Open Office Spaces – An Emerging Trend in Commercial Real Estate

The December 2013 Article in Realtor® Magazine had a great article this month identifying a emerging trend in commercial real estate.  The article is entitled The Walls Come Down – More companies are shifting to open-plan offices, adding amenities while reducing square footage.

Properly identifying the beginning of the trend as being Tech/Dot-Com related (I worked for a number of IT Companies that implemented this plan between 1998 to 2011 when I was a full time IT Professional), the article goes on to explain why companies are moving towards an open-floor plan model and the benefits they are receiving as a result.  A cost savings, of course, is virtually always the first and foremost reason.  In addition, however, it has been found that a number of synergies are to be had by employees having greater access to each other, without the barriers walls and doors create in between them.  While I certainly believe an open-floor plan provides a more comfortable space to work in, I do not see private offices going the way of extinction any time soon and neither do the contributors to the article.

For example, in my own small brokerage, we have quickly realized that sitting a team at the same table with the Brokers (Mark & Myself), to be enormously productive & educational for the team as a whole.  We are quickly able to share ideas and act upon those ideas directly from our laptops and cell phones.  Team morale is often much higher after a group powwow than at any other time; especially when agents are working remotely (from home).  However, there is always a need to be able to take calls privately (for confidentiality reasons at the very least; obviously some calls are personal as well).

In American Express and IBM, I noted the existence of, and often used, micro offices (or cubby holes as they were called).  A Cubby Hole is an office with a single desk or chair and only about as large as a telephone booth (remember those? 😉 ). These were also sound proofed.  They were distinctly available for those who needed privacy – for however long – (confidentiality was always a very high priority at these organizations) and for visiting consultants/employees who needed to be on site.  I made use of them often when I was on site, as I was dealing with, or leading, confidential projects all of the time.  I also have a voice that carries, and the folks of more than one cubicle set in my career, would politely request I take my business to a sound proof room.

While there was a notable drop in space-per-worker (225 sqft tp 213 sqft), the authors and contributors do not see the number ever dropping to below 150 sqft.  They also cite existing leases as a reason why this trend will continue to only trickle towards a smaller number rather than occur in a sudden fashion.

Miami Realtor, Realtor of Miami, Miami Real Estate
Christopher J. Lazaro, Miami Beach Real Estate Broker & REALTOR®
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Removing Fear & Greed from the Real Estate Investing Process through Education

I am entering the below article into the PG Real Estate (http://www.RealtySoft.pro/realestate) article competition.  I have been looking at their software for a long time and would love to build a quality real estate website using their platform!

On RealtorMag today I spotted an article that states the obvious, but in my opinion does not go into any detail on WHY the point of the article is true.  As a reference, here is the linked to the original article:

http://speakingofrealestate.blogs.realtor.org/2013/06/12/young-adults-sour-on-buying-study-says-no/

My Response:

    This article is stating the obvious. Anyone, such as a real estate student, will be more likely to want to pursue purchasing real estate once they have become educated. Education dispels fears by providing facts rooted in logic & reason. The two most powerful forces in any market are Fear and Greed. Fear is more powerful. It takes a stock, and typically Real Estate, a long time to appreciate in value relative to how fast it can crash when people lose confidence, fear takes over and everyone heads to the exits at the same time. Markets ALWAYS overshoot more to the downside than they do to

Miami Realtor, Miami Real Estate Professional
Christopher Lazaro, MBA – International Realtor of Miami

the upside. The educated people who had the cash during the real estate bust were the very first into the market in 2008 & 2009, and since 2011 have been reaping the rewards of the opportunities provided by the Greedy; many of which got gutted financially.

       So what really creates the opportunity?  It is a combination of the Fear/Greed paradigm, combined with a general lack of education & sophistication in the general populace.  As soon as something, ANYTHING, starts going up and looks promising, people with any kind of cash start to pour into it, regardless of whether they understand the business or not.  Don’t just take it from me, take it from the most successful investor in US History, Warren Buffett:
1)    One of Warren Buffett’s biggest rules is to never invest in anything you do not fully understand.  If you cannot figure out how a venture makes money, don’t walk…RUN!
2)   Another rule of the great Warren Buffett is a contrarian rule “Be Fearful when others are Greedy, and be Greedy when others are Fearful”.
3)   And according to Warren, the number one rule for building success, wealth and prosperity is NO DEBT!  I, personally, don’t have billions of dollars at my disposal, so for the majority of us, a reasonable amount of debt incurred to accomplish a real estate purchase is often necessary.  I try to keep debt as low as possible and make sure that any debt incurred is for tangible investment and not superfluous, materialistic, nonsense.
      Most people fall into middle & lower income brackets.  They have more of an emotional attachment to their money, and generally speaking,  therefore have a greater predisposition to Fear & Uncertainty, which certainly clouds judgement.  This is not to say that more wealthy people do not share this trait too; after all, these are HUMAN characteristics.  These emotions are experienced the moment an opportunity to either

Miami Realtor, Realtor of Miami, Miami Real Estate
Christopher Lazaro, Miami Real Estate Professional

Buy or Sell occurs while the market is in a state of turmoil (or not, but opportunities generally occur when there is an “inefficiency”, typically created by turmoil), be it on the way up or on the way down.  If you are a person investing in real estate, you should have a long term approach.  It is easy to still get sucked into the mentality of the 2000-2007 market, where people were trading real estate almost as quickly as they could buy and sell a stock.

