This year is shaping up to be another year of guarded optimism for investors in the global hospitality sector.

From an equity perspective, a considerable amount of capital allocated to real estate is waiting to be deployed, and companies continue to plan raising capital through various means, including initial public offerings. Assets that are located in prime global gateway cities are getting the most focus and attention from investors, who are seeking such opportunities due to the perceived relative safety, which includes steady demand growth and higher barriers to entry. Even as demand increases and equity capital continues to come in, the availability of debt to fund investments is still unknown. A continuing shortage of readily available debt capital is anticipated as many lenders continue their strategy of “extend and pretend” while waiting for more advantageous opportunities and try to avoid balance sheet issues until there is more clarity in the market. However, there have been signs that banks may have a greater willingness to force sales of leveraged assets where the equity is underwater. In Europe, for example, some high-profile portfolios have been going through such sales processes, and their degree of success will be influential in determining the speed at which equivalent assets come to market.

In the United States, there continues to be a strong preference for assets in core markets by both equity and debt players. Banks, still working through legacy investments, are carefully screening opportunities while life insurance companies, sitting at full capacity, are looking to infuse capital into select, best-in-class properties and sponsors. The market has seen an increase in opportunistic lenders, who are capitalizing on the uncertainty by helping to fill the void left by more traditional lenders. They are seeking higher returns by focusing only on more junior tranches, including mezzanine and preferred-equity positions. Foreign equity investors continue to view the United States as a relatively safe harbor to deploy capital and look toward key gateway cities, where they can enjoy additional return on their investments if the U.S. dollar strengthens. Investors are looking at major flags in these cities, and with profits driven by room demand, there is a renewed focus on operators who are hotel specialists as they are the key to driving the results investors expect and lenders project.

In Europe, despite the uncertainty around the unresolved sovereign debt crisis, prime real estate assets in core markets (primarily gateway cities), such as London and Paris, are still looked upon as safe investments. A polarization of the marketplace has occurred as investors with a flight-to-quality mentality focus on core cities in Western and Central Europe and the Nordic countries. In the United Kingdom, the limited availability of debt has affected the volume of transactions in the market, with major U.K. banks still nursing extensive legacy issues and being somewhat reluctant to lend to the hotel sector, aside from low-risk, single asset deals. In Germany, investor interest in hotels remains high; real estate is still seen as a relatively stable asset with regular cash flows. Consequently, the scarcity of debt has had an impact on the development and transaction markets; investors with cash available are at a clear advantage.

In Asia, although the real estate market fundamentals and regional economic outlook are positive, investors have become more cautious in light of the geopolitical events that have started to affect sentiment. Return requirements of both equity and debt have widened, and in many markets, investors are required to commit additional equity. China remains a bright spot as both foreign and domestic investors continue to focus on increasing their portfolios in the country. Since China is still a growing and developing market, the country is focusing on the stability and development of its real estate market. As a result, developers had more difficulties in obtaining capital from traditional means in 2011, and some are using alternative sources for financing. Still others are looking for opportunities to form partnerships with foreign investors in order to gain access to capital. Japan also continues to be a focal point as one of the region’s most active countries for investment and transactions.6 Core foreign funds continue to move forward with due diligence, and opportunistic funds are seeking deals because of the significant availability of capital ready to deploy.

Around the globe, despite the recent volatility in the global financial markets, existing real estate investment trusts and IPOs still remain top of mind for many real estate companies as an alternative strategy to fuel growth and as a means by which to access the public equity markets.

Despite the costs and risks associated with operating a publicly traded company, public and going-public real estate companies are using this approach to address capital requirements, reduce debt, take advantage of distressed investment opportunities and capitalize on what is viewed as a prolonged economic and real estate recovery. A public real estate company must consider the common success factors and investment risks of being public, which typically revolve around market, asset, management and balance sheet characteristics.

In these interesting times it is imperative for property owners to do what they can in order to keep (or get) their properties leased. While there are many tricks to the trade, these few pointers may speed up the process.

1. Be responsive to inquiries from potential tenants or leasing representatives. If an inquiry is made and there is a long delay to respond, that tenant or broker may just go to the next building down the street. I am finding that many inquiries come via e-mail, therefore being responsive should be relatively easy. Always considering attaching brochures, floor plans and access codes to lock boxes and anything else that will make it easy for a potential client. It makes a lot of sense to create a standard signature block on your outlook that would have much of above information. I am also finding communication via texting is increasing in popularity.

