New version 6 of ‘Commercial / Industrial Real Estate’ released

Our big news today is about a major upgrade to one of our top software apps. Since 1983 income-property developers have been using “CID” to help them with project cost analyses and budget pro formas for build-and-hold as well as build-and-sell scenarios.

So — if you’re developing an apartment building, shopping center or other commercial property from the ground up — or if you’re renovating or expanding an existing property — take a look at this new version and check out its new features. It can help you plan your project, evaluate its feasibility, solicit partners, and make your case for financing.

You can get all the details here.

CCIM magazine cites Frank Gallinelli’s latest book

I was pleased to see that Commercial Investment Real Estate, the magazine of the CCIM Institute, featured my latest book, Mastering Real Estate Investment in their May/June 2009 issue Buyers Guide (p. 45). The piece is entitled “Beyond the Basics,” and I think they were right on the money, so to speak, when they said that I was “Responding to a call from readers for less theory and more practice…” Thank you, CCIM.

10 Ways Green Construction Can Improve Your Bottom Line

I had the good fortune to attend a real estate conference at my alma mater, Yale University, on April 3, 2009, where I got an opportunity to tour their new state-of-the-green-art building, Kroon Hall.

So-called “green” design and construction of commercial buildings aim to save energy and water, create healthier work environments and reduce the environmental impact of construction.  But does it make economic sense?  Conventional wisdom holds that green design currently adds about 2% to 5% to the cost of new commercial construction, although that premium is likely to decrease as both techniques and material become more mainstream.  The payback period on that investment, however, can be quite quick and the long-term economic benefits significant.  Here’s my short list of bottom-line reasons to go green:

1. Look for tax incentives:  Most states offer some sort of tax incentive to developers of energy-efficient buildings.  Check for the possibility of federal incentives as well.

2. Get a ton of publicity: Ok, maybe you didn’t choose to follow the green-brick road for the fame and glory.  Still, you’re going to want to rent or sell this building and a little profile-raising can go a long way.  One sure way to stand out is by achieving LEED certification for your project.  LEED (Leadership in Energy and Environmental Design) is a rating system developed by the U.S. Green Building Council.  It provides recognized standards for green construction, and four levels of certification — Certified, Silver, Gold, and Platinum — based on design.  Their certification is a mark of distinction worth earning.

3. Find a friendly ear at the bank:  Green construction is “sustainable,” which means it should last longer than your financing, and should give you an edge in attracting and keeping tenants.  In today’s financing markets there are no guarantees, but these are advantages that should work in your favor to find financing and secure the best terms.

4. Reduce demolition and materials costs: If you’re building on a site with existing structures, reuse some of the materials.  You’ll save on the cost of materials, carting and disposal, while at the same time reducing impact on landfills.

5. Reduce construction costs:  Passive solar heat and reduced electric lighting will generally mean you need a smaller HVAC system — less costly to install and to maintain,

6. Reduce heating costs:  Orient the building to take advantage of passive solar heat.  Windows can be recessed or otherwise configured so that they allow full sun to enter in the winter, but are shaded when the sun is higher in summer.

7. Reduce electric costs: Increase natural daylight and thus reduce the number of bulbs and amount of electricity needed to run them.  Add daylight sensors to minimize use when unneeded.  Add photovoltaics to reduce purchased power.

8. Reduce water costs by collecting rainwater and/or recycling “greywater” from dishwashers, clothes washers, etc. and use this for landscape irrigation and toilet flushing.

9. Increase rental revenue and improve tenant retention:  There is evidence to suggest that the healthier environment in green buildings improves worker productivity and reduces absenteeism.  A workplace like that can improve a business’  bottom line and hence is more attractive than a similar but not-so-green space.  Translation: The potential exists for higher rental rates from the green space, and fewer vacancies as well.

10. Increase property value: Increased revenue plus decreased operating expenses equals a higher Net Operating Income — and a higher NOI translates into a greater property value (read my books, do the math).  To sweeten the deal even a bit further, here’s a bit of speculation: Watch for the day when commercial appraisers employ a bonus reduction in cap rate for certified green buildings.

