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Strategies to Insure REO Product

In 2016, a record number of commercial mortgages underwritten at the height of the market will reach maturity. It’s estimated that approximately $350 billion in CMBS loans will mature between 2014 and 2017 across all types of commercial real estate.

When a loan comes due, the owner must refinance, place new debt or sell the asset. If the lending environment becomes less favorable and the market value becomes significantly lower than the loan, owners who are strapped for cash will have their properties seized and placed into receivership.

When a property goes into receivership, it’s considered REO. Receivers are then responsible for righting the ship and getting the asset to perform. Receivers can stop a property from going into full foreclosure by keeping a clean balance sheet, negotiating a way to pay off the loan with the current owner and finding a purchaser to take the asset off the owner’s hands.

What some real estate owners may not realize is that if a property goes into receivership, it will void their insurance coverage. If a property is facing bankruptcy or is in receivership, a loan-servicing group should review coverage options immediately. Doing so will help keep costs as low as possible while still providing coverage. Force-placed coverage can cost almost 10 times the typical market rate, so securing middle-rate coverage is key.

While interest rates and loan-to-value ratios are currently favorable, there is a very real possibility that the real estate market could turn in a negative way, causing a wave of REO product to come back to the market.

It’s important for insurance agents who work in commercial real estate to be up-to-speed on the process of insuring REO properties and best practices for securing coverage. If the right kind of coverage isn’t supplied, the owner might end up paying premiums on the wrong kind of insurance that won’t protect them in a claim. Insurance agents need to do their research and know which carriers offer the correct coverage for REO assets.

Given the cyclical nature of the real estate market, there’s a strong possibility that a repeat of 2008 can occur. It might not have such a widespread economic effect this time, but the more prepared owners and insurance agents can be, the better.

Michael Shadeed is the Director of Franklin Street Insurance Services based out of the company’s Atlanta office, specializing in all commercial real estate product types including apartments, office, industrial, retail, and hotels. He can be reached at 404-832-1250 or Michael.Shadeed@FranklinSt.com.

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Franklin Street Bolsters Landlord Rep Platform with New Hire

Industry Veteran to Oversee North Florida as a Director

Whitney Kantor joined Franklin Street Real Estate Services‘ Jacksonville office as a director of the firm’s retail landlord representation division. 

In her new role, she will specialize in leasing retail properties throughout Jacksonville, FL, as well as surrounding areas in North Florida and South Georgia. 

Kantor has been in the industry for more than 15 years. She previously worked at Regency Centers as vice president of marketing and market research. She has also worked as a senior leasing agent for retail properties in North and South Carolina. 

Kantor received her bachelor’s degree in business administration from the University of Georgia. She is currently a member of the International Council of Shopping Centers (ICSC) and Urban Land Institute (ULI) North Florida, and is a licensed salesperson in the state of Florida. 

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Big-Box Opportunities Flow From Both Expansion and Contraction

Alan Macken and his partners in the Palmetto Park joint venture scored a major coup for their Miami Gardens hopping center when they landed the world’s largest retailer as a tenant.

The group’s Palmetto Gardens Plaza has a new anchor, a 40,000-square-foot WalMart Neighborhood Market, one of the latest of a series of large retail stores planned for South Florida. A proposed store is in the works for Palm Springs North and a long-running campaign has sought to bring a 203,000-square-foot Wal-Mart SuperCenter to Midtown Miami. Meanwhile, Broward County commissioners have cleared the way for a $100 million Wal-Mart-anchored shopping center in Fort Lauderdale. 

For Wal-Mart, the expansion strengthens its foothold and responds to renewed competition from deep discounters and aggressively growing dollar stores. Their neighborhood stores cut into the mega retailer’s share of the bargain retail market.

“When you develop a big-box center, you have to achieve the highest and best use,” said Macken, whose North Miami-based VCM Builders and affiliated companies have worked single-box redevelopment plays for banks, 7-Eleven Inc. stores, Family Dollar and restaurants. “It make you, as a landlord, up your game.”

To sign Wal-Mart, Palmetto Park needed to meet the retailer’s loading-zone specifications, parking requirements, tenant exclusions for certain competitors and a slew of other contractual terms. The deal took a year to hammer out versus 60 days for smaller tenants.

“The big box is not necessarily a panacea,” Macken said. “It doesn’t cure all your ills, but Wal-Mart gave our other tenants the confidence that there was going to be good traffic.”

That’s been good and bad news for South Florida retail landlords when one powerful lessee could mean a flood of shoppers to buoy neighboring tenants.

For some, like developers Art Falcone and Nitin Motwani, big-box leases help bolster massive projects like the proposed 10-block Miami Worldcenter with 765,000 square feet of retail anchored by a 195,000-square-foot Macy’s store and a 120,000-square-foot Bloomingdale’s.

