BY: RAY HANKAMER

A commercial real estate broker has a lot of things to keep in mind to be successful.  Here are a few of them:

Clients- Follow your instinct in accepting a client.  Check clients out in advance before going to work for them.  Make sure your client wants you to “win” if through your professional expertise you enable him to “win” in a business dealing.  Researching prospective clients is relatively easy and private and is worth the time you spend to do it.

Listing- Get the listing.  If you control it, you control the pace of the deal and many other aspects.  Once you have gotten the listing and have through your marketing developed a stream of inquiries-and hopefully offers-screen the prospective buyers carefully. This is a duty to your seller but also smart business for you.  You do not want to find out a buyer in unqualified after he has tied up your seller’s property for weeks or months.  This breaks your marketing momentum and can give your seller the idea that another broker may be better.

Procedure/Letters of Intent- Steer away from any semblance of “practicing law”, as it is forbidden to begin with by the Texas Real Estate Commission.  Especially avoid the temptation of filling in the blanks in a promulgated form or adapting a lawyer-prepared letter of intent from a previous transaction.  By doing so some small honest mistake-especially when it comes to the wording in the “Special Provisions” box- can get you innocently embroiled in costly legal proceedings if the deal goes bad.

Advise both your client and the other side to employ a lawyer for all legal documents.  Just putting in the phrase “not legally binding & for discussion purposes only” does not necessarily remove the possibility tha tan LOI could be deemed binding.  Insist on lawyers.

When there is “hard” earnest money in a contract, I always recommend that my client require that it be distributed to him at the time it goes hard, and not wait to see if the deal closes.  If the contract fails to close, the chances are good your client may not be able to receive the “hard” money if the other side resists approving its release by the escrow agent.

Broker Cooperation- Real estate brokerage is most often a collegial and cooperative endeavor.  One broker has the seller, and another broker has a buyer.  By working together, the brokers can serve their clients and each other.  The seller’s broker usually is paid a commission which he usually shares with the buyer’s broker, and traditionally on a 50-50 basis.

Exceptions to this rule may come when one broker “does more of the work” and in this case the brokers may agree to a disproportionate split.  Since the listing broker controls the sharing of the commission, it is advantageous to be the listing broker.

Some brokerage houses take the position that when they get the listing they are the designated recipient of the commission and that the buyer’s broker needs to get paid by his client.  Because of precedent, the buyer’s broker and the buyer normally expect the commission to be shared by the seller’s broker, and therefore buyers are sometimes hesitant to pay any commission, leaving the buyer’s broker “hanging out” unpaid for his professional contribution to the transaction.

There are some who believe by refusing to share with the buyer’s broker that the listing broker is breaching his fiduciary duty to his client, the seller, to represent him to his best ability to get the property sold.

A good question to ask a seller’s broker who is refusing to share his commission is whether his client knows he is not sharing with buyers’ brokers.  Often the seller/client does not know this and will require his broker to share after all.  All sellers should have an understanding with their broker upon signing the listing as to his intent to share with a buyer’s broker.

Negotiation- It is often best to let the other side make the first proposal.  This can be accomplished by not quoting an asking price in the marketing material, and when a prospect calls to inquire, initiate a discussion about the buyer’s overall needs and ability.

Often there are aspects of a deal which are equally or more important to a buyer than price, and sometimes the seller can add value by providing information, extended closing, financing, or other that enables a buyer to pay a higher price that he originally intended to pay.

By discovering the various needs of a buyer, the seller and his broker can formulate a proposal more nearly able to match all the needs of both sides, this achieving a “win-win” transaction.

Be fair but firm with both sides during the negotiations.  The listing broker can set the pace of the negotiation.  A too eager broker telegraphs that your seller is eager and he may not be.  Too laid back can be taken as rudeness or incompetence by the other side.

Closing- Contrary to the past, today brokers almost never attend closings. Most closing are done now by fax or email or messenger, and by not attending, the broker avoids being pressured by one or both principals to absorb unexpected closing costs.  A senior closer for a title company once told me that virtually every commercial closing she had worked involved pressure on the broker to contribute, that inevitably the broker pitched in to “save the deal”, but that in her estimation not one single deal would have failed to close had the broker just remained firm or had not been present in the first place.

Deals that don’t make- I have heard it said and I believe that “Hard work never goes unrewarded”.  Even though the deal you have worked so hard on fails to close, you have nonetheless had the chance to make a favorable impression on all the parties to the failed deal: attorneys on both sides, title company personnel, surveyors, insurance agents, lenders and mortgage brokers, and the other side’s broker and principal.  They may well remember you and recommend you for future deals.