         As Michael Douglas points out in the movie Wall Street, “Greed is Good”, or at least it can be.  We all desire more money and greater prosperity for ourselves and those we care about.  The very idea of investing is to, bottom line, make money; even if that investment is tied to something “Socially Responsible”, which is completely secondary in the majority of people’s minds.  It is Greed that puts us into a position where we are presented with an opportunity to make an investment.  Without the desire to make more money, there would be no desire to consider making an investment in the first place.  It is at that point where people not only feel the emotions of Fear & Uncertainty, because they are emotionally tied to their money, but while they are sorting through those emotions, they are also trying to contend with what is known in Economics as “Opportunity Cost”; meaning, if I spend my 100K in savings on buying this investment property, I will be giving up the ability to put that 100K to work elsewhere should an opportunity avail itself, or already be considered as an alternative.
      It is here where emotions must be put to the side and the would-be investor needs to perform an analysis (actually a set of them).  Generally speaking, they should be performing a SWOT Analysis:  Strengths, Weaknesses, Opportunities & Threats.  If you do not understand HOW you will make money, scrap the opportunity until you fully understand How and all of the Issues, Risks, Actions & Obligations that will come with the investment.
      In order to answer under each of those columns in SWOT, additional analyses are needed, such as Market Analysis: pulling comps, doing inspection(s) of the property and getting a rock solid idea of what it can rent for and/or sell for versus the total cost of ownership.  You must know what your ROI (return on investment) and your CAP rate (Capitalization Rate is what you get to keep after Taxes, Dues and other expenses on the property are paid for) will be.  Be sure to include the cost(s) of Commissions, Rehab and Satisfaction of any Liens associated with the property. This is typically done via a Pro Forma.
     While considering the choice (or choices, in which case you may have several Pro Forma documents in front of you) of an investment, you then need to compare it to other types of investments.  For example, if I take my 100K and buy an investment property with it, my ROI might be 10% and my CAP rate might be 7%.  I might weigh similar opportunities with similar numbers.  But I also should look at the “What if I simply invest it in an REIT (Real Estate Investment Trust), that pays a Dividend of 10%?  Right now (2013), that looks “better” because even if I am making over the 400+K a year where the tax becomes 20%, I still get to keep a full 1% more (meaning it would be an 8 CAP) than if I owned property and I have none of the management & ownership & general upkeep headache of a property.  However, the savvy investor should consider that a physical piece of property can be borrowed against (so I can invest in yet another property, possibly as much as doubling my ROI and absolutely increasing my ROE (Return on Equity).  The additional “cost” associated with this would be whatever the mortgage debt associated with the borrowing would be and this too, can be clearly put on paper and calculated in a Pro Forma.  In addition, income generated from the property or properties, can be offset with not just taxes & other expenses, but rental properties can also be Depreciated (this is an additional “Deduction”).
      The vast majority of would-be investors, in my experience, have little to none of the above knowledge or expertise, and while I have given a pretty solid synopsis, it is simplified and incomplete.  A complete dissertation on the subject itself is beyond the scope of my response.
      Circling back to the original point, and concluding: given all of the above that I have written about proper investment analysis, there is no mention of emotion playing a role in the decision making / evaluation process, and “gut instinct” has absolutely nothing to do with a legitimate analysis; NOR DOES LUCK! This is where the value of a qualified (and by qualified I mean BEYOND simply licensed to practice real estate) Real Estate Professional can be of tremendous value to an Investor; and a be a provider of “Luck”.
Note:  Be prepared to either pay a TRUE real estate professional for properly done Analyses & Pro Forma, or at the very least sign a Buyer-Broker Agreement.  As a Real Estate Professional I get paid Fees as well as Commissions, and dependent on the transaction at hand, I have deducted my fee(s) from the total Commission(s) paid on property closings.  Be wary of agents “working for free” or not requiring a commitment.  The best Brokers & Agents I have met in the business get paid, one way or the other (or both) for their services; and they have a lot of repeat business.
Cheers,
Christopher Lazaro
I can be reached at:
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PG Real Estate Solution – script for creating a real estate site.

Government Corruption & Hypocrisy

Posting to both my blogs:

The Democratic Party is the first to blast the Republicans about “Good Old Boy” practices & mentality.  Look at this crookery:

Source: http://www.snopes.com/politics/business/blum.asp

All In The FamilyThe US has entered into a contract with a real estate firm to sell 56 buildings that currently house U.S.Post Offices. The government has decided it no longer needs these buildings, many of which are locatedon prime land in towns and cities across the country.

The sale of these properties will fetch billions of dollars and a handsome 6% commission to the company

handling the sales. That company belongs to a man named Richard Blum. Who is Richard Blum you ask?

Why the husband of Senator Dianne Feinstein, that’s who. What a bunch of crooks we have running this country!

Senator Feinstein and her husband, Richard Blum, stand to make a fortune. His firm, C.R. I., is the sole real estate company offering these properties for sale. Of course, C.R.I. will be making a 6% commission on the sale of each

and every one of these postal properties.

All of these properties that are being sold are all fully paid for. They were purchased with U.S. taxpayers’ dollars,

and they are allowed free and clear by the U.S.P.S. The only cost to keep them is the cost to actually keep the

doors open and the heat and lights on. The United States Postal Service doesn’t even have to pay property taxes

on these subject properties. Would you sell your house just because you couldn’t afford to pay the electric bill?

Well, the Post Office is.

How does a powerful U.S. Senator from San Francisco manage to get away with such a sweet deal?

A powerful United States Senator’s husband is standing by, all ready to make millions from a U.S. taxpayer

funded enterprise.

No one in the mainstream media is even raising an eyebrow over his 6% commission on the sale of hundreds

of millions of dollars’ worth of quasi-public assets.

It is amazing that the media doesn’t bother looking at stuff like this in very much detail.  For those not in the know, Freedom of the Press does not apply to Television…a reason you do not see 1/100th of the corruption going on in Local, State & especially, Federal, government.