The new project, the Bakken Oil Express Rail Hub, is connected to an existing regional oil pipeline and is currently accepting oil by trucks and pipelines. It began unit train loading and shipping operations Nov. 1.

The first phase of the terminal will include two rail loops, each about 8,000 feet long, and 210,000 barrels of tankage. It will also include a truck center with six independent bays. Initial loading capacity will be more than 100,000 barrels of oil a day. Additional development will provide the facility with an output of more than 250,000 barrels a day.

President & CEO of EnergyPrint Inc.

Over several years of working with building owners, managers and solution providers, EnergyPrint has gained some great insights about the energy monitoring and benchmarking arena. This month I want to share some of the questions we’ve been asked and the answers industry professionals have shared with us, and our customers. The answers come from EnergyPrint’s experience and interaction with property professionals, building engineers, consultants, contractors and others working in the energy management arena.

What is a realistic savings goal for property managers to communicate to building owners?

To answer that question, you have to understand the cost and consumption of a property and know whether it is a good, average or poor performer. You cannot manage what you do not measure. And setting and communicating goals needs to be based on data and insights.

Whenever possible, try to benchmark buildings by comparing consumption per square foot with others. You can use cost metrics in a similar manner. When both metrics are known, establish individual goals per building based on where they rate versus others in your portfolio. Flat is always good (especially when the price of the commodity is rising); being able to reduce the consumption is even better and can result in lower expenses.

How do you justify energy improvement projects for net lease properties?

Whether it’s a net lease or a gross lease, for the tenant it’s a total out of pocket. And if you have a net lease property and you’re not competitive with another office building, you’re probably going to lose your tenant if your operating costs are running higher than comparable properties. Managing tenant energy expense is a competitive advantage.

How do we convince building owners to spend money on benchmarking? What’s the return?

It starts with the old action of what gets measured gets done – nothing will really happen until people actually measure, and measure it accurately. The returns for benchmarking energy are very positive – up to 15% if the information is used to take action and improve the building. But beyond the immediate returns on energy-related improvements, there are other factors that enter into consideration like employee issues, perceptions in the market place, competition, and the coming of the energy reporting mandates and CO2 tracking – people really want to take a look at energy benchmarking in order to be more proactive across the board. Additionally, managing energy is good for maintaining occupancy and for increasing overall property value.

What is the basis for the ENERGY STAR benchmark?

The benchmark is set on a 100 point scale using a survey called the Commercial Building Energy Consumption Survey – the higher the score the better the building’s energy performance. The EPA did the first energy rating survey in 1999, and the current rating is based on a survey completed in 2003. Information is normalized to your climate and adjusted for all the activities and primary energy uses (such as people, computers, etc.).

How much time does it take to enter and set up a building into Energy Star?

Just entering the information into the portfolio manager can be very simple and it may only take a couple of hours. However, the real time invested is collecting the data. For large buildings it can take several months if they’re busy and they have to collect information from each individual tenant. If you have a single tenant building it can be a lot easier.

If you own a large portfolio of buildings, you have to multiply the time and effort, plus you may be working with many different utilities and billing statements – which can be confusing. If ENERGY STAR is something you want to pursue, dedicating resources to manage it internally or selecting an energy management partner to do the heavy lifting is important.

How do you use label like ENERGY STAR to market property to tenants?

When we see a label like Energy Star, we perceive the following:

• The building is efficiently run
• Costs for utilities are generally less compared to other buildings in the market
• Buildings owner’s take into consideration comfort of their tenants
• It shows a conservation commitment from the owners and management company

Are there any best practices that increase ENERGY STAR ratings?

A common best practice is to ensure all of your building HVAC equipment is running at a high efficiency level. One way to do this is by a re-commissioning of the major building systems; the re-commissioning validates that the equipment is running as designed.

There are also low cost and no cost opportunities in most buildings. Some of the biggest effects we’ve seen are cultural changes organizationally. Training people to turn off the lights and turn off computers. Reducing the building operation hours – such as getting the cleaning people in at 7pm instead of 10pm. Reducing the number of hours the lights are on and operating systems are running – these are easy, low hanging fruit items.

