R.M. “Mac” Biggar Jr. and Howard W. “Hoby" Hanna IV are both skilled dealmakers who share a passion for plying their craft in the world of real estate. So it should have surprised no one when these two dynamic personalities decided to join forces in 2013 and create Hanna Commercial Real Estate.
“The Hanna family had done a great job of growing their residential company, mortgage company, title company and insurance company,” Biggar says. “The commercial side of the business was not something they had time to focus on. So Hobycame to me and said, ‘Hey, we’re not doing a great job on the commercial front. We don’t really have the time or energy to spend working on it.’”
Biggar and Hanna speculated about what it would take to buy each other or create some type of collaborative arrangement. The end goal was the same in each scenario, to put their considerable talents together to make deals happen.
“They had a lot more capital than I or my partners did,” Biggar says. “We said, ‘Why don’t you buy the majority interest in ours and we’ll see what we can do in terms of rolling up other companies?’ They bought 90 percent of Chartwell Group and we began to look at how we could roll up some companies on the commercial side to add to their portfolio of residential, mortgage and title.”
Today, the company has taken steps to fulfill that mission and become Northeast Ohio’s largest locally owned commercial real estate brokerage and consulting firm. It’s a labor of love for Biggar.
“My father was in the investment business,” says Biggar, president of Hanna Commercial Real Estate. “I decided I’d rather be in real estate where I could touch and feel and have more impact on what I was selling. And at the time, a lot of people seemed to be making money in real estate. I figured, ‘Hey, let’s try this as a profession.’”
In this week’s Master Dealmakers, we spoke with Biggar about challenges and opportunities in today’s commercial real estate space.
Market challenges
When we were building buildings in 2008 and selling them quickly, we were very bright, savvy real estate investors. When we owned those same buildings and the market collapsed in 2009, we went from bright, savvy investors to the dumbest people on the planet. When you’re leveraging too much, if you have 25 percent down on a project and the project drops in value by 50 percent, that leverage isn’t working too well in your favor.
All segments of real estate go through different cycles. On the industrial cycle now, there are very few properties available to people. It’s hard to find industrial space. Prices are going up and it’s still a premium. If you look at office space, people are more efficient. More people are commuting or working from home, so there seems to be a fair amount of office space that is still available. The vacancies in office are 16 to 18 percent market-wide. On the industrial side, it’s probably around 4 percent.
It’s harder and harder for independent real estate companies to survive out there. If you’re going to be a very small boutique and run your own operation and have your own clients, it’s tough to be a 10- to 15-person shop. The value we see in commercial real estate companies, all of the assets walk out the door every night. The trick is how do you get those people to come back the next day? How do you get them to want to be part of it?
Finding solutions
Real estate investment has a lot of different components to it. People on the coasts who invest and buy triple net Walmarts or CVSs or fast food restaurants are looking for a lower rate of cash-on-cash return. If they are in New York or California, they are looking for much more appreciation of the asset over a period of time. You can make money in real estate through the appreciation, you can make money through cash flow and you can make money by tax sheltering dollars.
There is also depreciation that will help on the tax front. It’s a combination of those things.
When you’re talking to a potential investor, you want to know how involved they want to get in the day-to-day operations. Do they want to own a fourplex of apartments and have people calling them at night? Do they want to be responsible for the leaky roof or leaky toilet? Or do they want to be invested through stocks and bonds, so in a much more passive way? Those are the extremes and there a bunch of opportunities in between.
I like helping people with their real estate transactions. It could be on a corporate basis where we’re helping a company manage a portfolio with 200 properties. Or it could be just an individual out there whose main livelihood is the location of his business. It’s just trying to help people, to get a better understanding of what they are looking for and try to help facilitate that. I enjoy that process and over the years, I’ve become more interested in a win-win scenario than trying to get the last nickel off the table.
The Last Word
If somebody knows you, likes you and trusts you, I think you’re in good shape. If you try to jam a deal down before those three things are accomplished, it’s becomes much tougher to do.