Extend RealData Programs To Fit Your Investment Property Or Development Analysis

One of the great advantages to using Excel as a development platform for our software products is the ability for you, the user, to make customizations to fit your analysis objectives.  We encourage our customers to add to the software rather than changing formulas so the base product remains unchanged.

It is very easy to add a user worksheet.  All RealData products have an “Add User Worksheet” feature in the RealData menu.  Just add your own worksheet and begin adding your own formulas which link back to our product.

In our Learn section, we have an article on expanding our popular development program, On Schedule, to accommodate long term rental income when analyzing distressed, partially-built development projects such as housing developments and condominium buildings.

Support is included with the purchase of RealData’s products.  If you would like advice on creating your own extension to your copy of our software, open a support ticket or give us a call.

Spring Thaw for Real Estate?

The first sign of of happy news, of course, was that the stock market actually went up recently more than one day in a row.

Then, on St. Patrick’s Day, Reuters reported that housing starts jumped an unexpected 22.2% in February, “the biggest percentage rise since January 1990 and the first gain since April.” It’s enough to make us want to drink green beer.

In a related article, they suggest that the economy may be showing some signs of life, and note, “Sensing that the worst may soon be over, investors have begun putting a bit more money into some of the hardest hit sectors, including retailers and home builders.”

Still more: The Federal Reserve took the financial markets by surprise with a plan to pump about $1 trillion into the economy by buying treasuries and mortgage-backed securities. Whatever else we may think about this plan’s effect on the dollar and future inflation, it is likely to drive mortgage rates down just in time for what would usually be the springtime home-buying season. Just one day before the announcement, pundits were saying that mortgages rates had surely gone as low as they could; now they’re saying 4% is not unthinkable.

And — back in January, an article in Forbes saw incipient signs of a “resurrection in real estate.”

All this doesn’t exactly add up to the return of a roaring bull-market economy, but at least it’s a relief from the relentless drumbeat of bad news to which we’ve become accustomed. It’s food for thought, and worthwhile reading.

Like winter, recessions eventually end. It would be nice to say good-bye to both.

This post is an excerpt from our March, 2009 RealData Dispatch newsletter. To view past issues, or to subscribe:

Cash Flow Analysis — Annual or Monthly?

A reader of one of my books wrote to me recently with a very worthwhile question.  When we build a pro-forma analysis of future cash flows from a real estate investment, why do we annualize those cash flows instead dealing with them on a monthly basis?  After all, rent is typically collected and bills paid monthly.

The quick and facile answer, of course, is because we’ve always done it that way. Back in the day, we didn’t have powerful personal computers and sophisticated real estate software, so one might argue that this annual approach is just a holdover from a golden age that has passed us by.

Then again, there may be some wisdom inherent in this approach. To make monthly estimates of future cash flows requires monthly, rather than annual, estimates of income, expenses and debt service. The task is not impossible, but collecting, organizing, and deploying this amount of data will surely take much greater time and effort, presumably up to twelve times as much. And we all know that time is money.

Is it practical to do this, and if so, is it worth the effort?  It’s important to keep in mind that you’re not performing an accounting function but rather making projections about what’s going to happen in the future. It’s often difficult enough to estimate your annual cost for heating fuel or electricity five years hence. Trying to estimate such costs by the month can be even more problematic and time-consuming.

Assuming that someone else hasn’t already closed on this property while you were playing Hamlet, did you in fact gain any additional insight or advantage as a reward for your extra effort?

A monthly projection of future cash flows substantially increases your “degrees of freedom” in making estimates, so the monthly estimates are not only more difficult to make, but they also provide you with many more opportunities to be wrong. To put it another way, you are just as likely to introduce errors in timing as you are to add precision, thus offsetting at least some if not all of the benefit of your considerable extra effort.

Having said all this, it is also true that a dramatic skewing of cash flow toward the beginning of a year could make a noticeable difference in a particular discounted cash flow calculation. One might feel that is justified to handle such an atypical income stream differently.

For what it’s worth, my opinion is that the conventional wisdom here actually makes sense. Forecasting the future is an imperfect art; in most situations, annualizing the net cash flow is a reasonable compromise with reality and a task of more manageable proportions.