What are the benefits of working with an Energy Star Benchmarking partner versus just working directly with Energy Star?

The Energy Star resources online are good, but nothing beats having somebody who has been through the process numerous times to help you to establish meaningful energy goals and achieve them as cost effectively as possible. Using a partner can also provide a more effective and less costly way to accomplish your consistent benchmarking goals. The Energy Star partners are tried and true partners for developing and implementing and refining your energy management goals. There are categories of Energy Star partners for them and a really easy to use online directory located at www.energystar.gov . On the right hand side there is a quick finder with a service provider’s directory to locate Energy Star partners.

Priscilla Koeckeritz, President & CEO of Twin Cities-based EnergyPrint, Inc (www.EnergyPrint.com), invites comments and questions about this column. She can be reached via phone at 651-357-9100, or via email: Priscilla.Koeckeritz@EnergyPrint.com.

Mark Phelan

In today’s commercial real estate market, the three “T”s join the proverbial three “L”s as important elements in the sale of assets. While the old axiom of location, location and location still holds water, timing, timing and timing have become increasingly important, especially for assets that are treading water or have sunk into financial difficulties.

As the credit crisis continues and hangs a dark cloud over many assets, an old-fashioned yet time-proven technique is gaining traction: Auctions for commercial real estate have become more common to move properties in a timely fashion.

Banks currently hold some $176 billion of souring commercial-real-estate loans, according to an estimate by research firm Foresight Analytics. In the first quarter, 9.1 percent of commercial property loans held by banks were delinquent, compared with 7 percent a year earlier and just 1.5 percent in the first quarter of 2007, according to Foresight.

Coupled with this, an estimated $1.4 trillion of commercial real estate debt will mature over the course of the next four to five years. Two-thirds of bank commercial real-estate loans maturing between now and 2014 are underwater, meaning the property is worth less than the loan on it, Foresight data shows.

U.S. commercial-real-estate values remain 42 percent below their October 2007 peak and only slightly above the low they hit in October of 2009, according to Moody’s Investors Service.

Much remains to be seen as the federal government works to ensure such debt can be refinanced without sending further shockwaves into the economy’s recovery efforts. Banks are also working feverishly to restructure loans when possible. In the meantime, though, many sellers are turning to auctions to move properties in a timely manner.

“It’s a confusing time in the marketplace,” says Zane Fry, an associate broker in Cassidy Turley’s Columbus, Ohio, office. “Comparables are down so you often have a difficult time putting a fair price on a property.”

Auctions help establish a fair valuation, Fry notes.

Auctions Work

Auctions are by no means a new way to sell assets. They’ve been used since the Mayflower landed in the United States, and date back to the Romans. In fact, many other asset classes – agricultural land and used cars sold to dealers, for example – use auctions as much as traditional sales methods.

In the late 1980s when the S&Ls failed, the auction method was utilized to dispose of the real estate assets of lenders. During the next 20 years, auctions primarily were utilized in distressed situations but also for specialty properties – difficult-to-value assets or assets that might be considered very desirable. In these situations, the value of the asset was in question. In order to get the highest price, the auction was used.

In the distressed asset market, the same general principal of trying to get the best price applies. However, generally speaking the auction is being used not because the asset is highly desired but because there is no other way to get rid of it.

Commercial real estate has seen increasing interest in this method over the past several years. Between 2003 and 2008, auctions for commercial properties increased more than 30 percent from $11.8 billion in 2003 to $15.5 billion in 2008, according to the National Auctioneers Association.

Part of the growing interest today centers on market volatility and distressed assets. While sellers still want the best price, it has become more difficult to determine this. Sellers also are starting to realize that asset value today may be higher than the value of the same asset tomorrow. Obtaining market value quickly is beneficial rather than risking decline by holding the property longer or taking the time and risk of selling it in the general brokerage model.

