I am very surprised by the number of small to mid-size companies who are not familiar with the new data security law which went into effect in Massachusetts on March 1st of this year. Mark Rogers of The Rogers Law Firm in Braintree shared the following points relative to how the law impacts companies:
• Failure to have appropriate security systems in place that protect personal information stored or maintained at your business; for example, locks on file cabinets, a lock on the door to the room where your server is located;
• Failure to have written confirmation from vendors who have access to your business’ personal information (i.e. IT consultants, CPA’s and even the cleaning service that cleans your office space) that they comply with the new MA Data Security Regulations:
• Failure to have appropriate computer system security, such as firewalls, email encryption and password protection.”

I hope these comments from Mark Rogers help you in better understanding the law.  Lately, as I continue to tour offices with prospective tenants, I have observed many server rooms unlocked when a very inexpensive lock to secure the room could potentially save one’s company a substantial amount of “fine” money.  If you are not totally familiar with the law, I would strongly suggest contacting an attorney or expert with Mark Rogers’ qualifications.

More and more, commercial real estate properties in Boston and throughout the country are turning to alternative energy options.  This trend, which will continue and grow under the economic stimulus plan, includes a large array of financial incentives and tax credits for installing and implementing alternative energy systems including solar and wind.

Alternative energy companies are now specializing in the sales and installation of green energy systems for commercial and large multi-family buildings. Taking the headache out of being green by facilitating and removing the technical, regulatory, and financing barriers to alternative power.

Wind, solar and other alternative energy developments are becoming a logical and economical choice for the commercial properties as it reduces their operating costs. These new types of energy can significantly reduce increasing electrical and power bills.

These new alternative-energy systems pay for themselves in less than eight years making the cost-savings irresistible to property owners.  Solar and wind energy are good for a company’s bottom line.
Bud Strang, the president and CEO of 6/10, a commercial building developer out of Florida says “For every dollar you save on net operating costs, the value of your building increases by a factor of ten.” So get ready to enjoy great savings while reducing your dependence on conventional utilities and helping the environment.

Many state’s Public Service commissions have adopted rules requiring electrical utilities to buy power back from  from customer’s with alternative energy systems so that the commercial property owner provides full credit for all energy that is generated.    

Alternative energy systems also increase the resale value of commercial properties making it a great investment for the present as well as the future.     

Let me help you buy and sell your greater Boston commercial real estate property.

Like other commercial real estate markets around the country, Boston commercial real estate showed significant declines in the last quarter of 2008.  This trend has led to some interesting new developments in the beginning of 2009, giving rise to new players such as the small business sector.  Smaller chains are taking advantage of the new market environment, the silver lining so to speak.

While big chains are putting things on hold, smaller players are stepping up to the plate.  There is always opportunity in crisis – for those players that can adapt, each day gets more unique.  Interestingly enough, Brokers without a narrow focus are excelling as they meet the needs of so many different types of entities jumping into the commercial game.  Pricing and market timing have never been more critical components.

The average size of transactions will likely shrink across the board too.  Properties in the $1 million to $2 million range will become increasingly attractive as they are more financeable.  These are the properties that were likely never even really noticed before now.  Smaller spaces for military contractors, medical, biotech and health care companies will become more and more common commercially brokered deals.

It will be interesting to follow as business evolves everywhere with the ever-changing financial landscape.

Recently the CoStar Group performed an analysis on the commercial mortgage backed securities market (CMBS).  Historically CMBS loans have been fairly insulated from market flux because of their diversified portfolios. In 2008, distressed CMBS loans were at a historic low (less than 1%) as compared to distress in commercial bank and thrift loans (2.32%). Yet some analysts believe this CMBS solidity may be eroding based on the recent CoStar review. CMBS loans placed in “special servicing” (some indication of delinquency) rose drastically in the last quarter of 08, increasing by about $1.2 billion (from 400m to 1.6b). Accounts with identifiable credit issues also nearly doubled.

According to CoStar’s research, $8.2 billion in CMBS loans were in some sort of delinquency (1,200 loans). They also identified 6,100 additional loans with a flag for credit concerns ($57.8 billion). A surprising trend in the list was the states in which trouble is quickly arising.  CoStar expected to see problems in dense commercial centers yet the statistics appear to more closely reflect trouble in those states where residential housing is already in crisis, at least for now:

Data Source: CoStar.com

State, No. of Delinquent CMBS Loans
Texas, 171
Florida, 126
Michigan, 83
California, 81
Georgia, 71
Ohio, 71
New York, 70
Nevada, 42
Arizona, 39
Illinois, 34

State, Number of Potential Problem Loans
Texas, 890
California, 741
New York, 445
Florida, 432
Ohio, 269
Michigan, 247
Georgia, 219
Arizona, 212
Illinois, 180
Pennsylvania, 180

photo credit: costar.com

Delinquencies do appear to be fueled by the housing recession with multifamily loans being hit hardest in those areas. The overall assessment was that while CMBS loans remained fairly insulated throughout most of 2008, they will be exposed in 2009. Wall Street predicts a 300% increase in delinquencies this year.

