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Broker Position Available

 

EXP Realty Advisors, formerly Kimco Exchange Place, has a position available for a qualified retail or net lease investment sales broker.  The position offers the following:

• Access to our 84,000 member principal and broker database
• Convenient Manhattan, New York location
• Dedicated Marketing Coordinator to prepare institutional quality marketing packages, email blasts, wed site postings, and advertising
• Access to EXP1031.com which is receiving over 600,000 hits per month
• Free email blasts on NNNEX.com, the nation’s leading net lease web site
• Competitive commission split

Please contact Rob James if you are interested in joining our boutique investment sales organization.

exp@exp1031.com

212.972.7457

Meet Us At The RealShare Net Lease Conference!

Contact us today to schedule an appointment at the RealShare Net lease Conference.

April 13th

Marriott Marquis

1335 Broadway

New York, NY 10036

Analysis: Borders facing critical real estate decisions on future of stores across U.S.

The Borders superstore on Lohr Road in Pittsfield Township is among more than 500 stores the Ann Arbor-based chain operates in the U.S.

Borders Group Inc., born in Ann Arbor and now fighting for survival, ended its fiscal year on Jan. 30 amid dramatically different business fundamentals from previous years.

The corporate value, based on stock price, was $29 million, close to its historic low -and down from $663 million three years earlier. The headcount at the Ann Arbor headquarters totaled less than half the 1,200 who worked there two years earlier. Annual sales, which once topped $4 billion, were trending toward half that.

Yet the physical footprint of the nation’s second-largest bookseller — which operates more than 500 superstores — remained relatively unchanged from peak years.

Borders publically has grappled with its turnaround for several years as it switched CEOs, laid off staff and sought financing in an industry that’s quickly shifting to electronic delivery.

Those elements make the reports that Borders is stepping closer to bankruptcy sound valid. The numbers need to change.

As Borders executives make critical decisions for the company’s future, it’s that physical footprint — the stores and the headquarters, one of Ann Arbor largest office buildings — stepping to the forefront of the list of action items. 

Experts have pointed to the number of stores, the lease durations and the rental payments as factors that must change if Borders is to survive. The company expanded quickly, starting in the years after it went public in 1995, and now holds more than $1 billion in lease obligations on stores that are too large for a business model turning to electronic delivery and online sales.

Now the company - as it reportedly considers a bankruptcy filing as early as this month - will be making a decision on the future of it 500-plus stores.

Those decisions, in turn, will create a ripple effect across hundreds of communities in the U.S.: Closures will yield lost jobs, lost tax payments and lost real estate value.

In Washtenaw County alone, where Borders operates three stores, the company generated $1.5 million in tax revenue last year.

THE STORES

“Our physical stores … remain integral to our future success,” the company wrote in its annual filing with the U.S. Securities and Exchange Commission in January 2010.

While that may still be true as the company makes what may be its most critical decision for future survival, the stores are both lifelines for the future and barriers to survival. They’re simply too big - and too costly, based on today’s revenue.

The most concrete example of that: The company admitted in late January that it had stopped making rental payments on some of its stores. 

The bookseller says more store closings are imminent, but little information is trickling out of headquarters that might indicate which stores are on the list.

“We’re all waiting to see what happens,” said Tony Schmitt, a commercial real estate broker at Mid-America Real Estate Group, where he specializes in retail properties from its Oakland County office. “And then we’ll see how the retail real estate landscape is gong to change or stay the same.

“We’re going to know that in the next 30-60 days,” he said.

All Borders stores are leased - and as of Jan. 30, 2010, the average unexpired term was 8.1 years. A full 369 stores are in leases that won’t expire until 2017 or later.

And the dollar obligation of the leases for the company is staggering: $562 million last year, or 19 times the $28 million value of its stock as of last week.

Standing behind those properties are owners - whether institutional or individuals - that now have a $562 million annual stake in the chain maintaining those lease payments.

If the company files for Chapter 11 bankruptcy, Borders will have 210 days to assume or reject each of its leases. 

As a result, the company could seek rental rate reductions - or just outright close stores.
Either way, the landlord has to be poised to absorb a loss.

“Landlords have to know the rate they’re getting from Borders is a rate they’ll never see again,” said Wendy Chapman, an Ann Arbor appraiser at Gerald Alcock Co.

Chuck Miller of Chuck Miller Development Co. in Orchard Lake owns 10 Borders stores in several states, including Michigan. He’s also among the landlords who’ve gone unpaid.

