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By Kevin J Rocio

Chicago

The new decade brings renewed optimism. We each start the year with the same 12 months, 52 weeks, 365 days, 8,766 hours, 525,600 minutes, or 31,536,000 seconds, in which we attempt to enhance our careers, achieve new financial success, improve our personal relationships, improve our physical health, well being, and support and help others.

The same is true for our Real Estate Investments. Although the commercial real estate industry and the overall economy still face an array of hurdles ahead, the industry is starting 2010 with more clarity and less fear than 2009. Some very positive events just in the past 60 days have helped bolster the spirits of many industry players, but caution and common sense are still required. Nevertheless, many feel that we have hit bottom and are starting the new decade on the upswing.

So, with that being said, I am sure that if the past 18 months have taught us anything, it is that we don’t have control over a number of variables that affect the commercial real estate market. However, we do have control over the actions we can take to prepare for and react to these variables. During the next 60 to 90 days some significant market-related changes are imminent. You cannot control these changes, but to a certain degree you can control how they affect you.

Can’t Control: Market Cap Rates
Can Control: Rents / Expenses, i.e. NOI

While sellers can’t control what cap rates are for similar properties, it is an absolute certainty that sellers can control rents (maximize) and expenses (minimize) in an effort to increase the net operating income (noi) which in turn places a higher market value on their property.

Can’t Control: Interest Rates
Can Control: Selling at Current Market Prices

No one knows what will happen to interest rates when the Fed ends its $1.25 trillion purchase of mortgage backed securities in a few weeks. But one thing is for sure, all other things being equal, sellers who disposes of properties in today’s environment will benefit from some of the best market conditions in history, i.e. interest rates being at an all time low.

Can’t Control: Selling Price
Can Control: Asking Price / Broker Fee

As a seller, the price you paid for your property or the amount you owe on your loan has no bearing on your property’s ultimate selling price. What does determine that price is the market. And today sellers must show consideration for the market with a combination of correct pricing and broker fee right out of the gate.

Example: A property that is priced properly to the market which includes a broker fee equal to or better than the average fee charged for a closed transaction will typically close quicker than a similar property that is priced above or below the market with a fee that is lower than the average fee charged.

One more thing you can control is your choice of commercial real estate agent. Choosing an agent based on his or her lower broker fee could end up costing you thousands of dollars that far exceed the initial savings you anticipated by choosing them in the first place. This is not the time to cut off your feet to spite your face.

Kevin J Rocio is an Associate with Marcus & Millichap Real Estate Investment Services. You can reach via email at krocio@marcusmillichap.com.

Tags | Chicago, finance, Multifamily

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