by The Scheffe Group on November 30th, 2011

For the 3rd quarter of 2011, Austin saw incremental declines in both rental rates and vacancy across all three commercial property sectors. However, this quarter’s changes are too small to signal any significant change in the market, but instead reflect the ongoing trend of very stable conditions. If, however, we continue to see a decline in vacancy over upcoming quarters, Austin could see rents begin to ease upward.

The current steadiness of our market is a good sign; and we believe that, as commercial real estate lending loosens, continued steadiness will inspire new real estate development in the region sooner rather than later.

Posted on March 29th, 2011

McDonalds is a real estate company. And here I thought McDonalds sold burgers. Well, I recently read an article that changed my perspective.

The article explains that McD’s has a subsidary company, Franchise Realty Corporation, that not only makes money from speculative land deals and the brokering of established restaurant lots, but also reaps profits from it’s franchisee’s by being their landlord.

Some stock speculators believe that, in part, this subsidiary company makes McDonalds stock a good value, as it is not as susceptible to the downturns in the market because of the diversity in its income streams.

What do you think? Should a company just stick to “what it does” (i.e., what it markets itself as), or is it a good business decision to get into real estate buying/selling/developing no matter what else it is that you do? Does it depend?

Posted on March 29th, 2011

In the world of business ownership, mistakes will be made. However, some mistakes can be avoided by a little preparation and planning. Read on to make sure you have all your bases covered.

1. Ineffective Marketing and Market Research: Before starting your business, make sure the market is big enough to sustain your business. Once you’ve determined there is a market, target that market reach out to them with consistently compelling content. Most importantly, make your marketing accountable for generating revenue and maintain systems for tracking your marketing.

2. Bad money management – spending too much or too little: This can be a hard balance, but it’s essentially looking at cash-flow and being conscious in the money you invest for your business. Before you spend, remember that you must recoup what you are spending and more to maintain positive cash-flow. Conversely, you can’t let frugality get in the way of efficiency, for example, with computer equipment or software.

3. Mismanaging Operations: This can be about anything from not having a business plan to not having basic systems in place for the day-to-day operations. Have a plan for these things, and be flexible about improving your plan when a better or more efficient method is suggested.

4. Failing to Focus on Value Creation: Although a goal of your business is to make money, the primary purpose of your business is to create value for your customers. Stick to this purpose, and the money will follow.

5. Thinking small: Don’t aim to simply make a wage for yourself, aim to build a profit, aim to build something large and great. It’s like the saying goes, “Shoot for the moon; even if you fail, you’ll land among the stars.”

Posted on March 29th, 2011

The short and the long answer is that everything has some sort of affect on the office condominium market, but obviously I can’t get into how things like the box office returns of the newest Batman movie may affect the office condominium market, so I’m going to try to keep this to what I consider “The Big 5.”

1. Construction/Land Costs in Relation to Market Sales Prices

When developer’s decide to build and sell office condominiums, one of their main concerns is profitability. If they can’t build a complex with the reasonable expectation of selling that complex for a profit - they’re not going to sell it. I know that this is probably an obvious statement to many of you, but it’s worth saying because that’s the fundamental aspect of this business. Profits. So that means, if construction/land costs get too high, or sales rates get too low - most smart developers aren’t going to build.

2. Office Vacancy Rates, i.e., Demand

Developers look at vacancy rates when deciding whether and how much to build, and potential buyers/sellers and their agents look at vacancy rates when negotiating pricing. If vacancy rates are high, there probably won’t be new projects being developed. In terms of pricing, to simplify a fairly complicated negotiating tool, if vacancy rates are high, the buyer has more leverage, if they are low, the seller has more leverage.

3. Rental Rates

If rental rates are skyrocketing, businesses may consider hedging their bets long-term and buying with a fixed rate loan. Also, this can mean a good market to build in if vacancy rates are low and rental rates are high.

4. The Lending Climate

None of this matters if no one can get a loan to buy. Most business don’t have the capital to buy outright; they need a loan. If the lending climate is good and interest rates are low, businesses are in a good position to get the money they will need to buy an office condominium.

5. The Media, i.e., Perception of The Market

I think this is a big one. Any market is fragile, and perception of how strong that market is can make or break it. If the media overblows an insignificant statistic and has everybody running scared and pulling out of deals, well, of course there’s going to be a fall-out. On the other hand, if the media ignores truths about what’s going on in a particular market, everyone may overspend and overbuild until there’s a fall-out. It’s a fine-line, folks.

I’ve probably oversimplified and generalized quite a bit of this, but that’s because EVERY market is different. While there are national trends and general factors that affect us all, they take different turns in different markets, and there are a bajillion other factors that go into a real estate market. It’s a local thing, in many ways, I think. Talk to your agent to get the scoop on what’s going on in your neck of the woods.

Posted on March 29th, 2011

Gas prices are a popular subject of conversation these days. While I’m usually not one contribute to the overkill of a topic, I do think it’s important to note how gas prices are affecting our market.

1. When energy is more expensive, everything else is more expensive.

In relation to office condos, particularly new construction, this means that it’s getting more expensive to build, so the product is getting more expensive. Contractors must bring the building materials to the site, and because gas costs more, their costs are going up to do this. This increase is passed through to the developer, who passes it through to the consumer.

2. Commercial agents are more smarter about research, marketing, and touring properties.

Commercial agents are beginning to have more of a discriminating taste in choosing what to tour, how to tour, and who to tour. Agents are less likely to take a potential client out to several sites in one day if that potential client is not a qualified lead (example, can’t get financing). I think this small consequence is affecting the way agents deal with clients. Agents are going to want to get to the heart of the matter more quickly; they not only need your interest, but they need proof that you are actually capable of buying/leasing before they can expend the time, energy, and cost of taking you to multiple properties. It’s also shifting marketing strategies, subtly pushing our agents to become even more dependent on online sources and telephone conferences to gather information on a property.

Advice to potential buyers: Before you do any looking around, make sure you’re even qualified to buy. Work with your agent and bank/loan officer to determine what, if any, properties will fit with your financing options before you waste a bunch of time driving around.

3. Commercial Lenders are more cautious.

It’s harder to get a loan because banks have been burned recently. With costs going up and revenues standing still, people are defaulting. And banks don’t like it and it makes them not want to give their money out to folks. And because loans are harder to get, sales are harder to close. It’s a viscious cycle, folks.

BUT the good news is - if you are a qualified buyer, it’s definitely a buyer’s market.





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