“I’m sure most owners are doing what I’m doing,” Miller said. “You try to take an objective look at each property. You note the prevalence of a vacancy in each store’s (location) and you gauge the replacement rent.”

Other factors to consider include the time and expense to the owner if a store like Borders leaves.

“At this point there are a lot of uncertainties,” Miller said. “Most owners don’t know what will happen. … Everything is being done speculatively until Borders comes out and gives definitive answers.”

Some experts indicate Borders may not have determined those answers yet. Sources said the most recent wave of layoffs included key real estate personnel based at the Ann Arbor headquarters.

Rob James, president of EXP Realty Advisors in New York, has specialized in real estate valuations for companies in bankruptcy.

He said the chain is likely in the midst of analyzing each of its 511 superstores, going beyond the annual sales per square foot - which averages $173 across the brand - to allocating each store its share of costs for corporate expenses: distribution center and headquarters functions, for example. 

“Once you allocate costs … that analysis will tell you which stores are profitable and which aren’t and will probably close,” James said.

Some high-sales stores could turn into profitable outlets with new leases that carry lower rates, James said.

But the chain has lost its chance to monetize one aspect of the bankruptcy code due to the economic downturn.

“Any leases that are below market traditionally would be sold,” James aid. “However, in the current market, where you see flat and declining rents, I doubt there’s much value in those leases (for another retailer).”

It’s unclear on a property-by-property basis what kind of impact that could have on individual stores. But the impact of waves of store closings on shopping centers is visible in the Ann Arbor area, where Borders stores operate near vacated Circuit City and Linens N Things stores following those chains’ bankruptcies.

Filling a 20,000-square-foot store has not been easy, thanks to the economy.

Nationally, that could be changing - giving hope to communities and landlords that any wave of Borders closings could result in new tenants for the vacated spaces.

“Retailers weren’t looking to take on new space,” said Malachy Kavanagh, a vice president at the International Council of Shopping Centers in New York. “That’s starting to change,” he said. “I’ve heard from a lot of shopping centers that there are now retailers looking to expand.”

He continued: “Had this happened last year, it would have been a much more difficult environment for a landlord to fill the space.”

LANDLORDS HOPEFUL

Owners of the Ann Arbor area stores did not return calls seeking comment for this story. But they’ve watched Borders try to reposition its business for years. Agree Realty, for one, has been diversifying its portfolio, which now includes 13 Borders leases.

Nationally, at least 13 Borders stores are listed for sale.

The listings detail part of the Borders story: The properties are all 20,000 square feet or more in size, except for one small store in Las Vegas, and many tout the duration of the leases.

Many have prices that signal a high degree of investor risk.

Two, each of which were developed by Kimco Realty Trust, are listed for prices that reflect a capitalization rate - or rate of return based on the net operating income - around 8 percent.

One of those is in Canton Township, next to Ikea. James, the listing agent, said that alone makes the property valuable beyond what happens with the Borders lease.

Borders, Miller said, has been known for picking prime retail locations in the best properties.

“Borders has exceptional real estate,” he said. “They’ve been disciplined about taking the best locations in the marketplace.”

That bodes well for landlords, and ultimately communities. It’s also part of the long history of the local company that became a national name.

“Borders was thought of as a great company not just by the general public, but by development companies,” Miller said. “It was a coup to have a Borders come into your property.”

IMPACT WILL BE FELT

As experts consider the future of Borders, many cite the example of Circuit City, which filed for liquidation in 2008 instead of trying to reorganize under bankruptcy laws. About 30,000 people lost their jobs as 567 stores closed.

In the Borders case, many - including James - expect reorganization, preserving the brand and thousands of the 19,000 jobs in the company.

“I think they’ll survive in a restructured format,” James said. “There are a lot of positive things (about Borders).”

He cited the social aspects of going to a bookstore. “It’s an experience you can’t replicate online. They provide an important aspect of community.”

That’s felt acutely in Ann Arbor, the home of the chain, which maintains its flagship store on East Liberty Steet downtown.

John Fingerle, owner of Fingerle Lumber in Ann Arbor, is managing partner for the owners of the property the downtown store occupies. He joins the many people in this community who wonder what could happen to the store if it’s on a list of Borders store closings.

“They still seem to get pretty good customer traffic,” he said.

