4 Reasons why you benefit from Exclusive Representation in Commercial Real Estate

In a commercial real estate transaction, a seller can leave a lot of money on the table if the buyer is well represented and they are not.  Worse still, the seller may look to the buyer’s broker for advice and mistakenly believe that they are being represented and receiving advice that is in their best interest.  How do you know if you need independent representation?  Every seller can benefit from having their own representation, and I will lay out a few reasons why below, as well as a few case studies.  

“Plans fail for lack of counsel, but with many advisers they succeed”   

A few years ago, an owner who we will name “Steve” owned an automotive shop on a busy downtown corner.  He was approached by his neighbor, who wanted to buy his building for what Steve believed to be a fair price.  Steve accepted the offer and closed on the property.  A few months later, he realized that due to the capital gain on the fully depreciated building, his taxes were nearly a quarter of the sales price!  Not only had he underpriced the building, but after paying off his mortgage, the burden from tax bill started a process which ultimately led to his bankruptcy.  If a good agent had advised him, they would have advised him of his tax implications, as well as making sure that the sale price was in line with the market.

About two years ago, a woman we will name “Sherry” owned a home in a downtown neighborhood.  Her family was growing, and she wanted to purchase a larger home.  She put an offer on a nearby home which was for sale by owner.  Neither buyer or seller had any real estate experience, and they used a form they found online.  Once the property was under contract, she put her home up for sale by owner.  Within days, a buyer’s agent brought her an offer on her home. Sherry wanted to make sure that the contract was contingent upon her closing on the other property, which the buyer’s agent assured her it was.  There were some complications with her loan, and the seller of the property she was buying refused to give her an extension—and she was forced to terminate.   When she asked the buyer’s agent about terminating the contract on her home, she refused, and said that they would sue for specific performance if she did not sell.  Ultimately, she was forced to sell her home under market value, and rented an apartment across the street.  If a good agent had been involved, Sherry would not have been forced to sell her home for below market value, and likely would be living right now in what she considered her “dream home”.

4 Reasons to have independent representation

  • Representation
    • The buyer’s agent has a duty of loyalty to protect their client’s best interest. Some brokers may attempt to practice what is called Dual Agency.  Dual agency is a slippery slope and frowned upon by most brokers.  Often what happens is that one party is treated as a “client”, and the other as a “customer”—meaning that client receives the duty of loyalty while the customer does not.  All these details should be clearly disclosed to both parties, and failure to do is an egregious license law violation.
  • Better Leverage
    • Another reason to have separate representation is for negotiating leverage. Commercial Real Estate agents, especially CCIMs, are trained to help negotiate the best possible price and terms.  If you are communicating any personal details to the buyer’s broker, then they have a duty to tell the seller—which may completely remove any negotiating leverage you may have had.  Think about it—any personal details which may make the Buyer think you need the money more than they need the property WILL be used against you.  Your exclusive agent’s duty is to protect those details, while working to tip the scales in your favor.
  • Pricing
    • If a buyer’s agent brings you an off-market offer on a property, how will you know if that price represents a fair market offer? Think about it—if someone is willing to go to the trouble to contact you, to do the due diligence and make an offer, could there be someone out there who would pay  a little more?  In my experience, off-market properties seem to sell for about 20% less than they might if they were properly marketed.  Your agent’s role is to make sure that you are priced in accordance with the market, and not leaving any money on the table.
  • Contracts & Due Diligence
    • Your agent should be familiar with the documents and amendments you are reviewing and will be able to advise you about their implications. They will be able to suggest language that would better protect you, or additional clauses to add. They should also remind you to talk with your CPA to determine what your tax consequences will look like.  You agent will also be able to help with due diligence items required by the Buyer—documents such as leases, tax returns, plats–as well as interfacing with government agencies for things such as permits, zoning details and environmental concerns.  They will also be able to connect with the appraiser, and hopefully give them what they need to appraise your property for the highest appropriate amount—something that a Buyer’s agent could not do.

We would love to hear from you!  Please comment below.   Have you ever been in a situation with an unrepresented party?  Or have you ever been in transaction where you lacked appropriate counsel? Do you have any horror stories from real estate deals where good advice could have made a difference?  