But elsewhere across the region, where some big-box tenants folded during the recession or shrunk to adapt to the rise of online shopping, the loss could spell disaster for neighborhood centers like Nassau Square in suburban Lake Worth.

New Life

When broker Bill Reichel took over leasing for Nassau Square, the 160,000-square-foot neighborhood center had been nearly half empty for about a decade since losing its largest tenant, a regional department store that once occupied 45,000 square feet.

The dramatic stem in traffic cost the center smaller tenants and hinted at more bad news for Nassau Square. Its second largest lessee, Publix Super MArkets Inc., had only three years left on its lease with no definitive plans for renewal.

Reichel’s strategy involved a $1.2 million renovation with new facades, a spruced-up parking lot, fresh landscaping and thousands of dollars’ worth of new lighting to reposition the lagging center. The move paid off, allowing him to broker transactions value at $4.25 million and raise occupancy enough to bolster the value of the $10 million shopping center over the next 18 months.

Reichel secured a 45,000-square-foot lease with Metro Lumber and Hardware, a large Puerto Rican chain looking to make a South Florida entry. He then successfully negotiated renewals with Publix, Dollar Tree Inc. and the Brass Money Sports Bar & Grill, which together accounted for nearly 55,000 square feet. As part of the deal, Publix will invest about $1 million to renovate its interior. Plus, McDonald’s Corp. signed a 20-year ground lease on an outparcel.

“Within 90 days that shopping center will take on a whole new complexion,” said Reichel, president of Reichel Realty & Investments Inc. in Palm Beach Gardens.

That sort of repositioning is key, analysts say.

Emerging Opportunities

As some big-box tenants shrink their brick-and-mortar footprint to compete with online sellers and others change their business models to adapt, retail landlords must prepare for new demands.

Once-lucrative tenants like Office Depot are shuttering hundreds of stores nationwide, leaving behind vacant store-fronts that once were key revenue drivers. In Broward County, Office Depot will shutter three stores in 2015 as part of a plan to close more than 400 Office Depot and OfficeMax locations nationwide.

That’s both good news and bad for landlords.

“Office Depot is looking to sublet some of their spaces, but most people who come in wanting that much space typically want long-term deal.” said Cammi Goldberg, director of retail leasing and lord representation for Franklin Street Real Estate Services‘ South Florida operations.

Instead of subletting, replacement tenants go straight to landlords to negotiate new long-term leases, which often mean higher rates and improved revenue streams for property owners.

But big tenants often mean big expenditures for extensive remodeling, adaptation and improvements.

“In most of these cases it means a big check for improvements, so landlords need to look for term.”

That’s easier to get now than it was just a few years ago when departures by stores like Borders meant these businesses were struggling financially or in bankruptcy. For some landlords, it meant rent streams immediately dried up as key tenants defaulted. Now departing tenants are likely to be realigning their business and still have enough revenue to pay the remainder of their contract, giving landlords a stead stream of upfront cash for renovation and repositioning.

“It’s a really good time to have these spaces come back to the market,” said Barry Wolfe, vice president of investments and senior director of the national retail group at Marcus & Millichap Real Estate Investment Services. “It just took time, but now we’re in a much different environment. I think landlords might be licking their chops, looking for opportunities to backfill these space.”

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Franklin Street Management Services hires administrative support associate

Valentina Mandarin

Date added: April 27, 2015

Submission Type: New Hire

Current employer: Franklin Street

Current title/position: Administrative Support Associate

Industry: Commercial Real Estate

Duties/responsibilities: Mandarin supports Franklin Street Management Services executives and property management teams managing correspondence, preparing marketing materials and presentations, updating website content, databasing, and upholding client relations.

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People on the Move | Whitney Kantor

Whitney Kantor
New Hire
Commercial Real Estate
Director at Franklin Street Real Estate Services

Kantor specializes in retail landlord representation across Jacksonville, North Florida and South Georgia.

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Career Track: Whitney Kantor

Franklin Street Real Estate Services hired Whitney Kantor as a Director in the Jacksonville office.

Kantor joined Franklin Street from Regency Centers, where she served as vice president of marketing and market research.

 

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Atlanta’s Retailer Leasing Challenge

ATLANTA—Though lagging in the recovery, Atlanta has emerged as a market to watch. How do economic developers plan to fuel continued investment? What do top transaction specialists see as the biggest opportunity in 2015? What challenges accompany opportunity across all property types?

Atlanta’s commercial real estate leadership will addresses the state of the market across the region at RealShare Atlanta on April 30. In the meantime, we caught up with Mac McCall, regional managing partner at Franklin Street, to get his take on the market. McCall will be at RealShare Atlanta participating in the “Power Panel: The State of Atlanta Real Estate.”

