We met with the owner at the time of the site walk.

The project was a major addition to an existing operating retail operation that has been in business for seventy-two years. It is now finally complete and occupied a year and a half later than originally scheduled.  The General Conditions line item alone is over budget by over $500,000 on a $3.5 million dollar contract. That is absurd.

The retail shop section was open and unspectacular and the new warehouse portion of the building is mostly vacant which was just one of the tip offs there may be a problem going forward.

Observations:

Problem One: The architect did not properly coordinate his design with the various engineering disciplines, what so ever.  The architectural design never took into account the structural, mechanical, plumbing or electrical designs. Therefore, you literally have ductwork planned to go through the roof and roof hatches that would need a 45’ tall ship ladder to reach the roof. That is why there are now two roof hatches and one will never be used.

Problem Two: The contractor was clearly complicit by not raising flags when he noted issues as they bid the project.

Problem Three: The owner went into contract with a cost plus agreement. The general conditions should always be tied to the percentage complete and that will bring a brain dead project to a halt right away.

Problem Five: Weak supervision on site with experience in dealing with the Miami/Dade Building and Fire Departments. They are very difficult to predict.

Problem Six: The owner was making changes that affected the design, too late in the game.

Current Disputes:

There is a lien issue with the first site contractor because of importing “unsuitable materials”.

The owner also indicated when interviewed he is holding the payment of monies on the tile contractor for “workmanship issues”.

The owner wants to sue the architect but has not found a litigator to engage yet.  He wasn’t sure the architect has E&O.

Sam Trotter, my son, found a RE listing that the property is now listed for sale with a lease back provision to keep the current owner as a tenant on one side.

How sad is that…72 years in business and now has to do a leaseback!

Another classic case of why owners do not make great developers. This project needed an owner’s representative but instead we have an owner now needing serious therapy and may have financial distress from another project gone wrong syndrome.

So, please keep us in mind early in the design and building part of the process and not at the final laying of the wreath.

Life is too short for this type of pain.

Thanks,

Greg Trotter President

Commercial Building Consultants, LLC                                                                               590 N. Semoran Blvd • Orlando, FL 32807                                                                 Phone: 407•447•5881• Fax: 407•843•0006

www.commercialbuildingconsultants.com

The current credit crisis has been a test for property owners and real estate investors. The collapse of the lending industry has left many market players outright paralyzed. Investors who are seeking financing to acquire or reposition a property or to pay off a maturing loan often find that their traditional financing avenues have been closed or lending parameters in the market are so restrictive that transactions simply cannot work. Many owners turn to mortgage brokers to help them navigate the current lending landscape, but mortgage brokers themselves often face challenges in adapting to the tightening underwriting standards and decreased availability of capital. Those who are knowledgeable of the current market, understand various financing structures and have relationships with active lenders/investors can add tremendous value to the real estate entrepreneurs they work with as they can provide them with superior financing structures to achieve long-term goals in the face of a short-term credit crisis.

Underwriting guidelines for conventional financing are often more scientific than they are subjective making it easier for real estate investors and mortgage brokers to qualify the possibility of a loan and the terms. However, proceeds restrictions have made many of these loans problematic as they do not meet the needs of most investors. Bridge lending platforms originate loans secured by a variety of property types, including multi-family, industrial, office and retail. They were originally designed to meet the needs of borrowers purchasing or holding properties that are being repositioned, re-tenanted, improved or otherwise redeveloped and also provided a financing mechanism for transactions that were time constrained.

Bridge financing from non-bank institutions such as hedge funds and REITS is becoming increasingly important to borrowers in the current landscape. In many cases, bridge loans from these institutions are the preferred financing tool for distressed borrowers as they provide higher leverage, greater certainty of execution than banks, interest-only periods and quicker closing time-frames. Borrowers have been utilizing these bridge loans for discounted note purchases and/or recapitalization/workouts. Most recently, we are seeing borrowers with stabilized assets utilize non-bank bridge loans to take advantage of opportunities to pay off their existing mortgages at a discount. While these bridge loans are costlier than conventional financing, they enable the Borrower to immediately increase their equity in a property and ultimately improve their long-term cash flow by reducing their leverage.

Non-bank bridge loans are priced on a risk adjusted basis and pricing will be lower for low-leverage deals with strong sponsors and high-quality assets in performing markets. The structure of a typical bridge loan from these institutions includes an interest rate ranging from 7.50% to 12.00%, origination fees of one to three points and a loan to value ratio of 65% to 80%. Bridge loans typically have one to five-year terms and are usually interest-only for the loan term.

Bridge loans from these private lenders often imply a more flexible underwriting criteria and higher proceeds, but that does not mean they will be appropriate for every transaction that is proceeds driven. In order to provide maximum proceeds and optimal structures, mortgage brokers, financing advisors and real estate investors must have access to capital from traditional lending sources such as banks, life insurance companies and government agencies to compare alternative structures utilizing conventional debt with mezzanine debt and preferred equity investments. Understanding the current market, knowing the players and structuring creative financing solutions to achieve optimal results for real estate investors is the first step in a mortgage broker or advisor to create value. But ultimately none of this matters if they can’t get lender’s to execute on deals. As a real estate investment bank, we professionally represent your transaction to our lending partners and have direct access and long-term relationships with most lenders in the market to help ensure transaction execution.

Jeffrey Weingart

Principal at Avant Capital Partners

Direct Dial:  617-517-3628

JWeingart@Avant-Capital.com

WWW.Avant-Capital.com

About Avant Capital Partners – Avant Capital Partners is a real estate investment bank and correspondent lender providing commercial mortgages and equity investments for stabilized and in-transition investment properties

Most everyone has felt the pains of the decline in our economy. The unemployment rates are high, foreclosures are sky rocketing and businesses are closing left and right. The media however, has been extremely harsh on the real estate industry. At times blaming the industry for the economic collapse. So, we are posing the question – Has the Media actually hurt the Real Estate Industry?

Don’t get us wrong, we have also experienced a decline , but the constant beating that the real estate industry has received from the media appears to have actually had an effect. In searching the news, most of the stories about commercial real estate are all about the decline. It is hard pressed to find one that is positive or that even notes that the industry has held steady and is on the incline.

John Santora, president of real estate service firm Cushman & Wakefield’s Americas division, said  “It’s evident that the market has started some kind of recovery. Overall, the fundamentals either improved in the second half of 2009 or the deterioration began to slow.” Other commercial real estate professionals have also commented on the appearance of a recovering market.

So, has the media hype really hurt the commercial real estate market or has the market just starting turning around? Tell us what you think.