Additional Resources: 

SIOR – How to select a commercial real estate broker

Founders Guide – How to choose the right commercial real estate broker

Commercial Property Advisors – Choosing the right commercial real estate broker

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

(c) 2020 Jonathan Aceves

What is a rent roll and how do you use it?

For commercial and multifamily investors, no two documents are more fundamental to understand an investment than the Rent Roll and the Operating Statements. We will be studying the rent roll, looking at some case studies, and hopefully improving our due diligence process.

So what exactly is a rent roll?

A rent roll is a list of the rental units of an income property, with some basic details essential for basic property underwriting.  It is one of the foundational documents needed to property understand a rental property.  

Basic Items contained in a Rent Roll Items.

Exact Information can vary by property type, but these are the most common:

  1. List of units
  2. Name of Tenant
  3. Rent amounts
  4. Beds/Baths
  5. Square footages of units
  6. Rent Per Square foot
  7. Prior Balances
  8. Market Rent
  9. Loss to Lease
  10. Lease Start/End
  11. Additional Fees
  12. Security Deposit
  13. Notes
  14. Date the Rent Roll was created

Rent Roll Uses

  • Loan Applications—When purchasing a property, a lender is going to want to see a proper rent roll.   You may have to create the rent roll if the owner doesn’t have one.  
  • Market Research—Are the rents low compared to market?  Is there an opportunity to raise the rents?  
  • Lease Expirations—Are there leases expiring over the next 30 days?   Are the tenants month-to-month or do they have long-term leases?
  • Rental History—Are there balances on accounts growing, or shrinking? Are there a lot of vacancies?  Do the tenants pay on time?  

How do make a rent roll?

  1. Example – Download the template at the end of this article
  2. Ask – If you are considering purchasing a property, ask the owner for the details.
  3. Find the Source Documents – Leases, County Records, etc.

Case Study

I received a call from an owner of a quadplex, who wanted me to study the property. I asked him to send me rent rolls and operating statements.  He didn’t have them, but sent me the leases and two year’s tax returns.   I put together a rent roll, and immediately saw issues.  First, his rents were $100 low compared to comparable apartments.  Second, three out of four of his leases were month-to-month.  Third, he had MAJOR collection issues—two of his tenants hadn’t paid rent in over six months, and all of them were behind.  These issues were immediately obvious from a review of the rent roll.  When I asked him about this, he got quite defensive.  He’d grown quite attached to his tenants, and wasn’t willing to evict them.  Obviously, it was going to be very hard to sell the complex in the condition it was in, and I advised him to deal with his tenants before selling the complex.  I often think about that owner because I’m not sure he realized the state that his property was in, and a quick review of a simple rent roll would have really helped him to prepare his property for sale.

We’d love to hear your stories and lessons learned about reviewing rent rolls from prior deals!  Comment below!  Also please share this with people you think may benefit from reading.

Resources

Click here for a Free Excel Downloadable Rent Roll and PDF Rent Roll Template.

Article from Jeff Rohde on Roofstock with an overview of the Rent Roll.   Article from American Apartment Owner Association on the basics of the rent roll.

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

Evans Georgia Outparcel Market Report

Evans, Georgia is not only the best place to live in the United States according to Money Magazine, but also a great place to conduct business.  If you are looking to locate your business in Evans, here’s some information that may help you as you search for a location.

From 2019 to 2020, the price of an outparcel averaged almost $900,000.  The outparcels in our study ranged in size from .54 acres to 1.16 but averaged .92 acres.

An outparcel is defined as a small lot on the outer edge of a shopping center, usually reserved for later sale of fast-food or chain restaurant, also called a pad site.  Generally, outparcels are around 1 acre in size.  In theory, the price of an outparcel should have some relationship to fundamental attributes such as access, visibility, demographics, and quality of the anchor or development that it sits in front of.

Sites that had full-motion direct access to traffic had the highest sale prices per acre.   515 Mullins Crossing had the highest sale price (1.296M/Ac) in our study and sat on a signalized intersection in front of a Belk-anchored shopping center.