CRE Loan Distress Levels Escalating Rapidly

Speculators are bursting bubbles all over the city since Joe Sciolla, managing principal at CresaPartners, released his thoughts about Boston commercial real estate in 2009.  Although Sciolla is often viewed as an “alarmist” by the local real estate community, he has been on the mark since late last year.  As recently as just last September rents were high and empty office spaces were low, yet despite surrounding descent, Sciolla road mapped trouble.  His newest predictions call for huge drops in rents (20%) and a big increase in vacant office space for the Boston commercial marketplace.

Boston’s metro center experienced one of the biggest US City booms escalating rents to inflationary highs, and therefore could be a target for financial trouble in 2009.  In the last few years many investors took advantage of cheap and accessible debt, paying for properties at peak highs expecting the trend to continue.  Now just like many homeowners, depressed property values and resulting debt to equity ratios are too large to justify a return or even secure new loans in many cases.  For some the only escape routes may be to consider foreclosures or short sales.  For others, opportunity will be knocking.

According to Sciolla in an interview from Banker and Tradesman,

“We are undergoing an inevitable market correction following the artificially inflated rents at the economy’s peak – and the markets with the biggest bubble, including metro centers like Boston, will likely take the biggest tumble.”

The Boston Commercial real estate market has been hit hard since problems recently evolved in global financial markets.  Rents have dropped 20% in the last many months and could easily continue the decline.  Will the bubble burst as loudly as Sciolla predicts?  It’s impossible to tell, but certainly the Boston Commercial market is in for some rough times nonetheless.

Let’s remember however that there are always positive aspects to the inevitable shakedown:

Balance has been creeping into the marketplace for sometime now, and for profitable businesses paying monthly rent with strong financial projects, it’s an excellent time to pursue ownership of commercial property suitable for one’s business operations.

In a down market with potentially high vacancies, there are many opportunities for landlords to incentivize existing clients to renew a lease and to ensure that the market is aware of their product.  On the flip side, tenants will be looking for “deals” and incentives and real estate brokers will need to work hard to bridge the gap, getting creative to keep all parties happy. 

In a commercial real estate market such as Boston, there are a few things landlords should consider to help garner sales and communicate value when vacancy rates are high or growing:

1.  Make sure you have a solid marketing plan.  Brokers and prospective tenants first and foremost need to be educated about your property.  If your buildings are clean, well-lit, secure, handicap accessible, LEED certified, well-managed – you should be advertising your competitive standouts.  In today’s marketplace there are numerous things you can do outside of “traditional” marketing to get the word out.  Try a business blog or dabbling in social marketing mediums.  The opportunities for online visibility are endless and it’s more important than ever to get your message out there.

2.  Make your floorplans available in CAD so prospects and space planners have great planning and configuration tools if they need them.

3.  Consider more shared amenities: conference rooms, wireless Internet, free parking, cafes – amenities go a long way when it comes to perceived value.

4.  Re-focus your thinking on the value of a fully rented building versus old market rates.  Often times market perceptions are no longer truly what the market is willing to bear.  Base your offering on true costs and your own unique situation.  Those of you willing to restructure leases and provide incentives will likely fill your vacancies.  In the long run it will be easier to re-finance or keep your building’s perceived value high for likely investors.

Even in down markets people need places to live and work.  Quality products that are well maintained and managed will always attract and retain residents.  If you are willing to step outside the box every now and again to consider creative plans, Boston can continue to provide for a very successful marketplace.

A 2008 review of US financial markets would reflect on a year in crisis, a year leading to unprecedented reorganization and capital restructuring, and a year presenting perhaps one of the biggest challenges for financial systems that we’ve historically ever seen. A general overview of the Boston commercial real estate market reveals that the last 17 years have been one huge growth cycle. From the beginning of 1991 to the end of 2008, the total Boston office market size increased from 124.9 million sq.ft. to 193.99 million sq.ft. – a 55% increase and an addition of 69 million sq.ft. of space. That’s approximately $17 billion worth of new construction in the last 17 years. Although this represents about double what the employment growth rate indicates can be carried in inventory, there is still opportunity in crisis.

The year 2008 was marked by three major crises – the foreclosure crisis, the oil crisis and the credit crisis. Inflationary security trumped risky investments opening the door for speculators and ill-fitting homeowners to enter the market in droves. The simple inequality of the equation made 2008 a year for increased foreclosures in markets all over the US. The oil crisis was fueled by $4 plus per gallon at the pump and a dipping dollar, and, of course, the credit crisis led to the disappearance of solid institutions and financial giants almost overnight. In the face of crisis, our natural response is to panic. However to see opportunity through the graying skies, what we really need is calm – no more quick fix solutions and no more short term thinking.

Professional leaders look beyond the short term to the opportunity of managing long term assets. The rental housing industry is an interesting sector to look at right now – it’s a good time to be in the multi-family business. Why? Because renters are not affected by home loans and creditworthiness – they rent by choice and must fulfill their basic housing needs regardless of overall economic conditions. When home ownership is too hard to obtain, a professionally managed rental is option number one. This sector offers a sustainable return over the long haul; well managed, quality products will attract and hold good renters.

While the next 12-18 months may be rocky for the Boston commercial real estate market, things will recover. In the meantime, opportunity knocks. Despite the economy, Boston has a highly educated work force, and growth is expected in the education, health, sciences, engineering and consulting sectors. Business diversity, world class colleges and universities, and cutting edge medical and life science organizations will help fuel the eventual turnaround. For professional leaders, now is the time to take advantage and lead the cause.