“The market continues to improve across all sectors,” McCall tells GlobeSt.com. “On the retail front, lack of new space continues to force retailers to be aggressive and pay higher rents, especially in tough infill markets.”

What about investors? McCall says buyer demand remains at all-time high for well-located assets as supply is tight and low interest rates and aggressive lenders are allowing buyers to stretch.

“Tenants continue to modify their expansion strategies as omni-channel retailers continue to tinker with their footprint sizes and how their online sales platform compliment one another,” McCall says. “This will continue to present opportunities for expanding retailers although there will be challenges on how to modify existing spaces for smaller users, especially in down sizing boxes. Restaurants continue to lead the way in expansion as fast-casual players grab market share and look for suitable spaces for lease.”

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Belk’s potential sale stirs Macy’s rumors

You can’t keep a good rumor down.

The possibility of Macy’s opening in Jacksonville has again surfaced, continued not only to be fueled by its local television advertising but because of Belk Inc.

Charlotte, N.C.-based Belk hired investment bank Goldman Sachs Group Inc. to help evaluate strategic alternatives, including a potential sale. Reuters broke the story in early April.

That has ignited speculation that Macy’s could open in Jacksonville through a purchase of Belk or possibly only its five Northeast Florida stores.

It could be a long shot, but it’s not outside the realm of possibility.

Reuters reported major department stores, such as Macy’s Inc. and Nordstrom Inc., as well as large private equity firms, are expected to be contacted by Belk to solicit their interest in a deal.

Belk, a private, family-owned company, issued a statement it was starting a scheduled five-year planning process within the rapidly changing retail industry, was coming off of a successful fourth quarter in a strong financial position and was enthusiastic about the future.

“We also believe, however, that we have an obligation to consider whether there are alternatives to our current plans that would provide a better return for our stockholders,” Belk’s statement said. A Belk spokeswoman re-issued the statement Thursday and said there was no further update.

Here’s where the door cracks open for Jacksonville.

As part of its due diligence, Belk engaged Goldman Sachs to help identify all its options and said it expected to conclude the analysis within several months. “All options” raises the question whether Belk would divide its holdings and sell stores to different buyers, such as selling the Jacksonville area stores as one package.
Goldman Sachs declined comment Thursday.

Analysts say it doesn’t make sense for Macy’s, or Seattle-based Nordstrom or other department store competitors, to bid for Belk for several reasons. One is that retailers are trying to branch out of the traditional business of operating large department stores. Consumers are turning to online shopping, which raises questions about the need for more department stores, and there also is more competition from smaller retailers. Also, some department stores are choosing to open smaller or discount versions of their brands.

There’s also the overlap, raising the question how or why a company would absorb duplicative stores in its existing markets.

On the other hand, analyst Oliver Chen with the Cowen and Company investment group, said Thursday that industry consolidation is a trend as distribution and inventory management becomes more important with online shopping. So does leverage with suppliers.

“From that angle, the strategic landscape could continue to see consolidation of bigger players buying smaller players,” he said.

Macy’s reported annual sales of $28.1 billion while Belk’s sales were $4.1 billion for the year that ended Jan. 31.

Macy’s, with corporate offices in Cincinnati and New York, operates about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy’s, Bloomingdale’s, Bloomingdale’s Outlet and Bluemercury.

Belk operates 297 stores in 16 Southern states. Macy’s has 243 Macy’s stores, not counting its Bloomingdale’s brand, in those states.

If Macy’s bought all of those stores, it would more than double its portfolio of Southeastern stores and decide which to keep, a potentially expensive decision.

In Florida, Macy’s operates 61 stores, five Bloomingdale’s and three Bloomingdale’s Outlets. Belk operates 25 stores throughout Florida, with at least six in the same cities as Macy’s and a few in the same mall.

That’s where the speculation is driven home.

The only major Florida city without a Macy’s remains Jacksonville, where Belk has five area stores: Atlantic North, Roosevelt Square, The Avenues mall, the Orange Park Mall and the Ponce de Leon Mall in St. Augustine.

For now, Macy’s has no stated intentions to come to Jacksonville, even though it regularly advertises in the area television market. The stores nearest Jacksonville are in Gainesville, Daytona Beach, Ocala and Sanford.

Melissa Goff, vice president of media relations and cause marketing for Macy’s, said by email Thursday the company does not comment on rumors, “nor on where we may or may not be looking for store locations.”

St. Johns Town Center developers initially hinted the center eventually would feature the likes of a Macy’s, although it is anchored by Dillard’s and the area’s only Nordstrom.

St. Johns Town Center Mall Manager Valerie Beaubrun said Thursday by email management continues to focus on the new stores that opened with Nordstrom, but also said there was always room to evolve and enhance the center as Jacksonville continues to grow.