Access is another important factor.  Washington road is a thriving commercial corridor partly because it has a turn lane (or suicide lane) on most of its stretch from Downtown Augusta past Evans.  Many commercial corridors are seeing medians and concrete barriers installed, and this limits access to the other lane, and creates “dead zones” or pockets where there is not enough traffic to satisfy retailer’s requirements.   Many shopping center developers limit access to the main road and give outparcels access via an internal road structure.  The Mullins Crossing Outparcels are good examples of this.  This can be an issue for Quick-Serve Restaurants (QSRs) that need to get parking and a drive-thru on a small site—having two curb cuts can be a good way to get cars in and out and still have room for parking.

Another consideration for retailers is off-site utilities.  Many shopping center developers size stormwater and parking in such a way to allow the outparcels to be very efficient—not only saving them money in site costs but also allowing them to be very efficient and potentially fit on a smaller site.

Something to be aware of is residual value.  Many anchors such as Wal-Mart will place Covenants, Conditions, & Restrictions (CCRs) on their outparcels, which will impact the number of users that occupy the outparcel, which would negatively impact their sale value.  Another item to consider would be size—although your current user may be able to use a site smaller than .7, most others can’t, and will make finding another tenant a challenge should your current tenant vacate.

You can find our Evans Outparcel Report here..  Please let me know if you see additional details for us to add, and don’t hesitate to reach out to us with questions.   For developers—what trends are you seeing as you search for outparcels?   For users—what are common themes you’ve seen across the best sites that you have occupied?   We’d love to hear from you.  Thanks for reading!

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

Industrial Basics – Roll-Up Door Considerations

If you are interested in buying a warehouse or industrial building there are a few critical items to familiarize yourself with. Roll-up Doors are a defining feature of  industrial buildings, and it’s important for users and  investors to know some the details regarding their selection, use, and construction.

What are different kinds of industrial building doors?  There are a few different types of industrial doors; overhead doors, roll-up doors, and scissor doors.   Here’s an overview with some pros and cons for each type:

  • Overhead Doors (Or Sectional Doors)–these doors fold or bend to open, and slide into an overhead track.  They don’t coil, and they may have multiple sections, like residential garage doors.  When these doors are open, they hang overhead in front of the opening.
    • Pros: Often the panels that make up an overhead door are much wider and thicker than the small slats of a roll-up door, and can be heavily insulated.
    • Cons: Because the track hangs in front of the door, they limit the ceiling height of a building, and are seldom used for industrial buildings.
  • Scissor Doors (or Scissor Gates or Security Grilles) open to the sides, like a mesh, and often function as security measure in front of a storefront or opening, and can be used as a movable fence.  Often these doors are closed during operating hours for air flow and visibility.
    • Pros: These doors are easy slide open, and don’t take up much space. You can also easily see through them.
    • Cons: Generally used as security gates, often in conjunction with roll-up doors, and not usually used by themselves.  They also are not insulated and don’t block the elements.
  • Roll-Up Doors (Coiling Doors).  These doors are series of slats in a coil that pull into a drum with an enclosed greased spring.  They can be insulated or non-insulated.  These are are the industrial doors that probably come to your mind: ubiquitous in self-storage facilities and warehouses.
    • Pros:  Dont’ swing out (maximize space in warehouse), open and close quickly, are difficult to penetrate, and when open provide clear and open visibiliy.  Roll up doors coil into a drum, and provide maximum use of interior space.
    • Cons:  More difficult to insulate as they roll into

What size doors do you need?  That generally depends on what size vehicles will be using the door, what size the loading dock is, and how high the materials are that you will be moving.  For loading doors, trailers tend to be 8′-8’6″ wide, so a 9′ door will accommodate a 8’6″ trailer, and 10′ high door should provide unobstructed access to most trailers.

What have been your experiences with the selection and operation of industrial doors?  Are you satisfied with your current doors?  Do you have a certain type or size of industrial door and have regrets or lessons learned?  We’d love to learn from your experience!

This post originally appeared on Jonathan Aceves’ Blog.

History and Overview of Downtown Augusta’s Olde Town Neighborhood

The Olde Town Neighborhood is located in Downtown Augusta, between 5th Street and East Boundary, and from the River to the Cemeteries on Watkins Street.  Originally known as “pinch gut” the neighborhood was originally built in 1737 as the original neighborhood of Augusta.  Almost the entire neighborhood was burned in the great fire of 1916, and most of the buildings date from 1917-1920.  Both Broad and Greene had streetcar tracks in between the lanes, which have now become linear parks.  The neighborhood has experienced a renewal in the past 10 years as demand for housing close to the urban core, coupled with great infrastructure and amenities has made it downtown’s neighborhood of choice.