If a deal breaks down from your side in mid-negotiation, have the courtesy to call the other broker and tell him, and to thank him for his/her hard work.  Don’t just go “radio-silent” and expect that to suffice as notice to the other side.  Your personal rudeness could unfairly affect the other people in your firm and block them from getting business from parties you have offended.

 

 

BY BRANDI SMITH

For the first time since June 2006, the Federal Reserve board voted to raise its key rate by a quarter-point to a range of .25 percent to .5 percent. The announcement made on Dec. 16 is something the Fed has hinted at since March, causing months of speculation about the impact of an increase.

 “Nearly seven years ago, the Fed put its benchmark interest rate close to zero as a way to prop up the economy,” said John T. Fenoglio, CBRE Capital Markets’ Houston-based executive vice president.

 In fact, Fed staff concluded that the equilibrium real interest rate, which is the rate adjusted for inflation, had dipped into negative territory following the financial crisis. Only recently has it risen to zero. In the most basic terms, that means the economy was so weak that interest rates had to be lower than inflation to incentivize households and businesses to spend and borrow.

 “The reason they haven’t raised it before when they thought they would is just that it seems that any time there’s some growth in the economy, it seems measured,” said an experienced lender in the Texas market.

 Positive economic news of late, including low unemployment numbers and higher wages, helped push the board toward its decision. Inflation was also an important factor, as it had reached the central bank’s 2 percent target.

 Because the hike has been anticipated for months, it’s unlikely to have a significant impact on the commercial real estate industry here in Texas, though it will certainly be a topic of discussion.

 “I think it’s just been such a long time since we actually had to make that at the forefront of how we made decisions,” said the Texas lender. “It hasn’t been at the forefront of anyone’s mind. It’s been part of the decision, but not the leading top decision.”

 “Rates are near to historical lows and most forecasters do not see them increasing to levels that would harm or curtail Texas real estate prices,” Fenoglio said. However, the Fed’s next moves will be watched closely as the frequency and intensity of any future hikes could significantly slow down market and economic performance.

 “If we got into a scenario where the rates were being raised every time the Fed met, and they were taking a pretty good clip up, then that would move further up their list of things they wanted to consider,” the Texas lender advised, speculating whether developers would want to move forward with long-term projects.

 The situation really all depends on how the economy shakes up and adapts with this and any future hikes.

 “If interest rates increase measurably in the long run, we could see price declines but we could also see higher rents and pricing would remain unchanged and possibly go higher if rent increases exceed interest rate and cap rate increases,” said Fenoglio.

 In truth, only time will tell how individual markets react to the change in the long term.

 Said Fenoglio: “It’s anybody’s guess.”

The definition of lobbying is undergoing a significant rewrite in the City of Austin and it
could have a huge impact on the commercial real estate industry throughout the state of Texas.

BY BRANDI SMITH

The change got its start back in January 2014 when Austin’s new city council members took their seats. For the first time in the Texas capital’s history, the council was comprised of ten members voted on by district instead of at large, as well as the mayor.

“Basically what happened is they took City Hall and dumped it upside down,” says Austin architect Stuart Sampley, who is also president of the city’s AIA chapter. “It’s a brave new world and people are still trying to figure out what the hell is going on.”

One of the big issues facing the council is lobbying reforms for the city. In August, District 7 council member Leslie Pool sponsored a resolution written by attorney Fred Lewis that overhauls Austin’s Lobbying Registration Ordinance.

“The changes that are being proposed to the existing lobby ordinance are substantial and have created significant concern among professional groups, not only in Austin but in other cities as well, as Austin is often the leader starting trends that other cities follow,” said attorney Pamela Madere, director of Coats Rose’s Land Use & Real Estate section.

“It is a very hot topic in this town through other interest groups that want more transparency and want more accountability,” echoed Sampley.

However, Sampley and others were concerned by the wide net the ordinance cast, which would have labeled many in the development community “lobbyists.”

“Under the current proposal, if you have more than 26 hours of discussions [per quarter] with a city employee about a particular project then you may be considered a lobbyist,” Madere explained. Along with that label comes a slew of other requirements, including registration and financial reporting.

Sampley says it’s not at all uncommon for architects and other developers to spend more than 26 hours interacting with city staff on a variety of tasks.

“Clearly by what we’re reading here is that the work that we do on a day-to-day basis  – study stuff, permitting, etc. – would be considered lobbying and we didn’t really necessarily feel like that we were lobbyists,” said Sampley.

In addition to all the registration and reporting requirements associated with the ‘lobbyist’ label, it would also prevent many of the most knowledgeable experts from weighing in on municipal projects.

“Architects and engineers would not be permitted to sit on boards and commissions that are considering site plans, preliminary plans and important development documents,” said Madere.