There’s another factor that piques interest. St. Johns Town Center is 50 percent owned by Simon Property Group. The Avenues and Orange Park malls are both Simon Malls, and Belk operates in each. That would establish a local Simon connection for Macy’s if it took over those Belk stores.

Franklin Street Regional Managing Partner Carrie Smith said Thursday she hadn’t heard about the possible acquisition of Belk’s Northeast Florida stores by Macy’s. Franklin Street is a real estate services company.

Smith said for Macy’s to take those Northeast Florida locations as a way to enter the market “would be the most seamless play for them to do.”

Until Belk is sold, which some analysts predict will be to a private equity firm, nothing’s certain.

For now, what seems certain about Macy’s coming to Jacksonville is the continued speculation. And those TV ads.

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2014 Top Volunteer Workplaces

United Way Suncoast has unveiled the Top Volunteer Workplaces in the Tampa Bay region (Hillsborough and Pinellas counties) for 2014, its inaugural time doing so. Hundreds of workplaces and thousands of their employees participate in volunteer projects year-round through United Way Suncoast volunteer affiliate, HandsOn Suncoast. Their impact is far-reaching, and while greatly appreciated, goes often unrecognized. Similiar in notion to theMost Generous Workplaces list, which recognized those companies whose generosity was generated via workplace campaigns and fundraising, the Top Volunteer Workplaces recognizes those who gave the most time – in volunteering, that is.

“This is not another top-ten list; it is a sincere reflection of the compassionate culture that many organizations in our community  nurture.” – Emery Ivery, Tampa Bay area president of United Way Suncoast. 

The list compiles volunteer hours completed in calendar year 2014 that is tracked through United Way HandsOn Suncoast via its free digital platform at www.VolunteerSuncoast.org, which also serves as a directory for individuals and companies to find volunteer opportunities that coincide with their personal passions – sort of like a matchmaking service for volunteer work. HandsOn Suncoast is the volunteer arm of United Way Suncoast, and the two are celebrating their 20th anniversary of partnership this year.

In 2014 alone, nearly 43,000 volunteer hours were completed by individuals. More than 25,000 of those hours were individuals representing their respective workplace. Monetarily, this equates to a value of over $965,000 in added value back to the community. (The Independent Sector, a leadership forum for charities, foundations and corporate giving programs, calculates the value of a volunteer in 2013 at $22.55 per hour.)

A roster of 30 Bay-area workplaces in three categories – small, medium, and large – were chosen for fostering a culture of compassion and philanthropy via their time and energy.

Top Volunteer Workplaces – Suncoast 2014

Large Workplaces (500 or More Locally-Based Employees)
1)     Publix Super Markets, Inc.
2)     Humana/Careplus
3)     City of St. Petersburg – Human Resources/Community Affairs
4)     City of Clearwater
5)     Time Customer Service, Inc.
6)     Cox Target Media / Valpak
7)     Bank of America
8)     WellCare
9)     Allstate Insurance Company
10)   Moffitt Cancer Center
 
Medium Workplaces (50-499 Locally-Based Employees)
1)     Tampa Bay Lightning
2)     United Way Suncoast
3)     Florida Blue
4)     Acclaris
5)     Travelers
6)     United Healthcare
7)     Smiths Microwave
8)     Southwest Florida Water Management District
9)     Franklin Street
10)   Florida Power & Light Company
 
Small Workplaces (49 or Less Locally-Based Employees)
1)     Capital Collateral Regional Counsel
2)     CALIBRE
3)     Lee Davis Neighborhood Services Center
4)     Time Warner Cable
5)     Principal Financial Group
6)     GE Aviation
7)     Children’s Nest Day School
8)     Kass Shuler Law Firm
9)     Big Sur Technologies, Inc.
10)   Clearwater Pain Management Associates

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Are Lenders Getting Looser?

ATLANTA—Earlier this month, I reported on how tighter underwriting demands are impacting lending. But just how much?

Well, consider the landscape. It’s no secret that over $300 billion in CMBS loans will need to be refinanced between now and 2017. These are loans that were made at the height of the bubble and the day of reckoning is upon many commercial real estate owners.

Nevertheless, we’re seeing deals getting done. In March, a private family interest in Brazil won a $95 million acquisition loan for a portfolio of five single-tenant office buildings—all occupied by Wells Fargo. Located in Georgia, North Carolina, South Carolina and Virginia, the buildings span 1.6 million square feet. And that’s just one example.

GlobeSt.com caught up with Jake Reid, a senior director at Franklin Street, to get his thoughts. Are lenders becoming looser with financing? What kind of lenders are active in the market?

“While we expect continued competition between the agencies, there will be even more competition for debt origination from CMBS and life companies,” says Reid. “Many properties that were outside of the target criteria for agency debt have lacked the kind of options that we expect them to now have with the resurgence of additional lenders.”

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