Frank Gallinelli


Making the Case for Your Commercial Refinance

Many of you surely have commercial property loans that are coming up for refinance during 2009.  We have a new article (actually, the first installment of a two-part piece) on that we think you’ll find helpful.

In Part One of “Making the Case for Your Commercial Re-Finance,” we tell you what information you must gather before you apply for the loan. We help you understand the loan underwriting process as the lender sees it, and show you how to estimate the maximum amount of financing you can reasonably expect to get.

In Part Two, we’ll demonstrate the process of building a presentation that you can use to make a strong case for your commercial refi.

To view this article, go to and click on the “Learn” tab.  You’ll find a link to this and a whole library of articles for investors and developers.

Excel 2007 – New File Types, Macro Security and Other Mysteries

When Microsoft released Excel 2007 it deployed some of the most extensive changes to the product in many years.  It introduced an entirely new user interface, a new menu format called the “Ribbon,” enhanced security, and an entirely new data structure for its files.  With this new data structure came an array of new file types.

Many of these changes have implications that are not always obvious to the user and, from our point of view at least, are not always entirely welcome.

This will be the first of what may be several posts on the RealData blog where we try to address what we feel are some of critical changes you need to know about in Excel 2007 so that you can use it successfully.  We’re writing these posts with users of RealData software in mind – particularly users of our more sophisticated Excel-based products like “Real Estate Investment Analysis,” “On Schedule” and “Commercial/Industrial Development” – but we feel strongly that it’s information all Excel users should have.

So – let’s begin with by comparing the file types in the old Excel vs. the new Excel.

How Things Were:  Two Key Facts to Remember

  1. If you have used earlier versions of Excel, you probably know that you used workbooks, called .xls files – and templates, called .xlt files.  Workbooks are collections of worksheets, sometimes accompanied by built-in programming code called “macros.”  Templates are a special kind of workbook.  When you launch a template, it leaves the original unchanged and presents you with a new workbook file based on that template.  That way you don’t accidentally overwrite the original.
  2. If you used RealData software, or perhaps certain other commercial Excel-based applications, the Excel file included hidden macro code.  You never saw it, but you know it was there because Excel would ask you if you wanted to enable the macros. Such code is typically essential for the functioning of a complex Excel-based program.  For example, our “Real Estate Investment Analysis” uses more than 12,000 lines of such code to provide menus, format reports, add/delete data records, and so on – functions that can’t be accomplished with simple spreadsheet formulas.  If you lose the code, the program will no longer function properly.

How Things Are: The New File Formats and How They’re Different

New to Excel 2007 are the .xlsx, .xlsb and .xlsm formats which Excel refers to as “Excel Workbook,” “Excel Binary Workbook” and “Excel Macro-Enabled Workbook,” respectively.  It’s important to understand the differences among these file types, and which can be used with RealData software products.

Each of these new formats is based on what Microsoft calls an “Open XML File Format.”  Without getting more technical than we need to here, the short version is that one can openly view and read the data from these files and convert them to other formats if necessary.  This ability is part of a trend toward an open and universal standard for documents so that data is not tied to a particular proprietary software product or company.

If you used earlier versions of Excel, then you know you customarily saved your workbook as a .xls file.  Let’s look at each of the new file formats and compare them to that original .xls Excel file format:

1. The .xlsx format is a lot like the old .xls format, but with one key difference:  It intentionally does not support macro code and will remove any macro code from a file that contains it. Remember what we said about RealData software and other products that rely on macros to provide their advanced functionality?  Right.  Without the macros these programs won’t work.  If you open a macro-driven .xls file and save it in the new Excel .xlsx format, the macros will be deleted and the program will no longer work as expected.

Fortunately, if you do try to save a file in this format, you will receive a warning message before the macro code is deleted:

Keep in mind that macros can be used by malefactors to deliver viruses. If you download an Excel file from some source other than a trusted commercial vendor, you run a risk as you would downloading a file from any unfamiliar source.  You’ll want to keep the macro code in a program from a trusted source like RealData, but you should be wary of any file containing macros if it comes from a source with which you’re not familiar and confident.

