens, about 255,000 are expected to see lower rates.

NBI Celebrates 10 Years of Progress on the Emerald Coast

When Jayme Nabors and Craig Barrett founded NBI Properties in Fort Walton Beach 10 years ago, everyone told them the timing was perfect for commercial real estate. As Barrett recalls, in 2005 just about every property imaginable was selling during a historic real estate bubble and everyone was cashing in. Unfortunately, business started off slowly when the region was paralyzed by several hurricanes that brought operations to a halt with no electricity or phone service.

“It definitely wasn’t the grand opening we had envisioned,” said Barrett. “Instead of showing properties and negotiating contracts, we were spending more time talking investors out of buying anything because the timing wasn’t right. We knew when the real estate bubble ended, a lot of people would get hurt if they gambled on the wrong deals.”

Because Barrett and Nabors are sixth generation residents of the Emerald Coast, they didn’t allow a few hurricanes and the end of the real estate heyday to discourage them. Instead, they built a reputation for giving good advice and steering investors and business owners to opportunities with less risk. The strategy paid off, and today NBI Properties is celebrating its tenth anniversary as one of the most highly regarded commercial real estate brokerages in the Southeast.

“All of the people who listened to us during the recession are some of our best clients now,” Barrett noted. “The market has improved considerably over the last two years and we’re working with numerous clients interested in retail, industrial, and professional office space. In fact, we’ve leased millions of square feet of office space since we started the business.”

Barrett added that NBI’s property management division has grown substantially in recent years with the firm currently managing more than 3,000 properties on the Emerald Coast. He said the luxury market is also heating up in the area and cited the Highway 30A corridor as an example of residential and commercial properties appealing to affluent homeowners and business owners.

As both Barrett and Nabors have witnessed continual growth throughout the region, they have made it a priority to give back to the communities they serve. They have sponsored and participated in events such as the annual Billy Bowlegs festival, PAWS Animal Rescue, the YOLO Board Relay Race Series, and the New Year’s Eve celebration for families in Fort Walton Beach. Last year the City of Fort Walton Beach also selected NBI Properties as the city’s Real Estate Broker of Record.

“We’ve been blessed and feel privileged to have been able to work with so many people tha last 10 years,” Barrett said. “The Emerald Coast has the best of everything, so we’re looking forward to seeing what the next decade brings!”