One of the things that has made Olde Town so popular is the Traditional Neighborhood Design (TND).  Measuring about 4 city blocks by 6 city blocks, the neighborhood is easily walkable in 10 minutes.   Almost all the streets in Olde Town have sidewalks, and the median parks contain pet waste stations.  The streets are lined with trees, and almost all homes have front porches, and anytime you go out you will run into your neighbors. A short bike ride will take you anywhere in Downtown Augusta and the Medical District.

The buildings in Olde Town represent a wide variety of different styles, from Craftsman to Victorian, and the construction from that era is quite sturdy.  The homes are generally built on piers over crawl spaces, balloon framed, with thick framing and structural decking.  Many of the homes feature intricate woodwork and columns.

Olde Town is also an incredibly diverse neighborhood—of 991 housing units in 2018, 37% of them are single family homes, 44% are duplex-quadplex, and 19% are in apartment buildings!  Typical lots in Olde Town are quite narrow, ranging from 40-80 feet, with an average being 55 feet.  This contributes to an amazing diversity of residents, from young people to elderly, black and white, owners and renters, rich and poor.

Olde Town contains a number of wonderful neighborhood amenities.  Heritage Academy, a private Christian school located in the Historic Houghton Schoolhouse, is located on Greene Street.  The Fox’s Lair, where neighbors gather at the neighborhood pub, is located on Telfair Street.  Christ Community Health Services, a community health center providing medical and dental care, provides quality healthcare to the families in Olde Town.  The Savannah River is the neighborhood’s northern border, and moments away for kayaking and paddle boarding, with easy access to the marina and boat house.

Olde Town residents enjoy a strong demand for short term rentals.  Augusta is the home to the largest Ironman Triathlon in the united states, and Olde Town’s boat house is where the triathletes transition on their bikes.  Every year, triathletes fill the neighborhood, and residents line the street to watch the runners come down Broad and Greene Street.   Augusta is also home to the world’s premier golf course, and being a straight shot down Broad street to the course, Olde Town owners enjoy hosting golf patrons every April.

Why 3D Virtual and Video Tours are Critical in Marketing Commercial Real Estate Right Now

In the post-pandemic world, ensuring that your commercial property can be toured and understood remotely is essential for it to compete in the marketplace.  Due to the Pandemic, tenants are increasingly wary of letting strangers walk through their buildings–this is especially true for multifamily and office. 3d and virtual tours are the best way to accomplish that, and we’ll discuss reasons why and the different kinds of tours in this article.

Reasons for the increasing popularity of 3d Virtual tours:

  • Social Distancing Requirements
    • Showings are more complicated now than ever—many buyers are hesitant to view space, and many tenants do not want strangers in their buildings.
    • During this time, commercial properties with 3d virtual tours will stand out against their competitors.
  • 3d Tours create More traffic
  • 3d tours Help tell the story of the property
    • 3d tours create virtual spaces that a buyer or tenant can use to understand the layout and feel of a property.  They help convey the visual information that can be difficult to explain in text or in still photos.
    • Some 3d tours also create floorplans or “Dollhouses” that help make it easy for a prospect to visualize the space.
  • 3d Tours help with Out of Town Buyers/Tenants
    • Prospects are often looking at many options from far away, and you have just a few moments to capture their attention. A 3d Tour makes it easy for them to understand.
    • “Decision makers aren’t always able to tour every property, 3d tours give them a feel for the space and ensures that your building is in consideration.” Peter McGuone, CBRE, SVP

What different types of tours are there?

