Top Real Estate Investment Tips From Expert Peter J. Connelly

I recently had the opportunity to interview Real Estate Investment and Development Expert Peter J. Connelly.

Peter has decades of experience in Commercial Real Estate Development in Florida and has worked with some of the largest builders, developers and investment companies in the world.

BC -Peter I understand you have many years’ experience as a commercial and residential real estate investment advisor. How did you get started in that field?

PJC - Early on in my residential career I became interested in commercial real estate as it was more challenging to selling homes. I started taking classes in commercial real estate towards the earning of the “Certified Commercial Investment Member” (CCIM) Designation available through the National Association of Realtors.

While still working in residential real estate I took a course on site selection for “fast food” restaurants. I took the example used in the coursework and created a “location requirement questionnaire” which was forwarded to all of the major fast food chains at the time. I received several replies and was able to sell a site to a Rax Restaurant which was built on U.S. Highway One in Vero Beach, FL.

In another instance, I had leased office space to a cable television company that served Vero Beach and surrounding Indian River County. The Company, United Artists Cable Vision (now Comcast) owned four acres which was separate from their leased office space that contained their “head in” (large satellite antennas).

A warehouse of about 6,000 Sq. Ft. containing “modular” self-storage units was for sale next to their “head in” land. I performed an after-tax “Lease versus buy analysis” with parameters provided by United Artists headquarters in Texas. The company accepted the “buy “recommendation of the analysis and purchased the property.

The transaction created a property assemblage with direct access to the United Artist’s “head-ins”. The modular storage models were removed which created room for office space, warehouse space and parking for its’ installation and repair service along with a “drive in” window for payments and the opening new cablevision accounts.

BC - What type of credentials do you have?

PJC - I am one of approximately 15,000 commercial real estate practitioners in 40 countries to hold the CCIM Designation. In addition, I hold the Graduate Realtors designation (GRI) from the National Association of Realtors. Furthermore, I have taken courses in Capitalization Theory from the Appraisal Institute and Real Estate Accounting from the institute of Real Estate Management (IREM).

College level course work in technical writing and construction estimating were attended and completed. I have taken classes in public speaking and sales from the Dale Carnegie institute. Additional classroom study was undertaken for real estate securities and mortgage brokerage. I have attended several seminars sponsored by the Urban Land Institute (ULI)

Finally, I consider my main “credential” to have been earned while working at the National Real Estate Consulting Firm, Landauer Associates, Inc. which was based in New York City with regional offices throughout the U.S. Here I l received “hands on” training about the economic, demographic and analytic aspects of understanding various commercial and residential real estate products.

BC - Have you primarily worked with individual investors, developers or corporate entities?

PJC - Primarily Investment Banks, Insurance Companies, National and International Lenders, Commercial and Residential Real Estate Developers, Builder Magazine List of “Top 100” Builders, Corporations, Pension Fund Advisors and wealthy families. These entities had large enough projects and investments to justify paying a highly recognized real estate consulting firm for their professional advice.

I have worked with individual investors on a limited basis based on the smaller scope of the advisory assignment and their financial constraints.

One instance would be the pricing, packaging and promotion of a 25 acre waterfront site adjacent to the Port of Fort Pierce, for the former Secretary of Agriculture for The State of Florida. The site was eventually purchased by the City of Fort Pierce and incorporated into the master plan for its’ deep water port.

BC - Have you worked with any clients we would recognize?

PJC - Some of the commercial and residential real estate clients I have represented include: Aetna Realty Investors. Collier Enterprises, Safeco Insurance Company, Marine Midland Realty Credit, W.W. Grainger Industries, Merle Norman Cosmetics, Lehman Brothers, Parker Hannifin Corporation, Olympia & York U.S., Lloyd’s Bank (London), Cornerstone Group, U.S. Real Estate Advisors pension fund, KB Home, Arvida, William Lyon Company among others.

BC - What are some of the specific services you’ve provided as a real estate investment advisor?

PJC - Appraisal, Market & Feasibility Studies, Portfolio Analysis with ”hold or sell” recommendations, Quarterly investment reviews for insurance company loan collateral, Corporate acquisition analysis, non-performing loan analysis for the potential acquisition of a failed savings and loan, asset/debt swaps.

In addition, I have provided the following real estate services: Acquisition/Disposition of assets, Management, leasing and grocery anchor expansion of a retail center while under receivership. Loan restructuring outside of Bankruptcy Protection, Equity & Debt Prospectuses, Request for Proposals (RFP), Independent review of management proposals on behalf of a client for an industrial Park. Site selection for multi-family tax-credit financed apartment communities and retirement communities.

BC - What size projects have you worked on?

PJC - They projects have ranged from a proposed 15,000 square foot retail center located on three acres of land to a consortium of banks with $4.0 Billion in Loans to Olympia & York U.S. consisting of approximately 24 million square feet of office towers in Manhattan and other Major U.S. Urban Centers, positions in two large residential communities in California and various land holdings throughout the United States. At the time it was the largest real estate restructuring in the history of the U.S.

In addition, I have worked on “Developments of Regional Impact” (DRI) containing a variety of land uses, Community Development Districts (CDD), equity and fee based country clubs and marinas with wet and dry storage.

BC - What are some of the biggest challenges you’ve helped clients overcome?

PJC - Trust. It may take months for a client and their employees to accept a third party outsider in order to instill a level of trust as people may perceive that their jobs are in jeopardy over under-performing real assets. However, the root of the problem may be declining market conditions, overly optimistic supply and demand assumptions, changing product demands of the market, misguided marketing programs, misreading the supply/demand characteristics of the market or poor management.

