May 2009: Commercial News Round Up

News briefs to keep you in the know about the commercial real estate industry.

May 1, 2009

Big Step for Lease Standards

A simple way to share summaries of lease documents electronically among all stakeholders in a commercial transaction took a big step forward with the release of the new Lease Abstract Exchange Standard Version 1.0 by the Open Standards Consortium for Real Estate (OSCRE).

The standard provides a universal format for exporting and importing data to and from different software systems, eliminating the need to continually reenter data and boosting productivity for accounting staff and real estate managers. The first phase of the standard is intended for use in the United States. Some software vendors have already begun implementing the Lease Abstract Standard into their products.

"Lease abstracts are an integral part of the commercial deal flow process," says Jan M. Hope, NATIONAL ASSOCIATION OF REALTORS® vice president for commercial real estate. "OSCRE’s standard is timely and will drive new efficiencies."

OSCRE develops standards in collaboration with leading real estate and technology organizations, including NAR. The standards are available for free at Web site registration is required.

Stage That Office

Staging has become a common practice for practitioners who sell homes. But weak office demand is now prompting some buildings owners and managers to take a page out of the residential marketing playbook.

"We’ve seen the use of commercial staging really explode in the last year," says Paula Green, vice president of national accounts for CORT, a Fairfax, Va.–based company that leases furniture and fixtures. Commercial stagers often rent furniture from companies like CORT or use pieces from older tenant build-outs to create a sense of how a finished space will function. "Staging raw commercial space with an executive office, a conference room, and even a few workstations helps prospective tenants see how their operations would fit into the space," says Green. Some mixed-use buildings have staged lobby and common retail areas, as well.

"When they walk into a vacant building, it’s hard for tenants to visualize just how much space they’ll need. Often they think the space is too small until they see the furniture in place," says Lucinda Stanley, senior vice president of sales for Saxa Inc., a national developer of office condominiums. She recently staged three workstations in a unit of the company’s Valley Ranch Office Park in Irving, Texas. The staged unit also functioned as an onsite leasing office. "Staging space is much quicker and less expensive than doing an actual model build-out, so we were able to begin marketing the space faster," she says.

The Year of Distressed Debt

With an estimated $400 billion in commercial real estate loans coming due by the end of 2009, according to the Real Estate Roundtable, buying distressed debt may be the play of the year, says Andrew Nieman of John Buck Co. in Chicago, who recently spoke at the Commercial Real Estate Forecast conference.

Falling real estate values have put the squeeze on borrowers to come up with new equity for a refinance, even when properties are currently generating enough cash flow to cover debt service. A recent report by Real Capital Analytics Inc. estimates that approximately $1.7 billion of commercial property is either distressed (in or near default) or potentially troubled (owners are either facing a problem refinancing or have a major tenant ready to vacate).

The key to success in buying distressed debt is to focus on Class A assets and structure loans to ensure the debt is senior enough to get paid if later problems arise, Nieman says.

Even if the property is eventually returned to the lender, you could end up owning a good asset. "It’s a win-win," says Nieman, who heads John Buck’s product leasing group.

REITs Cut Dividends to Save Cash

Faced with the challenge of coming up with capital to fund expiring loans, many of the nation’s real estate investment trusts are trying to hold onto the cash they have—either by cutting dividends for 2009 or paying a substantial portion of that dividend in stock, according to a Bloomberg news report. 

The Internal Revenue Service has stated that the strict rules governing payout requirements for publicly traded REITs can be met with stock for up to 90 percent of the total dividend payment.

Among the REITs that have already chosen this option are office and retail owner Vornado Realty Trust and Apartment Investment and Management Company. Others, such as Duke Realty Corp., which owns office, industrial, and health care properties, will cut dividends at least for now, according to Bloomberg.