  •  3d Virtual Tours–these are rendered and allow you to virtually walk through a property.  Matterport is a good example of this sort.
    • With 3d Virtual Tours, lots of scans are processed to create a rendering of the space.  These are the most immersive, giving a user the ability to tour the space.  These are also some of the most challenging to create.  For an example see this video.  
    • Also, for an overview of all the major providers of Virtual Tour Software, see Ben Claremont’s video on the subject.
  • Virtual Tour–think Zillow’s tour feature.  These tours are not rendered, so they are more like a collection of 3d pictures, that are labelled.
    • You can still click on “Living Room” or “Foyer” and look around the different 360 pics, but you cannot virtually walk through the building.  On some platforms, you can click on an adjacent picture, and it will take you there, but it is not as smooth as a 3d Virtual Tour.
  • Video Tour–This is…well, a video tour.  They can be guided or unguided.
    • Guided – These are useful and often can be a great supplement to a 3d virtual tour.  The guide can walk through the space, describing the features and benefits of the space,
    • Unguided – Think of a video camera being taken through a property–Zillow has a video tour feature and most of the videos placed there are unguided video walkthroughs.

We would love to hear your experience with 3d Virtual Tours.  As a Broker–do you currently use them, and have they been helpful?  As an Owner–how important is it to you to have 3d tours on your listings?

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

The Basics of Historic Tax Credits

What are historic tax Credits?  Historic Rehabilitation Tax Credits are available for developers who renovate historic buildings.  These include federal and state historic tax credits.  The federal tax credit is 20% of the qualified expenses over 5 years.  Most states (GA and SC included) have 25% tax credits, often with a cap.  Georgia’s tax credit is capped at $300,000 for the time being, and South Carolina’s is capped at 1,000,000. 

Which buildings qualify for this credit?  Buildings located in historic districts or individually listed in the national register of historic places qualify, also buildings deemed by the state historic preservation office to be historically significant. 

Historic Tax credits are incredibly complex instruments.  They can be used to make historic renovation projects feasible that otherwise would not make financial sense.  They can be coupled with other programs such as the opportunity zone program or enterprise zone programs.  This article will cover some of the basics and provide links to helpful resources. 

What are financial guidelines?  First, you must spend more than the adjusted basis in your renovation.  Make sure to talk with a tax professional to help you organize this calculation, but basically you must spend an amount greater than what the building is worth. Second, only certain expenses are eligible for the credit—these are “qualified rehabilitation expenditures” (QREs).  QREs include construction costs, taxes, consulting expenses, architectural costs, among others.  Generally, additions to the building do not quality, as well as furnishings, commissions, and appliances.   

Are there guidelines for the renovation?   Yes.  The secretary of the interior has guidelines for the renovation they’d like applicants to follow, repairing rather than replacing historic elements, preserving distinctive finishes and features, and maintaining the historic character of the building.  You can see their 10 principles here

Is there a requirement to hold the property for a certain amount of time?  Yes.  You must hold the property for 5 years. 

Who can use historic tax credits?  In many cases, application of the Federal tax credit is limited to passive income for taxpayers with adjusted gross income above $250,000.  Real estate professionals, short-term rental operators, and C-corps are exempted from this rule.  See questions 35-37 here.  

How do you apply?  We generally recommend that an applicant work with a consultant and an accountant to help them with the applications.  Reach out to us and we can connect you with expert consultants. 

We’d love to learn from you and hear your feedback!  Have you ever participated in a historic tax credit project?  Have you evaluated a historic renovation? 

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

The Four Primary Uses of Sale-Leasebacks

The Four Primary Uses for Sale-Leasebacks

  1. Financing: Allows for off-balance sheet financing (100% of equity can be made available for investment, as opposed to 75% with traditional financing) and at a lower cost
  2. Improved Returns: Firms may earn a higher return on their primary business rather than in real estate, so they consider moving capital to principal business to expand operations
  3. Balance Sheet Improvements: Tool for improving the balance sheet which can be important for exit planning and larger corporations
  4. Exit/Repositioning: When a firm determines they want to exit a given market/location, they can execute SLB to cash out of a given asset in advance, and then have 5-10 years to find new location.

Financing

Sale-leasebacks are a popular means for companies to fuel growth by moving capital out of real estate and into their principal business.  Often, releasing capital in real estate is more affordable and has better terms than bank financing.  With bank financing, you may only be able to release 75-80% of the equity in your real estate, and that loan will likely come with a 3-year balloon payment.  And often the appraised value of the building is the value of the vacant building.  With a Sale-leaseback, a business owner can tap into 100% of the equity in the real estate, with no balloon payment, and often the value of the NNN lease to an investor is higher than the appraised value of the empty building (depending on the owner’s creditworthiness and balance sheet).  Also, a risk of bank financing is that if the appraised value falls below the agreed-upon LTV, the loan is in default and immediately called (think 2008).  The sale-leaseback puts the market risk on the new owner.