Besides the risk of market decline, holding costs can further diminish the overall sales price, says Tom McGarity, a senior vice president in Cassidy Turley’s Columbus office. “Insurance, utilities and taxes are hard costs that sellers must continue to pay each day they own the property. They also must cover any further deterioration in the property – roof, parking lot, plumbing and more – and vandalism is a major concern, especially for vacant properties.”

Timeliness Matters

McGarity has used the auction route for three properties, including one that was highly desirable. “This gave us the opportunity to get several people involved immediately. You create a sense of urgency,” he said.

That’s particularly important with properties that are distressed, McGarity adds. The auction method establishes both a set time frame and control over the sales process for the seller. Buyers often look at auctions as a value play, as well.

In today’s market, properties may face many challenges: financing, valuation and lack of comparable sales. These concerns often favor the auction method by giving more control to the seller, McGarity says. The auction process allows sellers to:

•    Time the sale, typically 30 to 90 days.
•    Structure the offering.
•    Set all conditions in advance so there are no negotiations.
•    Sell the property with no contingencies, including property on an as-is, where-is basis with no or limited warranties.
•    Pre-qualify buyers, especially on financing.
•    Receive multiple offers before and during the auction.
•    Realize the property’s true market value, with no limit to upside potential.
•    Some of the transaction costs also may be offset with a buyer’s premium, which can range from 3 percent to 10 percent of the bid price.
•    Usually close within 30 to 45 days from date contract is signed.

The expedited process looms as a huge advantage for sellers, Fry says.

“In today’s environment, days on the market continue to increase for many properties. This process really breaks that barrier down. If you’re the seller, you have the ability to get rid of the property,” Fry says. “You know exactly when you’ll be out of the asset.”

“If you’re the buyer, you go to an open forum and the market decides what the property is worth,” McGarity notes. In fact, bids for the three properties that he helped auction all fell within a tight range.

Finding The Right Fit

Despite its advantages, sellers need to determine if the auction method is suitable for their asset or assets. A sense of urgency certainly is a crucial factor in determining if a seller’s property is a good fit.

A local broker also can play a big role in helping determine a property’s suitability for auction. Local market conditions vary greatly and by product sector. As an example, office buildings that may be ripe for auction in one city may not be the best approach in another city.

Many brokers also are engaging the expertise of auction professionals who specialize in commercial real estate. Auctioning commercial real estate is far different from residential real estate and agricultural land. Sellers should check the credentials and experience of the selected auction professional.

“This really is the best of both worlds,” Fry notes. “The seller receives the expertise of a professional auction company well-versed in commercial real estate and marketing such properties locally and nationally. As brokers, we understand the local market – its property sectors, conditions, competitive product and more. We also put together the sales package, hold open houses and provide tours of the property for interested bidders.”

Understanding The Risks

The auction process doesn’t come without some risks.
Buyers must accept the property on as-is, where-is basis typically without any warranty or limited warranties. The buyer also puts up a non-refundable deposit. The old caveat holds true: Let the buyer beware. This requires careful due diligence before the auction. Once the contract is signed, buyers lose their deposit if they fail to close.

A seller must pay for the upfront marketing costs. These funds allow an accelerated marketing and public relations campaign to promote the property and auction. Costs vary on this, running from $5,000 to $20,000, McGarity says, or between 0.5 percent and 1.5 percent of the property’s value. This expense also may be shared when a number of sellers with small properties can be combined into multi-property, multi-owner auctions.

The sellers’ risk then is that they may not be willing to accept what the market is going to tell them via the bids on auction day.  If the property is offered with a reserve or minimum price, the seller is only risking their marketing funds.  If the property is offered without reserve or “absolute,” then the seller risks the marketing money and is obligated to accept the highest price on auction day regardless of the bid level.

All things considered, though, auctions may be the best option to sell a property on a timely basis and to find its true market value in today’s challenging environment. It comes down to the three Ts in today’s commercial real estate market – timing, timing and timing.