“You may think that my proposal will change the way our development community interfaces with the Council, and there is nothing in my proposal that does that,” Pool told the Austin Monitor in November. “We are simply requiring them to register.”

In response to the resolution, an 11-member coalition formed to represent Austin’s development community with Sampley as the leader.

“We’re not against transparency, we’re not against an open government law, we’re not against any of that stuff,” Sampley insisted. “But we are against our day-to-day activities to show compliance in the drawings being considered lobbying.”

Pool’s resolution was reviewed by the City Council Audit and Finance Committee, which passed it on to the Ethics Review Commission. In November, commissioners unanimously voted to recommend the resolution to city council.

After a couple months of back-and-forth conversations, Sampley’s group sent a letter to the council, addressing its concerns, saying in part:

“Hundreds of design professionals, craftsmen, and administrators must interact and communicate with City staff in order to do their job, as it is nearly impossible to take a public (City, County, State, or Federal) or private project through the City of Austin permitting system without speaking to City staff at length. Having those professionals register as lobbyists would not provide any community benefits or more transparency. In fact, such information about who is working with city staff on a project is readily available to the public on the city’s AMANDA database website.”

The letter led to increased communication between the council and development professionals, which culminated in what Sampley considers forward progress: the addition of his group’s proposed language that creates an exclusion for many development professionals. A victory to be sure, but Sampley says there’s a long road ahead as the resolution works its way to becoming an ordinance.

Cautioned Sampley: “This is the very beginning of the process.”

 

 

 

 

 

 

BY BRANDI SMITH

No matter the sector, no matter the area, no matter the price tag, North Texas’ commercial real estate market is booming in a way we haven’t seen in a generation. The combination of nearly exponential population growth and near-record job numbers is pushing development all around Dallas-Fort Worth area.

The region’s so hot, it grabbed the attention of PricewaterhouseCoopers and ULI, which put Dallas-Fort Worth at the top of the “Top 20 Markets to Watch” in their 2016 Emerging Trends in Real Estate report.

“This year I think there were over 2,000 interviews from executives in the real estate industry as to their investor preferences around geography, product type and the various characteristics that cause them to rank certain markets,” said PwC partner Byron Carlock. “As you saw, Dallas was ranked number one this year for several of its attractive attributes.”

Carlock pointed to the area’s development activity, expected yields to investors, general economic strength evidenced by occupancies and job growth, as well as some of the softer elements associated with cultural, educational and continued infrastructure improvement, such as expansion of the light rail system.

The report itself said “the market continues to benefit from strong investor interest, plenty of available capital, and a strong local development community.” However, this boom isn’t isolated to Dallas city limits.

“I think you have to look at North Texas regionalism, knowing that Dallas is the cultural, educational and kind of foundational nexus, but there is so much happening throughout north Texas on a regional basis,” Carlock said.

There are myriad examples: A 50,000 square foot Roger Williams AutoMall is under construction in Weatherford, which bills itself as “The Western Gateway Business Centre of the

DFW Metroplex.” Ross Perot Jr.’s company Hillwood Communities is working on a $500 million, 400-acre master-planned community in Celina. A four-story apartment building, named The Mark at Midtown Park, is going up in North Dallas, courtesy of Commodore Development LLC. Metlife and Panattoni partnered on an investment in Lancaster: a 250-acre industrial park.  Mohr Capital Partners has started construction on a 430,000 SF industrial project in Grand Prairie, Texas

However, the boom is illustrated no more clearly than in Frisco, a northern suburb of Dallas. Fifteen years ago, the city was a bedroom community of roughly 33,000. It’s since grown by more than 300 percent, now topping 150,000.

Not only is the community home to thousands of families, it is also home to the a kind of development boom you’d be hard pressed to find anywhere else in the United States.

“City leaders 20 years ago had a vision of what they wanted to become and they started making investments to get here,” said Dave Quinn, vice president of Frisco Economic Development Corp. “They understood that if we can attract the talent, meaning the families and the people to live here, someday, corporations are going to look and wake up and say, ‘Oh my gosh. Why am I having people drive an hour here? Why not locate in the heart of all this where the people are living?’ That’s what we’re seeing today, is that visions come to its own.”

For proof, Quinn offered up Frisco’s $5 Billion Mile.

“[It] is actually four different mixed-use projects,” he explained. “As far as we know, there’s not another area in the country where you have that type of diverse investment happening in such a small area.”

The four projects, which are located along the Dallas North Tollway between Warren Parkway and Lebanon Road, are as different in their scope as they are in their price tags. The flagship is The Star at Frisco, a 91-acre mixed-use development spearheaded by the Dallas Cowboys.