Improved Returns

If the returns from a company’s principal business are higher than the returns on the real estate, it often makes sense to move equity out of real estate and invest it in the company’s core business.  The goal is always to maximize return.  For example, if the business is able to gain a 20% return from day-to-day operations, and the ownership of the real estate where the business resides is only netting an 8% return, returns would increase if the business could divest of the real estate to allow for greater investment in the core business.  Through the signing of a long-term lease, the real estate can be sold, the business remains in operation in its current location, and operations could conceivably be expanded with the opening of a new location or other operational expansion. 

Balance Sheet Improvements

As a seller looks to exit their business, it can become important to improve financial statements.  With this strategy, the seller replaces a fixed asset with a current asset. This increases the current ratio (current assets/current liabilities).  Sometimes referred to as the Working Capital Ratio, investors see this as an indication a company’s ability to service its short-term debt. 

Exit/Repositioning

A Sale-leaseback can be a useful tool for a business that knows it wants to move from a given location into another market or trade area in the future.  It can also be a means to exit from an overly specialized or obsolete building.  An example could be a prison or a hospital, or a retailer realizing that growth is moving in a given direction and determining that in 10 years it will move to follow growth, or that they will centralize their operations in a new building. 

 

Lessons from Sharedspace in Augusta

Today we’re going to talk about SharedSpace and Coworking with John Cates, COO and General Counsel at Meybohm Real Estate

 

Jonathan Aceves (JA): Tell us a little about your prior experience with the coworking business model.

John Cates (JC): When i was in Atlanta, coworking was just starting to take off.  Not just from a office space model but also as a model of entrepreneurship.  Coworking space like WeWork and others that were purely office tenant landlords but also incubator space.  We were involved with helping the Atlanta Technology Village to get started.  We got to see in Atlanta over a six or seven year period,  the coworking model take shape in all its different forms.  

JA: What was your connection to SharedSpace?

JC: I was approached by the SharedSpace group before they got started as they were looking for different space in Downtown Augusta.  We had some mutual connections from my time in Atlanta.  And they really reached out to me to try to get some advice as to pricing and location and what I thought would work and what wouldn’t work here. I guess a little bit like a sounding board.  They actually approached us about potentially getting involved both from a personal and company standpoint. 

JA: What was your advice at the time in setting up that business?

I think the first thing is that coworking takes different forms depending on the area that you’re in.  So coworking in place like Augusta or you call a secondary market is very different from coworking in Atlanta.  Your pricing needs to be different. Your sizing needs to be different.  The companies yo are going to attract are very different.  And pricing is probably the most important because when you’re dealing with a space like SharedSpace over on Greene Street when you can go over to Broad Street and get a comparable office space.   So i think Coworking is an asset class in and of itself outside of office space and is very unique.  And one of the things I really tried to explain to them was that Augusta is not like Atlanta. That’s not a good or bad thing–it’s just a fact.  Some of the other things were that you need to be really, really careful about how you program the space, because coworking space really only works when it’s programmed properly.  Nobody wants to be in a coworking space by themselves.  You have to create a pretty inviting and exciting entrepreneurial community where you’ve got several people doing different things.  There has to be a good energy there.  And so i think that you really have to do a good job of programming certain events to give people a reason to want to be there, because a lot of people who are there are likely either working at home or they’re working somewhere else.  So you want to build that community, I think that was it.  And one of the parts where I initially tried to offer some advice in addition to that was getting the size correct.  

JA: Do you think we’re seeing a paradigm shift in the coworking space?  Are consumers changing the way they office?  We’ve seen the fall of WeWork, and now this.  What are your thoughts in general about the coworking model?  