As an advisor it may require long periods of market research, staff interviews, budgetary and file review and forensic financial analysis just to get one’s arms around the definition of the real problem for complex real estate assets. However, the goal is not to judge any of the individuals involved in the process but provide a set of solutions that improves and enhances the value of the real estate asset.

My belief is this all comes down to the term trust which is created over time with “Key” staff members. The problem, and its solution, are dictated by empirical data from primary and secondary research provided by the market, personnel interviews, marketing, product positioning, finance and other factors.

Some solutions simply require a “go/no go” for a proposed develop. Others might be existing developments which may require “tweaking” by changing product mix, pricing, marketing approach, etc.

More extreme recommendations may include: reducing or increasing densities, abandoning existing product for new more market relevant product, or management change.

Finally, extreme cases may require additional capital infusion, loan restructuring or additional funding for infrastructure to be more competitive, an asset debt swap, deed-in-lieu of foreclosure or contested foreclosure.

All parties to the above solutions have to go through a learning process which should lead to Trust.

BC - How do you quantify the value of your services?

PJC - Respect. In the past I represented Citicorp Real Estate and First National Bank of Boston in a $150 million loan default. The borrower “Good Gulfstream Holding Company” had both a land development and homebuilding business with projects ranging from Florida to Virginia. The Banks were no longer on speaking terms with the company CEO and worked directly with the company President.

Over the period of nearly a year of interaction with key staff members of the borrower, particularly the President, we developed a rapport based upon professionalism and mutual respect.

During this time period, the lenders required the President to reduce his annual compensation by over 36 percent! This, while working long hours, traveling for meetings with bankruptcy attorneys in Manhattan and working with his staff to develop a business plan acceptable to the lenders to avoid foreclosure.

At the end of nine months, an asset/debt swap was arranged through the mutual acceptance of the parties to our business plan for a land bank divestiture of assets by the lenders over a five year period. This relieved the borrower’s development company of $100 million dollars first position debt.

Three years later, that President became the President of the former General Development Company (GDC), the largest Home Builder and Land Developer in the State of Florida. The company had just emerged from the largest real estate bankruptcy in the State’s history. The new company was named “Atlantic Gulf Communities” (AGC).

At his appointment the President hired me and my associates who worked on the Good Gulfstream Asset/Debt Swap to assist him and staff in the “pricing, packaging and marketing of some 88,000 acres of remnant land parcels within its cities and communities throughout the State of Florida.

In addition, were engaged to provide advisory services for AGC’s new development including: master planned communities, waterfront and downtown condominiums, rental apartments and other ventures.

The lesson I learned is adversarial roles can change to shared goals through mutual respect.

BC - Is your compensation based on commissions or flat fees?

PJC - Depending on the assignment, compensation was billed on an hourly rate, a fixed fee basis, monthly retainers and commissions/success fees. All expenses were reimbursed for travel, hotel, meals, rental car, third party research and consultants.

BC - Do you think the upcoming Trump presidency will be good or bad for commercial real estate?

PJC - If Donald Trump follows through on his goals to repatriate off-shore money from U.S. Based Corporations, Lower U.S. Corporate Federal Income Tax Rates, address Trade agreements and imbalances with foreign entities and encourage national fossil fuel exploration—all should lead to more corporate investment within the United States requiring more office, industrial, retail space and intermodal infrastructure throughout the country.

BC - What type of commercial development growth do you anticipate for Florida over the next five to ten years?

PJC - Governor Scott, and previously Governor, Bush have been attempting to lure corporations to Florida through “Enterprise Florida” and other incentives.

Previous transplants have included Biotech and Computer Generated Imagery (CGI) with firms such as the Scripps “Max Planck” Institute, Torrey Pines Institute, VGTI and Digital Domain. VGTI has failed in short order, Torrey Pines is struggling while the Max Planck Institute has delivered nowhere near the jobs anticipated by the Bush administration.

Unfortunately, Biotech is funded by grants and requires success in its research to obtain further funding. Digital Domain went out of business within six months of opening its operations in Port. St. Lucie, Florida.

Over the next ten years I believe commercial real with be fueled in part by the relocation of corporations from highly taxed and regulated states such as New York, New Jersey, Connecticut, California to name a few.

This will dictate that land will be set aside for “build to suit” corporate headquarters and single tenant office (back office) structures. Downtown high rise towers in Florida’s major cities will require larger “Floor Plates” and pre-planned connectivity between several floors for large single tenants.

Counties, such as Brevard are already seeing tremendous demand for office, industrial and research space due to growth in private space transportation, aerospace, communication and soon to be increased defense spending under the Trump administration. The prospect of a NASA Mars shot is wild card.

The recent expansion of the Panama Canal has had added several thousand jobs to Florida’s Ports which will ultimately lead to the need for more distribution centers throughout the state.

Tourism and hospitality growth should continue at healthy rates resulting in increasing development of hotel rooms by both major hotel Flagships and Boutiques. Convenience and fine dining should both be growth forces in the food service sector.

At present I do not know the role retail development will play in future development over the next decade. Walmart Grocery, Aldi and Trader Joes are all making inroads into the State. However, with the advent of Amazon and other internet sources the future of regional mall tenants and “Big Box” retailers is in question. Can these spaces be “repurposed”? What is the balance between “Brick & Mortar” shopping and surfing the internet? Whoever can predict those trends will likely earn a look of money in the retail sector of commercial real estate over the next ten years.