Many deals in late 2007 and early 2008 fell through or were put on hold. In fact, during the second half of 2007, buyers backed out of approximately $10 billion worth of property purchases, while sellers retracted more than $13 billion of offerings, according to New York City’s Real Capital Analytics’ (RCA) December "Capital Trends Monthly" report.

Deals that have not dropped out of escrow are being renegotiated. At the same time, original property values are adjusting downward due to market forces. Real Capital Analytics reports that sellers accepted prices 5% to 8% lower than originally contracted in many recent transactions.

The drying commercial mortgage — backed securities (CMBS) bond market affects the prices of loans being issued. Gone is the ability to easily underwrite future cash flow and package loans for securitization instruments — and the end is not in sight. The RCA Capital Trends report predicts that this year’s issuance of CMBS will be less than half of 2007’s $215 billion.

The instability in the CMBS market is due to investors’ unwillingness to buy bonds off of securitizations. Many bond buyers abandoned the commercial market along with the subprime residential market. Last year, CMBS issuance dropped precipitously in the second half of 2007, down nearly 75% over the first half.

The talk of a recession only exacerbates the situation and is affecting how banks are valuing commercial properties. Lenders examine the projected cash flow at a site to determine a property’s value, and thus the value of a loan. If the economy is in or will soon go into recession, retail locations become vulnerable to reduced spending.

According to First American’s UCC [Uniform Commercial Code] Division, lenders are already valuing properties lower than seller listings. Lower projections, in addition to a lack of CMBS, significantly lower the cash exchange between lenders and developers. Many banks are lending only 60% of a property’s value, whereas a few months ago it may have been 70% to 75%. Developers are increasingly coming up short, and that is feeding an interest in mezzanine lending.

After being virtually pushed off the scene by aggressive private equity firms and other equity options in recent years, we are seeing that mezzanine lending is back as an attractive option. It is an effective way to close the gap as lenders scale back their loan-to-value and loan-to-cost ratios.

Despite all of this, however, I believe the commercial real estate market remains solid with strong fundamentals, though slowed. The commercial sector is not suffering from excess inventory and delinquency rates are within historical norms. From my perspective in the Philadelphia marketplace, business levels for commercial transactions remain steady for now.

Adam B. Cutler, Esq. is vice president and special counsel of First America Title Insurance Corp. Office in Philadelphia, which specializes in underwriting and insuring large commercial transactions. For more information, e-mail Cutler.

NCBC 2008 Spring Board Schedule
Wednesday, April 30
	All day		NAHB Legislative Conference
Thursday, May 1
	10:30-11:30 a.m.		NCBC Membership
	1:00-2:00 p.m.		NCBC Issues
	2:00-3:00 p.m.		NCBC Communications
Friday, May 2
	7:30-10:30 a.m.		NCBC Trustees
Saturday, May 2
	8:00-10:00 a.m.		Area Caucuses
	1:00-6:00 p.m.		NAHB Board of Directors

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The conference is on Wednesday, April 30 and is a day-long event that coincides with the NAHB spring board meeting in Washington, D.C.

Attending the 2008 legislative conference will give NAHB members an unparalleled opportunity to lobby members of Congress to protect their business and industry, establish lasting relationships with their elected federal officials, do their part to ensure that NAHB’s issues are heard by Washington policymakers, and galvanize a united front on Capitol Hill

A strong builder turnout on April 30 will send a powerful message to members of Congress.  

Download the draft schedule here.

For more information, visit www.nahb.org/legcon, e-mail Molly Murray at NAHB, or call her 800-368-5242 x8282.  [return to top]

1. Have a written plan
   
   While you don't need a Fortune 500 consultant to develop a business plan, the goals, steps, and financial details of your plan are certainly too much to house "in your head." By writing down your plan, you can easily share it — use it as a training tool with your employees and trade contractors, make it part of your accountability system, and show your lenders you can make good on your commitments.
   
   
2. Update your plan every year
   
   Does your plan include staffing, income projections, and starts based on last year's sales, or sales from two, three, or even four years ago? If so, you could find yourself fighting fires and operating in crisis mode, rather than systematically adapting your business to new market realities. Planning is the key to forward momentum in your business.
   