Mark Phelan is managing principal of Cassidy Turley’s Columbus, Ohio, office. He can be reached at 614-827-1896 or by e-mail at mark.phelan@cassidyturley.com.

The work wasn’t easy. And the company had to subcontract with Little Canada, Minn.-based Rink-Tec, which actually built and installed the rink’s frozen floor. But the job wrapped up earlier this year, and the youth hockey club that now calls the rink home is thrilled with its new digs.

The job was certainly an interesting one. But what was even more interesting was the creativity behind it. Komlos admitted to me that ARCO never would have considered transforming its space into a hockey rink during the commercial real estate boom times. During those years, ARCO would have leased the space to office/warehouse users with little problem.

Those days are long gone, though. Today, companies like ARCO have to be creative. It’s the only way to fill some of the vacant space on the market.

ARCO still has some space to fill in its St. Louis office/warehouse facility, 18,750, to be exact. But the company eliminated more than 30,000 square feet when it turned part of its facility into an ice rink.

It’s a cliche’, but ARCO thought outside the box. And that’s increasingly necessary in today’s commercial real estate world.

Working through the redevelopment process of a building project can be extremely challenging.  The planning and design of the new Edina Crosstown Medical Office Building located in Edina, Minn., was no exception to this rule.

The building owner, Twin Cities Orthopedics, P.A. has had a long-standing presence in the city of Edina, and in an effort to maintain that presence and consolidate its three Edina clinics into one location, it conducted an extensive property search.  Multiple sites were considered, but ultimately, TCO focused on the 4010 West 65th Street property for three basic reasons – location, visibility and access. The physicians of TCO viewed the site as an extension of the adjacent medical campus that includes Fairview Southdale Hospital and the Southdale Medical Building, as well as many nearby medical office buildings.  Such a location provided recognition, convenience and the ultimate efficiency of services for patients and staff alike.

Once the site was selected, the challenge was to figure out how to satisfy TCO’s 75,000-square-foot. program requirements on a site that inherently had many challenges, including an irregular shape that limited building and parking area and created significant setbacks, groundwater issues, an existing cell tower and numerous critical utilities impacting the site, not to mention a zoning classification that would not allow for effective redevelopment of the property.  The design team worked with the developer and the owner to consider numerous layouts and land use strategies and presented the best options to the city staff for consideration.

The initial technical challenge was rezoning the site from Planned Office to Regional Medical District, thereby allowing more height and doubling the density on the site.  Along with the rezoning effort, numerous variances were required to develop the site in a manner that met the needs of TCO. The design team worked to find creative solutions to the challenges such that the advantages of approving such a development far outweighed the granting of the 13 variances required.  Along the way, city staff, commission members, and council members provided timely and helpful feedback that aided the team in tailoring the project into a medical development that both Owner and City could be proud of.

In addition to the zoning-related development challenges, the team also had to address the relocation of a number of overhead utility lines including power, telephone, cable and fiber optic lines, not to mention a 60-foot tall cell phone installation that was slated to be on the site for the long-term with no out clause.  The design team worked with the various companies to arrange for burying the utilities in a 15-foot wide easement along the north edge of the site.  The nature of those utilities, the critical installation clearances and timing, required cooperation of the various contractors, utility companies and the Minnesota Department of Transportation in order to implement the integrated site design considerations.

Relocation of the cell tower presented very unique challenges that could only be addressed by having all parties on the same page – understanding each other’s necessities for operations, schedule and goals for future use, access and maintenance.  Ultimately, the use of a temporary cell tower on the site allowed the existing tower to be removed so that the construction activities could move forward.  In the final installation, all cell tower equipment, antennas and cabling will be concealed behind building construction, maintaining a quality appearance and image for the surrounding neighborhood.

The project demanded an interactive, consensus driven process which provided creative solutions to numerous challenges which required input, compromise and flexibility on the part of everyone.  The final product is evidence of a successful collaboration.  The building, scheduled for completion in June 2010, is seeking LEED Silver Certification.