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!

 

 

 

 

Columbia County Apartment Development Rezoning Moves Forward

 

Columbia County Apartments
Blackstone Camp Apartments Elevation
Blackstone Camp Site
Aerial View of Apartment Site

 

Southeastern Development received a recommendation for approval on zoning revision to modify the shape of the site on Blackstone Camp Road.  The property is near the upscale River Island Subdivision in Columbia County.  The project would be limited to 274 units, and would follow the River Island PUD narrative design standards.  Southeastern Development has already started the site work.  The project was technically approved in 2002. It recently has received a lot of criticism from neighbors, including a petition for the Columbia County Commission to reconsider.  

 

I think this is a good project and will ultimately be good for this community.  I think it’s important to have a healthy mix of housing, and new Class-A apartments force older complexes to lower their prices, and create a cycle which helps create a diverse offering of housing products.  Also, A-Class housing becomes B-Class housing, B-Class housing becomes C-Class, and so forth.   

 

It seems that lower-income neighborhoods that don’t want to see change and diversification fight against gentrification, while higher-income neighborhoods that don’t want to see change fight against “higher crime rates” and “overcrowding of schools”.  

 

Hare are a few additional resources, the Augusta Chronicle Article, the recent rezoning application on this project, and a 2010 Study by Columbia County on Multifamily development.  

 

This looks like a great project that should be great for Columbia County.  Augusta is continuing to grow!  What are your thoughts? 

 

 

Multifamily 2-8 Unit Market Update

This is Jonathan Aceves with an update on Multifamily Transactions in the 2-8 Unit Space for 2019.  Here’s the Spreadsheet: 4th Quarter Market Report.   

 

Overall, the market was steady in small multifamily for the year.   The average price per door was $58,256, with an average Gross Rent Multiplier of 7.56.  Anecdotally, we have seen overall interest in Downtown multifamily increase significantly.  

Downtown, we’re seeing rents increasing, and I think this is helping to drive investors to renovate buildings and put make new product available.  The 8-unit complex we sold on Fourth Street I don’t think would have sold two years ago, but rising rents made the property compelling for an investor willing to upgrade the units and reposition the property to students and young professionals.  

 

We reviewed 36 transactions from 2-8 Units, with an average of $58,256 per door, and an average GRM of 7.56.  Average price per foot was 64.07. We did find that GRM went down slightly over the year.  There was one outlier, and when removed the Average GRM was 7.77. 

 

We’ve shown Days on Market by this box and whisker graph, and it shows that 50% of all transactions closed betwen 50-150 days.  There were some transactions that closed over a much longer period, one over 300 days and one at over 700 days.  The overall average was 116 Days.  I think what this shows is that if priced correctly and adequately marketed a multifamily property should close within 4-5 months.  

 

My experience has been that if priced correctly, a multifamily property in this category should go under contract relatively quickly.  We tend to suggest pricing a property with a fair margin to an investor, using market financing assumptions.  Here’s a simple spreadsheet you can use to help think through a multifamily deal: Basic Multifamily Underwriting Worksheet.  

Thanks for reading!  What do you make of the numbers?  What’s your opinion of the market?  

 

 

 

155-Unit Downtown Opportunity Zone Apartment Project Moving Forward–Continued Growth Downtown

 

Artist Rendering of Millhouse Station
Artist Rendering of Millhouse Station

 

Downtown Augusta continues to announce new projects and developments! Developer Ivey Development announced Friday they had closed on the land for a new downtown apartment complex.  This new development is in the immediate vicinity of two other ongoing development projects on Telfair Street, and three blocks from the newly completed Georgia Cyber Center.  

 

Ivey Development, developer for the 155-Unit Apartment Complex at 11th and Fenwick in Downtown Augusta, announced on Friday December 6th that they had closed on he land and were moving forward with the project. McKnight Construction has been selected as the General Contractor.  The land was purchased by Ivey Development from Jeff and Joey Hadden, who also own Phoenix Printing across the street.    

 

1024 Telfair Street – Augusta Office Solutions

This project is 500 feet from Augusta Office Solutions’ new building at 1024 Telfair,and a block from the city’s new fire station at 928 Telfair Street.   RD Brown is the general contractor on 1024 Telfair Project, which appears to be moving along nicely. 

 

This is great news for the City of Augusta!  155 high-end apartments will help fill in the housing gap created by continuing downtown developments, and will continue to press demand for retail and office space in the Central Business District.  

 

Congrats to Beman Group and Ivey Homes on what looks to be an incredible project! McKnight Construction Company, Inc. will serve as the general contractor. Trotter-Jordan represented the seller.  

 

What is your opinion of the downtown momentum?  What do you think we will see in 2020?

 

Augusta Chronicle Article: https://www.augustachronicle.com/business/20191206/ivey-development-acquires-downtown-land-to-build-155-unit-apartment-community

 

MKnight Construction Website: https://www.mcknightconstructionco.com/#1

 

Ivey Development Website: https://www.iveyhomes.com/

 

Article about the new fire station: https://www.augustachronicle.com/news/20190109/new-fire-station-slated-for-telfair-street

 

Update from RD Brown on construction of Augusta Office Supplies’ Telfair Street Building: https://www.browntrusted.com/overview/awards-accolades/

132-Unit Student Multifamily Housing Development given Preliminary Approval

2715 N Davidson
Photo is of the 2715 N Davidson Apartment Development, another project that College Acres was involved with.  –Charlotte Business Journal

 

 

132-Unit Student Multifamily Housing Development on Druid Park Ave given preliminary approval. Myrtle Beach Developer College Acres has proposed to build a four-story #apartment development aimed at Paine & AU students. David Despain, the developer, has developed a number of similar properties, and was also involved in working with Coastal Carolina University for the development of the HTC Center in Conway, SC.

 

It is great to see developers take notice of what’s happening in Augusta. This looks like a great project and should have a big positive impact in that neighborhood!

 

Augusta Chronicle Article: https://www.augustachronicle.com/news/20191202/developer-proposes-student-housing-complex-on-druid-park-ave

 

Info on Charlotte Project: https://www.bizjournals.com/charlotte/blog/real_estate/2015/07/developers-planning-147-unit-apartment-complex-in.html

 

Info on Wilmington Project: https://www.starnewsonline.com/news/20190103/more-student-housing-proposed-near-uncw

Wilmington Project Approved in October: https://www.wect.com/2018/10/18/wilmington-planning-commission-approves-college-acres-townhome-development/

 

Horry City Council Minutes RE: Tiff Bonds for HTC Center:

https://www.horrycounty.org/Portals/0/Docs/council/archives/min04-0518.pdf

Huge Economic Impact of Topgolf and Dave & Busters for Augusta

 

What are the economic implications of Topgolf and Dave & Buster’s coming to Village at Riverwatch?  According to projections from Augusta Economic Development Authority reported by Damon Cline, these two projects are expected to add $15 million to the local tax base, and add 200 jobs and generate $1M in sales tax revenue.  Hats off to the Economic Development Authority, who was able to help attract these developments without tax incentives, and the only expense is a $250K commitment  to construct the public road that will give these sites access.  

 

What do you think will be the impact of these new developments?  Comment below:

 

Additional Resources:

More Details in Great Article by Damon Cline on this Subject

Village @ Riverwatch website & contact for Jordan Trotter Real Estate who handles leasing

Topgolf Website

Dave & Buster’s Website