Mayor John Hieftje agrees. He spoke about the circumstances at this month's Downtown Development Authority meeting, when he mentioned that even in the uncertainty, Agree seems to be exploring which other retailers may be potential tenants if the Borders store closes.

"That would be a real loss to us,” he said, describing the store’s role as a downtown anchor. “… It’s the last thing we would want to see happen."

As he watches the Borders situation and waits for resolution, Miller said he’s questioned whether he should have devoted so much of his resources to building Borders stores and keeping them in his portfolio.

But he also said he’s not regretting it. He’s respected Borders over the years for how it established its business and how it operated. The downturn is painful to watch, but he knows the company is doing the best thing it can for its business. He’s doing the same as a Borders landlord.

“I was proud of the fact that I was able to build bookstores,” Miller said. “I think bookstores are good things for communities.”

“Borders really did things right for a number of years,” he continued, recalling the time he met founders Tom and Louis Borders. “It’s a sad day to see a fine organization struggling to survive.”

http://www.annarbor.com/business-review/borders-real-estate-decisions-will-affect-company-communities-across-us/

Frank Miller Joins EXP Realty Advisors, Inc.

Frank Miller has joined EXP Realty Advisors as a Director of Sales and Financing.  Frank formerly served as a Managing Director at Sperry Van Ness where he specialized in the sale of shopping centers and net leased properties.  Frank brings with him strong client relationships and a solid pipeline of transactions.  In addition to sales, Frank will be working to originate loans at EXP and has secured mortgage transaction with a total value of $250 million in his career.  Prior to joining Sperry, Frank ran the investment sales division at the Carlton Group.  Please join us in welcoming Frank to EXP Realty Advisors, Inc.

Frank Miller
Director of Sales and Financing
Phone: (646) 998-8119
Email: frank@exp1031.com

1031 Exchanges and the Recent Tax Rate Extension

What Does This Mean for Real Estate Investors?

The December 2010 tax cut extension maintains the President Bush-era tax cuts and provides new certainty for estate and tax planning — at least for the next two years. So what does this mean for investors and real estate brokers who want to help clients improve investment returns? 

Income Taxes and Capital Gain Taxes - 2011/2012 

The lower federal income tax rates applicable in 2010 that were set to expire on December 31, 2011, have been extended for another two years. Similarly, capital gains tax rates will remain at a maximum tax rate of 15% over the same period. Prior to the extension, some real estate investors may have remained cautiously on the sidelines given the uncertainty as to future tax rates. Now is the time to get involved!With the temporary extension of the Bush tax cuts, investors have greater certainty and should be more willing to participate in the improving real estate market. Indeed, some economists are saying that real estate values have already bottomed out making this the ideal time for real estate investors to jump back into the market. While current real estate prices may not have risen as much sellers would prefer, a tax deferred exchange can alleviate the tax burden on sale and permit the seller to capitalize on the tremendous buying opportunities that exist in today's real estate market. Moreover, historically low mortgage rates provide an opportunity to lock-in low financing costs and improved cash flow as rents begin to rise. On the flip side, a seller continues to face low capital gain tax rates for at least the next two years if no suitable replacement property is acquired to complete a tax deferred exchange. 

Estate Taxes - 2011/2012 

Prior to the tax cut extension, estate taxes were also a significant concern for investors and advisors. Fortunately, the tax cut extension established a federal estate tax exemption of $5 million and a lower maximum tax rate of 35%. Had the extension not been passed, the exemption would have been only $1 million and the top tax rate would have been 55%! The extension also restored the step-up in basis that occurs on the owner's death that applied under prior law. With the return of the basis step-up rules, investors can effectively bypass paying capital gain taxes altogether. Given the higher estate tax exemption (a married couple can now pass up to $10,000,000 to heirs free of estate tax), the new estate tax rules have given investors an increased potential to turn a tax deferred exchange into a tax-free scenario.

To recap, with the extension of the Bush-era tax cuts:By properly using 1031 exchanges, investors can never pay capital gain taxes on the exchange of properties held for investment. As an estate planning strategy, heirs will inherit property with a full step-up in basis and without federal estate taxes up to the $5 million estate tax threshold. The combined benefit: Never pay capital gain taxes and never pay estate  taxes. Call Asset Preservation, the leading national resource for 1031 exchanges, to learn more.

1031 Basics:  Identification Rules   

An exchanger has until midnight of the 45th calendar day following the sale of replacement property to properly identify the replacement property. To learn about the three different ways to identify replacement property, click on this link  Identification Rules.

