This issue

• Commercial Real Estate Deal by Andy and David Farbman - Closing the Reputation Gap
• Insurance - D&O Takes Center Stage
• National Trends - Office Renaissance
• International Investing - New REITs Considered for Europe
• Asia Market - Japan's REIT's Take Off
• Detroit Market - Absorption Up, But More Space Coming
• Finance - Rates, the Fed, and the Dollar
  

Commercial Real Estate Deal - Closing the Reputation Gap

by Andy and David Farbman

There's no way to buy a stairway to brand heaven. A damaged reputation, as Exxon or Denny's can attest to, can be nearly impossible to overcome. In our hometown of Detroit, the domestic Big Three automakers have reputation issues of their own. In spite of improved quality and designs, many auto consumers persist in their preference for foreign marques. When product fails, look to PR. In the battle for hearts and minds, your address can make a difference. A key moment in General Motors' reinvention in the 1990s was the 1996 purchase and subsequent $500 million renovation of the Renaissance Center on the Detroit River. The very name of the landmark building, translated from French to English, is "rebirth." The move from Albert Kahn's classic, but antiquated, 1920s headquarters building on Grand Boulevard sent a message that the company was making an abrupt about-face from the old days. At the time of the move, then-Chairman Jack Smith said "the choice of the Renaissance Center as our new global headquarters says a lot about where this company is headed, and the qualities we think are important for corporate growth and prosperity in the next Century." Other companies, such as Boeing and Time Warner, have recently made big moves for similar reasons.

A headquarters building, whether for a small business or a large global enterprise, communicates a lot about a company to customers, investors and the general public. Sometimes, a change of address helps reconcile a troubled firm with its core constituents by generating positive buzz. A move from the suburbs to a central business district, such as downtown Detroit, can create good PR and enhanced visibility, even for small firms.

All the best,

Andy and David Farbman

Insurance - D&O Takes Center Stage

Are your directors and officers liable if something goes horribly wrong with your business? In the post-Sarbanes-Oxley world, many companies are double-checking their director and officer (D&O) liability insurance coverage. The new age of corporate accountability is vesting boards of directors with greater culpability than ever before. "Smart risk managers can limit the personal liability of directors and managers with appropriate D&O coverage," said Andy Farbman of NAI Farbman. "It doesn't hurt to verify whether firms that you do business with are covered before entering into a long-term relationship -- consider it part of your due diligence."

National Trends - Office Renaissance

In Q4 2004, demand for office space nearly returned to its peak levels of the first half of 2000, according to data from the CoStar Group. "The resurgence we saw last year bodes well for a strong 2005," said Michael Kalil, Chief Operating Officer of NAI Farbman. "We expect demand to continue to amplify throughout 2005 and into 2006." The CoStar data lists Washington, New York, San Francisco, Los Angeles and Dallas/Fort Worth as the top five metro markets in terms of office space absorption in Q4 2004. "As always, high absorption and price per square foot are related, so while these markets are looking stronger right now, that also means that they command a premium," said Kalil.

International Investing - New REITs Considered for Europe

Real estate investment trusts (REITs) are pending in Germany and the United Kingdom, the largest economies in Europe, as well as in Finland, the world's 28th-largest economy. REITs already exist in places like the United States and in other large European markets, such as France, Italy and Spain. REIT's split ownership of properties among shareholders, effectively opening up commercial real estate purchasing to small investors. There is no word yet on whether Germany, the U.K. or Finland will place restrictions on foreign ownership of future REITs.

Asia Market - Japan's REIT's Take Off

While the REIT debate continues in Europe, Japan is facing its own REIT-related issues. Japan's real estate markets, which had been in hibernation, are starting to take off in the form of real estate investment trusts. REITs first appeared on the scene in Japan in 2000. Since then, REITs have been successful. So successful that there are too many REITs competing to buy too few properties, particularly in the Tokyo market. Excessive demand in Tokyo is leading to what some fear may be a real estate bubble. "Japan may be seeing the beginnings of a period of what Fed Chairman Alan Greenspan called 'irrational exuberance,' during the tech bubble in the U.S.," said David Farbman of NAI Farbman. "While this may be true, try telling that to the Japanese, who are still shaking off a real estate slide that has persisted for more than a decade."

Detroit Market - Absorption Up, But More Space Coming

Commercial real estate absorption rates rose in the fourth quarter in the Detroit region, leading many analysts to believe that the region has turned a corner following years of rising vacancy rates. James Cole of Skanska USA Building, Inc. and 2005 chairman of Associated General Contractors, Greater Detroit Chapter, said at the Detroit Economic Club's annual economic outlook luncheon that commercial real estate will lead the way toward record construction volumes in 2005. However, Detroit is expected to lag behind national trends, according to Cole's analysis. "While absorption is rising, more square footage is expected, which could result in a zero sum game scenario," said Andy Farbman of NAI Farbman. Downstream vacancies, caused when a firm moves into newly-constructed space and leaves a vacancy behind, could impact the market, said Farbman.

Finance - Rates, the Fed, and the Dollar

In spite of five consecutive increases to the prime interest rate, long-term interest rates remain in the 5-6 percent range. One of the reasons rates have remained low, despite actions by the Board of Governors of the Federal Reserve System, is foreign currency manipulation. Exporting countries, notably Japan, Korea and China, all hold large amounts of U.S. currency in their central banks to keep the U.S. dollar artificially high in relation to their home currencies. An artificially high U.S. dollar makes U.S.-made goods expensive in their markets, while keeping Japanese, Korean and Chinese-produced goods relatively cheap in the U.S. "The recent softening of the U.S. dollar relative to many foreign currencies could ignite a sell-off by foreign investors, sparking a rise in long-term interest rates," said Andy Gutman of NAI Farbman. "The hope is that foreign investors leave in a trickle and not in a flood, the latter of which could lead to recession."

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