   
3. Invest in a doorstop
   
   Don't use your business plan to serve that function. First and foremost, your written plan is a tool for holding you accountable for achieving the goals you set. Perhaps that is why many business owners "hide" their plan. But not sharing your plan with your associates and staff only decreases the chance that you will achieve your goals.
   
   
4. Be specific
   
   SMRs, specific measurable results, coupled with target completion dates, are key to making your plan a tool for action rather than just pie in the sky. Your company objectives, sales goals, and target margins all should be stated in your business plan. If they are not, how will you hold anyone accountable or know when you are "done."
   
   
5. Keep your feet on the ground
   
   As a future-oriented activity, planning incorporates assumptions. But be sure your assumptions are based on data, so you are not projecting your market will expand by 10%, only to find out later that the more realistic figure was five percent.
   
   
6. Understand your financials
   
   Never accept a financial analysis that you can't explain to someone else! While you may pay a CFO or accountant to "do" the financials, your entire executive team must understand what the data is telling your investors.

Clay Nelson, Clay Nelson Life Balance^TM , was a featured presenter in the Business Management track at the 2007 International Builders’ Show. A former construction company owner, Nelson is a well-known author, radio show host and speaker on work-life issues of business owners. E-mail clay@claynelsonlifebalance.com or phone him at 805-682-8712.

For more information about this item, e-mail Joshua Nester or call him at 800-368-5242 x8461.

Nuts and Bolts of a Business Plan

1. Company analysis — includes history, overview, market
2. Strategic planning — states goals and opportunities
3. Management team — identifies key personnel and their responsibilities
4. Financial analysis — shows income statement, balance sheet, and other key documents 
5. Summary statement — notes cash requirements and other needed resources

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The deadline for entries is Aug. 1

The National Commercial Builders Council sponsors the Awards of Excellence program to bring recognition to commercial building projects that range from less than 5,000 to more than 100,000 square feet. Projects must have been completed after Dec. 31, 2005 and may be entered in commercial, industrial, institutional, medical, mixed-use commercial/retail, recreational, retail and green building.

One or several projects can be entered in this competition. Projects may be submitted by the builder, developer, architect or contractor of the project.

The six divisions in which a project can be entered include:

• Small-scale projects less than 5,000 square feet
• Projects 5,001 to 10,000 square feet
• Projects 10,001 to 40,000 square feet
• Projects 40,001 to 75,000 square feet
• Projects 75,001 to 100,000 square feet
• Projects more than 100,000 square feet

A panel of building industry professionals will consider entrants for Project of the Year, Grand, Merit, Honorable Mention and Chairman’s awards in all categories.

Winners will be notified by mail no later than Nov. 7.

A public announcement will follow at NAHB’s International Builders’ Show, Jan. 20-23, 2009, in Las Vegas.

Recognition includes a desk obelisk, a photo of your project on display with the other winners at the International Builders’ Show; acknowledgment in Commercial Builder magazine and the opportunity to participate in educational sessions at the Builders’ Show.

In addition, some winners may be featured in future issues of Commercial Builder magazine.

For more details on eligibility and entrance requirements, contact Carmel Nayman at 800-368-5242 x8410 or visit the NAHB Web site. [return to top]

Through Jan. 2, 2009, qualified members may purchase or lease a new 2007, 2008 or 2009 model year Chevrolet, Buick, Pontiac, GMC, Saturn, HUMMER, Saab or Cadillac passenger car, light-duty truck, van or SUV and use the NAHB private offer on most vehicles.

The $500 NAHB private offer may be combined with most current GM incentives.

The offer does not include Cadillac CTS-V, XLR-V and STS-V, Chevrolet Corvette Z06, HUMMER H1, hybrid vehicles and medium-duty trucks.

Delivery must be taken by Jan. 2, 2009. 

For complete details, visit www.nahb.org/MA.

Other Member Advantage Discounts

For the most up-to-date details on the Member Advantage discount program and all of the participating companies, go to www.nahb.org/MA. [return to top]

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