Bonus Depreciation and Summary of H.R. 4853 Tax Benefits   

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853) includes an extension of the Small Business Jobs and Credit Act of 2010 “bonus depreciation” allowance through the end of 2011 and increases the amount from 50 percent to 100 percent. Under this bonus depreciation schedule, businesses may immediately write off 100% of the cost of depreciable property acquired from September 8, 2010 through January 1, 2012. To be eligible, the equipment must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a depreciation recovery period of 20 years or less. Click on Summary of H.R. 4853 Benefits to see a partial overview of additional tax related highlights.

IRS Extends Tax Filing Deadline to April 18, 2011   

Taxpayers will have until Monday, April 18, 2011 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way as federal holidays so all taxpayers will have three extra days to file their return in 2011. Also, some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait until later in February to file their tax returns as a result of the IRS needing time to reprogram its processing systems. For more information, visit  irs.gov/newsroom.

Source: www.apiexchange.com

CRE Sales Deal Volume Returning to 'Normal' Levels

Encouraged by Continued Improvement in General Economic Indicators, Investors Widening Their Geographic Parameters, Taking on More Risk

By Mark Heschmeyer from CoStar Group, Inc.

January 5, 2011

If the third and fourth quarters of last year are any indication, then deal volume is returning to the commercial real estate investment sales markets.

According to CoStar COMPs, sales volume for commercial property nearly doubled from about $22 billion of deals in the first quarter of 2010 to almost $36 billion in the fourth quarter - a number that will likely increase as CoStar finalizes its quarterly tally and confirms the flurry of deals signed at year-end and those that surface in public records.

Several industry outlooks released in the last few weeks expect that a heightened level of deal volume is primed to continue.

"After rising by an estimate 60% in 2010, commercial property sales volume is expected to increase by another 25% to 20% in 2011," predicted William E. Hughes, senior vice president and managing director of Marcus & Millichap Capital Corp. "The expected improvement [in 2011] will move the investment market closer to a more 'normalized' level."

The current transaction pace is very similar to that of the second half of 2002, with nearly identical third quarter volumes and likely comparable fourth quarter trading levels as well, according to Jones Lang LaSalle. The activity in both time frames is representative of more normalized, sustainable levels - much lower than the unprecedented lofty levels of the 2005 to 2007 boom, and much greater than the sales drought in 2009.

The level of liquidity in the U.S. capital markets has improved dramatically over the course of 2010, as investors have regained confidence, particularly in stable, well-leased and located properties in the traditionally best-performing markets, Jones Lang LaSalle noted. Activity will continue to trend upward throughout 2011 as investor interest grows amid a very favorable monetary environment and an improving macroeconomic picture.

"Total investment transaction volume in apartments, office, retail and industrial will increase by a projected 36% over the 2010 figure, which at an estimated $92 billion would represent an 80% increase over the low reached in 2009," projected Josh Gelormini, vice president of capital markets research for Jones Lang LaSalle.

The deals in 2011 are likely to look different than the deals in 2010, too. There is an increased willingness to look for buying opportunities beyond either super core markets and trophy assets or vastly distressed properties, according to the fourth quarter 2010 findings of the PwC Real Estate Investor Survey.

The report notes that interest in secondary locations, Class-B properties, and value-added Class-A plays is heating up and that buyers are becoming more comfortable with taking on slightly more risk, suggesting that both investors and lenders are gaining more confidence in the overall performance of both the economy and the real estate industry.

"This time last year investors were solely focused on 'treasures' or 'traumas', properties that were either top-notch quality or significantly discounted due to sellers in distress, and there was no appetite for assets in the middle of the spectrum," said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. "Now, many of them are looking to widen their investment parameters and take on additional risk as they see signs that the economy and the industry are slowly healing."

And at the outset of 2011, CoStar COMPS shows that more than 6,700 property sales are pending with a combined asking price of more than $9.5 billion. Of that dollar volume, about $1.49 billion is reportedly in escrow; another $6.41 billion under contract and $1.59 billion listed as pending.

Where office properties have dominated the 2010 sales landscape, retail, multifamily and industrial properties are the three leading property types in pending deals with asking price volumes of $2.49 billion, $2.08 billion and $1.94 billion respectively. Office properties make up just about $1.91 billion of pending deals. Mixed-use properties come in at about $535 million; flex properties at $268 million, hospitality at $165 million.