“It’s their corporate world headquarters,” said Quinn. “With their practice and training facility, cheerleaders, their whole organization will be based here in Frisco.”

The $1 billion complex will also feature two hotels, a 12,000-seat event center, as well as a unique opportunity for Frisco students. While the Cowboys manage 71 of the acres on this $1 billion project, the rest is a public-private partnership between the team, the City of Frisco and the Frisco Independent School District. Quinn said, to his knowledge, this is the first such partnership between an NFL team and a school district.

“This provides us with a needed third stadium at a quality and caliber that we could not have built or maintained on our own with the same amount of investment,” said Dr. Jeremy Lyon, Frisco ISD’s superintendent. “In addition to a place to play, perform and meet, the partnership provides many outstanding educational opportunities for our students.”

The second project is the $1.7 billion Frisco Station, developed by Rudman Partnership, Hillwood Properties and VanTrust Real Estate. It will cover 242 acres and provide 6 million square feet of office space, 990,000 square feet of medical office, 200,000 square feet of retail and 75,000 square feet of restaurants.

Project No. 3 comes in the form of The Gate, a 41-acre development that will include two 10-story luxury condo buildings, a boutique hotel, restaurant space and four office buildings. It’s being developed by Invest Group Overseas, a Dubai-based group making its first investment in the United States.

“They were actually the first to announce here in Frisco,”  Quinn said. “Funny story is that, they were first before the Cowboys and their land has obviously skyrocketed once the other projects started being announced. Now, they are the baby of the bunch at $700 million.”

Finally, the biggest development: the $2 billion Wade Park. Thomas Land Development has grand plans for its 175 acres, which include bringing in Whole Foods, iPic Theatre, Pinstripes, and Hotel Zaza. The project will also feature another hotel: the Langham Hotel Tower. Set to open in early 2018, the 35-story tower will include 25 floors of luxury hotel rooms, 25,000 square feet of meeting space, a rooftop pool deck and 10 floors of residential homes.

Those four projects alone total a whopping $5.4 billion, stretched along a mere 5,280 feet in Frisco. Quinn pointed out that the investment value breaks down to nearly a million dollars per linear foot.

Though Frisco’s growth – both in population and development – has been rapid, city leaders said this is the goal toward which they’ve been working for many years.

“Frisco’s first master plan was adopted in 1982 and has been continually updated since then, thus the growth has been in the planning for decades,” said George Purefoy, Frisco’s city manager. “Furthermore, the city has been successful in implementing these plans.”

Part of that plan included building Frisco as a bedroom community in the beginning, as a way to draw corporations down the road.

“When you can attract a skilled work force to live here, people are starting to look and say, ‘Well, instead of moving and trying to lure my folks to come live by me, why don’t I just locate in a location where they are already living?’” Quinn said. “Our demographics were very favorable for the top of investment that’s being made in our area.”

The Frisco Independent School District played a huge role in helping bring families north of Dallas.

“In Frisco’s case, the Frisco Independent School District and the city working together for our citizens has proven to be one of the key factors in our success,” said Purefoy. “The small school model adopted by the school district has made Frisco a preferred location.”

As the district has growth, so has the city, sharing the benefits through Tax Increment Financing. Frisco’s TIF Zone No. 1, started in 1997, was a partnership between the City of Frisco, Collin County, Frisco ISD and Collin County Community College District. It helped build the Frisco Superdrome, the Frisco Sports Complex, Dr. Pepper Ballpark, Dr. Pepper StarCenter and Pizza Hut Park.

“The District’s involvement allows us to participate in public-private projects with the City of Frisco that create world-class opportunities for our students, while saving taxpayer dollars and stimulating economic growth and development,” said Frisco ISD’s Dr. Lyons.

Quinn said, once the first domino fell in the form of Toyota’s relocation to Frisco, the rest followed suit.

“When you have someone like a Toyota make the decision to move to North Dallas, obviously others work around and say, ‘Why did they do that?’ They start to follow that move because they know Toyota wouldn’t have done it if it wasn’t a great location and if there wasn’t some importance to do in that,” said Quinn. “That’s what we’re seeing on a corporate side. Each time we have a corporate announcement, it makes it a little easier for the next corporate person to come in and make a decision to move to North Texas.”

Both Purefoy and Quinn credit some of Frisco’s success to the Texas business environment.

“If you want to do business on the east or west coast, you can do that from Dallas, Texas and it’s really easy,” explained Quinn. “You’re no more than three hours from either coast. You work on Eastern timezone and Pacific timezone. From us, it’s very easy to do business.”

Frisco stands as just one example of how, with a little planning and foresight, communities are able to exploit the attractive qualities of North Texas and convert them into local benefits. There will certainly be many more examples in the years to come.