If you want to be certain to keep the macros intact in your RealData program, the simplest and most certain solution is this: Click “No” and return to the “Save” dialog.  Where you see a pulldown that says “Save as type,” choose “Excel 97-2003 Workbook (.xls).”

2. In contrast, the .xlsb and .xlsm formats do support macro code.  The .xlsb file is a streamlined format intended to speed up the process of opening and saving the file.  Like the .xlsm format, it can save an equivalent Excel workbook in a significantly smaller file size than the traditional .xls format.  The information in each of the cells is saved as plain text (you could view the information in Notepad if you wanted to) but the  macro code is encrypted.

Is it all right for you to save your RealData program as a .xlsb or .xlsm file and save some disk space?  The answer is a resounding maybe.

To re-open one of these files once you’ve saved it as .xlsb or .xlsm, Microsoft requires that you have installed on your computer an antivirus product capable of scanning and reviewing encrypted macro code before the file opens.  If this scan process does not happen, then the macros will be disabled in your software.  If you’re alert, you’ll  know this is so because of an inconspicuous warning message that appears in a horizontal bar above the Excel work area:

Click on “Options” and you should see something like this:

The default choice is “Help protect me….”  If you are confident that this file came from a trusted source, you can choose “Enable this content.”  If the file has a security certificate attached, the details of that certificate will be displayed and you can choose “Trust all documents from this publisher.”  RealData does have a security certificate attached to its program files.

Unfortunately, not all antivirus software is able to scan encrypted macro code. From our own experience we can confirm that Version 8.0 of the AVG  product appears to work without problems (

If you were getting ready to breathe a sigh of relief, hold it.  What we describe above is how .xlsb and .xlsm are supposed to behave.  Some users, however, have reported to us that, if they see the “macros disabled” message and click the options button, they get only one choice, and it’s not the one they want:

Why does this happen sometimes, but not always?  If we could answer questions like that, we’d be so famous you wouldn’t even be able to talk to us.  Seriously.

Which brings us back to bullet-point #1, worth repeating;

If you want to be certain to keep the macros intact in your RealData program, the simplest and most certain solution is this: Click “No” and return to the “Save” dialog.  Where you see a pulldown that says “Save as type,” choose “Excel 97-2003 Workbook (.xls).”

This should be your choice if you want your analysis to be compatible with both Excel 2007 and other computers which may have an earlier version of Excel installed on them.  RealData software products automatically detect if you are using Excel 2007 and set the default file type to be .xls, although you can override this if you so choose.

The Short Version

  1. RealData delivers its macro-powered programs using the Excel 97-2003 file format, i.e., .xls. If you always save your work in that format, you should have no problems with Excel 2007 opening or running the macros in RealData programs.
  2. If you save a file in .xlsx format, Excel will strip out all of the macro code and that particular RealData file will no longer function properly.
  3. If you save in .xlsb or .xlsm format, then when you re-open the file, Excel will be looking for antivirus software to scan the encrypted macros.  If it doesn’t find it, you will have to instruct Excel to open this content; some users have reported being unable to do so.

Excel Template Formats

As mentioned above, RealData delivers it programs as template (.xlt) files. When you launch a template, it leaves the original unchanged and presents you with a new workbook file based on that template.  That way you don’t accidentally overwrite the original.

Excel 2007 contains two new template file formats, so now there are three flavors:

  1. .xltx called “Excel Template”
  2. .xltm called “Excel Macro-Enabled Template”
  3. .xlt called “Excel 97-2003 Template”

RealData software is currently distributed in .xlt format.  You could convert this file to .xltm and it should work fine on your computer, assuming that you have anti-virus software capable of scanning encrypted macros.

But why tempt fate for no reason? We recommend that you stick with the .xlt format.

Excel 2007 File Icons

Each of the file formats has its own icon.  As you can see from the image below, these icons are very similar in appearance.  The template file types share a common horizontal yellow bar across the top edge.  You may find these images helpful when you try to recognize different Excel file types by their icons.

Stayed tuned to our blog for more about Excel 2007.