JC: I don’t think so. I don’t think it’s the model. I don’t think wework’s struggles through their IPO are really a true reflection of the health of the coworking space and the coworking industry.  Again i think it works, but it has got to be done smaller, then growing larger. That was one of the biggest things that I didn’t necessarily agree with about SharedSpace was that I thought they went too big too fast.  Nobody wants to go into one of these spaces to be alone and what my advice was initially was pick a smaller space, maybe 3000, 4000, 5000 square feet–to be bursting at the seams.  Program it, get people in there, and have a waiting list.  Then once you’ve got that demand there and that community built, then you can transport it to a bigger space.  But by not having the right programming up front, by taking a space that was too big, I think this deincentivized people from wanting to be in there, because nobody wanted to be in there and hear their own voices echo.  So you’ve got to balance the cultural aspect of coworking space with the size of it itself.  Then the other thing is that if someone can go to Broad street, which is two blocks from there and a potentially more desirable location than Greene Street,  and get a location for about the same price for a company of three or four people, then that’s what they’re going to do.  So there’s still a decent amount of good office like that one on Broad Street.  So I don’t know how appealing it would be to me as a small business or as a freelancer to locate my business in there.  And I think what happened was that they ended up getting a few smaller versions of call centers.  And that goes against the whole entrepreneurial atmosphere that you’re trying to create.  

JA: What implications does this business case have for downtown business and retail?  

JC: Well I think the first thing is to understand why it happened.  Just because the concept didn’t work, doesn’t mean that coworking can’t work in Augusta.  There’s a significant demand for it.  And I think one of the things that we saw when I was involved in the Augusta Innovation Zone was that we also got to the point where we were almost going to be in a place that was too big.  And that’s why it didn’t work in the Woolworth building when we were were looking at that a few years ago, and we felt that there was a huge need for it.  And we had a waiting list.  But you had to start smaller to prove out the concept.  So I don’t want people to take away that this model doesn’t work in a market like Augusta.  It does.  You just cannot start to big and your pricing needs to be reflective of the market–it’s got to be lower than what you can otherwise get on Broad street or somewhere else.  The other thing is that the model really should work when you’re trying to also use the space to create new businesses.  So i think it’s one thing that the Clubhou.se has done really well.  And you know–they’re bursting at the seams, and as you know they’re located in the Cyber Center and doing great.  But that’s because the pricing is right.  The location is right, and I think they’ve proven that if you can partner with the right people and get entrepreneurs in that space and activated, that it works.  So that would be my only big takeaway is don’t look at this and say that the concept doesn’t work because it is working.  It just has to be done right.  The Clubhou.se has done a really good job proving that the concept does work. 

JA: Those are great lessons.  

 

A big lesson is the value of good advice–and how important it is as advisors to tell the hard truth to our clients.  What other lessons can you learn from this business case?  What are your thoughts about Coworkign in Augusta?  What is working?  What are lessons you’ve learned in launching a new enterprise? 

Martinez Multifamily Market Report

This is Jonathan Aceves with a 2019 C-Class Multifamily Market Report  and a Martinez Multifamily Rent Study.  Click here to Download our Asking Rent Analysis. We studied 30907 multifamily, particularly around the Steven’s Creek Corridor.   What we found overall is that Class A Space commands about a 50% premium over class B space. 

 

The primary Class A Complex in our study was Nine Two Six West, at 926 Stevens Creek Road.  Nine Two Six averaged $1.26/foot/month asking rent.  Rocky Creek and Iron Horse we considered Class B, which averaged at .84 cents.  Fountainhead we considered Class C, and averaged $.69. 

 

 Takeaways: It does make a difference who the management company  is, where it is advertised, and having good photos and floor plans.  

 

If you are a multifamily investor with north of 20 units, you should sit down with the guys at Doorpost Management.  They can give you the same economy of scale as the as the 200+ unit complexes with their integrated maintenance.  Also the quality of their financial reporting is critical for owners that may be considering sales in the next few years. It’s hard to get a professional investor to take a serious look at your property when your manager can’t provide clean financials and rent rolls.  

 

Overall Multifamily Market Notable Recent Sales:

Crossroads Apartments (B Class-74 Units, sold at 6.91 Cap/$64K per door) 

Baywood Townhomes (C Class-14 Units, Sold at 9.3 Cap/$43K per Door)

2000-2006 Central Avenue (C Class-16 Units, sold at 6.3 CAP/49K per door)

Central Residents Corner (D Class-28 Units–Not yet recorded, sold at 30K per door)

 

We would love to hear your feedback!  What is your opinion of the multifamily market?  As always thanks for watching!  Please Like and share with a friend!