Beware of Cyber Fraud in Real Estate

Fraud is a nasty part of life in a lot of ways. We have all learned to be careful and to watch for it. Unfortunately, the crooks and bad guys know we're watching and they constantly evolve their game to try to stay ahead of our efforts.

Now, they have worked their way into the real estate market in a way that requires caution on our part. The Georgia Association of Realtors recently sent out the following warning to its members, asking us to spread the word:

"Beware of Cyber Fraud

"Fake e-mails attempting to get you to wire money to criminal computer hackers are increasingly common in real estate transactions.

"Under this scam, computer hackers fraudulently assume the online identity of the actual mortgage lender, closing attorney and/or real estate broker with whom you are working in the real estate transaction. Posing as a legitimate company, they then direct you to wire money to them. In many cases, the fake e-mail is sent from what appears to be the authentic web page of the legitimate company responsible for sending the wiring instructions.

"You should use great caution in wiring funds based solely on wiring instructions sent to you by e-mail. Independently verifying the wiring instructions with someone from the company sending them is the best way to prevent fraud. In particular, you should treat as highly suspect any follow up e-mails you receive from a mortgage lender, closing attorney and/or real estate broker directing you to wire funds to a revised account number.

"Never verify wiring instructions by calling a telephone number provided along with a second set of wiring instructions since you may end up receiving a fake verification from the computer hackers trying to steal your money. Independently look up the telephone number of the company who is supposed to be sending you the wiring instructions to make sure you have the right one."

It only takes a moment to verify.  But it is a moment that could save a lot of money, hassle and heartache.

What's that CCIM thing?

If you are involved in any way in commercial real estate, you may have seen the term CCIM following somebody’s name. So, what does that mean?

CCIM stands for Certified Commercial Investment Member. It is a designation awarded by the CCIM Institute, which traces its history to 1959. The current designation was first established in 1969.

The focus of the CCIM Institute is to foster a worldwide group of commercial real estate professionals equipped with tools, resources and education centered on analyzing commercial real estate from a financial investment standpoint. Candidates for the CCIM designation take multiple courses in core competencies taught by industry professionals. The heart of the program revolves around four courses.

o   Financial Analysis for Commercial Investment Real Estate introduces the CCIM candidate to the CCIM cash flow model. Subjects include internal rate of return, net present value, capitalization rate and capital accumulation.

o   Market Analysis for Commercial Investment Real Estate. This course focuses on analyzing the market in which a property is located along with the property’s financial attributes. Demographics and geospatial tools are incorporated in the process to make a go or no-go decision.

o   User Decision Analysis for Commercial Investment Real Estate.  This course takes the perspective of a user or occupant of commercial real estate and uses market and financial analysis skills for user space decisions.

o   Investment Analysis for Commercial Investment Real Estate. Case-study driven, this is the capstone course in the CCIM education process. Integrating all the previous courses as well as communications and negotiations models, this course looks at key decisions in the life of a commercial real estate investment from acquisition through holding to disposition.

In addition to the above, CCIM candidates take courses in ethics, negotiations and other electives. Candidates are then required to submit a portfolio of their qualifying activities or transactions to demonstrate their experience in commercial real estate. The typical CCIM candidate submits a portfolio documenting ten transactions with a total volume of $10 million or more.

The final step in earning the CCIM designation is a full day exam that tests the candidate’s mastery of all the concepts included in the above courses.

The next time you see someone wearing a CCIM pin, you’ll know they not only have significant experience in commercial real estate but have spent upwards of 150 hours in classroom study to become a master of their profession.

Investing in Commercial Real Estate

There are plenty of opportunities for investors to achieve superior returns on their investments by purchasing commercial real estate. Such properties can be stable and easily managed. There are many factors to consider in any purchase.

o   Property type. The first decision is whether to invest in office, retail, or industrial properties.

o   Local submarket. The investor will have thoughts on particular submarkets. Valuable insights can also be gained by consulting a commercial real estate professional.

o   Purchase price. Obviously, the amount of the investment is based on funds available to the investor.  Establishing the value range in advance makes the search easier.

o   Acquisition costs. In addition to purchase price, expenses may be incurred for survey, appraisal, environmental assessment, and legal fees.

o   Occupancy. In a multi-tenant property, there may be less than 100% occupancy. If so, plans should be made for leasing the property after purchase.

o   Capitalization rate. The “cap rate” is a metric frequently used to estimate the rate of return on the property.

o   Internal rate of return. The “IRR” is a metric that is much more involved and considers the entire picture of the investment from acquisition through disposal.

o   Condition of property. The investor will want to carefully consider the physical aspects of the property. There may be expected repairs or potential capital improvements required.

o   Income enhancement. In addition to rent income from tenants, some properties offer opportunities for additional income. For instance, an owner may install vending machines in building lobbies. If the property is located near a sports or entertainment venue, it may be possible to generate revenue by charging for parking.

o   Holding period. To properly assess a potential investment, the investor should have some idea of the projected holding period.

o   Disposal costs. As with acquisition costs, there will be expenses incurred at the time of disposal.

 
Investments in commercial properties cover a wide range. On the smaller end of the scale, some of the above factors can be assessed informally and “on-the-fly”.  As the size and complexity of the investment increases, investors should seek advice from practitioners who regularly work in their market.  With a good plan and an analytical approach, investing in commercial real estate can build a portfolio that will deliver solid results.

What is “commercial” real estate?

The term commercial real estate is used often. But what does that actually mean? Clearly, it does not include houses. So what is it?

Commercial real estate falls into three categories:

o   Office properties can be anywhere from a 900 square foot office condominium to a high-rise office building in the central business district. While access for visitors is important, the prime focus of office properties is to provide a good working environment for company employees.

o   Retail properties, as the name suggests, are designed to house retail businesses. High traffic count and visibility along with easy customer access are crucial aspects in retail real estate. Again there is a wide range of sizes starting with a small stand-alone building and going all the way to a regional mall.

o   Industrial properties are used in the manufacturing and distribution of products. Since visibility is not important, these properties are typically located off the major corridors. Truck access is important in these properties to move raw materials in and finished product out to customers.

These descriptions apply most of the time, but properties don’t always fall neatly into one property. For instance, an office user might lease space in a retail building. Some would also include multifamily housing, that is apartments, in the category of commercial real estate due to the large dollars involved in such an investment.

Investors in commercial real estate tend to focus their efforts in one of the three categories above. Doing so allows them to build their knowledge of that particular sector and use the services of various vendors over their multiple properties.

 
Getting started in commercial real estate investing is a simple, straightforward process. Potential investors should seek help and advice from an established commercial real estate professional. Knowledge of the local market is crucial. With the proper guidance investments in commercial real estate can provide superior returns.