2. Have a combination lock box on the building if someone can’t be there to show it on a moment’s notice. Convenience is critical to clients or brokers when they want to view a potential building. It is not uncommon for a prospect to see a building and want immediate access. If they are able to call the sign on the building and get the access code, that betters your chance of leasing the building. If you’re worried about vandalism then consider having a motion-detecting camera installed inside the building where the recording begins once motion is sensed.

3. Consider offering an above-standard tenant-improvement allowance, brokerage compensation, free rent or other terms that could entice the client and their representative. I know of landlords offering leasing incentives of $1 – $3 per square foot in order to have their building stand out above the pack. Also, some landlords are offering touring incentives in order to get their building on the touring list by the tenants’ representative. If the broker has 30 opportunities to show a client, what can you do in order to get your building higher up the food chain?

4. Complimentary space planning services is on the rise. Many landlords will suggest a space planner lay out the building to help entice a tenant and to visualize what the building could look like should they become the occupant.

5. Many landlords are providing storyboards in the front lobby area or reception area that show building standard carpet and paint samples, along with hypothetical floor plans. This gives prospects an idea of what the building could ultimately look like.

6. Be aggressive with your leasing terms. Don’t be afraid to let the market know that you’re flexible in your rent, tenant-improvement package, potential moving allowances or other incentives that could entice a potential client to move into your building.

To be sure, this current market is challenging for both tenants and landlords alike. Landlords that realize this and understand the tenants’ issues, concerns and motivations are more likely to retain and attract tenants. There is opportunity in all cycles of the market.

Randolph T. Mason, CCIM, SIOR, is the managing partner of Commercial Realty Specialists in Newport Beach, Calif. They exclusively represent tenants and buyers in complex commercial real estate transactions.

Whether it is the assurance from Ben Bernanke that the Federal Reserve plans to keep short-term rates at low levels through late 2014, or the frustration with the paltry returns that cash investors see on their bank statements month after month, or the recent headline advice from BlackRock CEO Larry Fink when he stated that “when you look at dividend returns … it is an easy decision to be heavily in equities,” it is clear that long-term investors are starting to experience fatigue with the lack of building wealth and are itching with the need to take on more risk in order to earn higher returns.

As a result, investors who turned to commercial real estate for stability are now scanning the landscape to seek higher returns. With the world more willing to venture into riskier alternatives, especially in the U.S. in the wake of Europe’s difficulties, it is time for us to revisit our objectives, re-evaluate the return environment, and revise our investment strategies. As noted in the winter 2012 RERC Real Estate Report, “As the World Turns from Fear to Caution,” RERC’s institutional investment survey respondents continued to give commercial real estate their highest rating among the investment alternatives (6.3 on a scale of 1 to 10, with 10 being high), but this rating was down slightly from the previous quarter. Meanwhile, as shown below, their rating for stocks increased to 5.4 from 4.7 while the rating for bonds increased to 4.4 from 3.8, showing how risk tolerance has increased as returns grow for these asset classes.

It is also important to note that the investment ratings for commercial real estate have changed only slightly over the past year, indicating the relatively reasonable returns and the stability of this asset class as an investment, which is key to core investors who are focused on measured, long-term decisions (versus speculating or hedging opportunities). In looking at the ratings of the individual property types, however, even those investors sticking with commercial real estate are looking beyond the least risky property types and toward opportunities with slightly more risk (and with possibly higher returns).

RERC’s research also shows that the fourth quarter 2011 return versus risk rating for commercial real estate overall declined from the third quarter 2011 rating, but at a rating of 5.9, investors still maintain that the return on this asset class overall outweighs the risk. In addition, the return versus risk rating for the apartment sector — the least risky sector — declined from the previous quarter, although it was still the top-rated property type. Interestingly, the return versus risk ratings for the industrial and retail sectors increased during fourth quarter, as investors become more confident in the return potential associated with these sectors compared to the amount of risk. (However, the ratings for the office and hotel sectors declined to 5.1 and 5.4, respectively, indicating that these sectors may be a little riskier in comparison to potential returns.)

Given the growth of the economy (despite the still serious headwinds), it is not surprising that momentum is building in the stock and bond markets as investors climb out of the pit of fear that has dominated investor behavior for the past few months. If ever a market looked like it was ready to take off, it is this one.

However, given that uncertainty increased and transactions slowed quite significantly in fourth quarter, we expect that the commercial real estate recovery will exhibit more caution, will be more methodical in its approach as real estate fundamentals are taken into account, and will generally take more time to re-ignite. Although returns remain relatively attractive now and for the long haul, we need to remember that the commercial real estate recovery for the fundamentals of space demand generally lag the economy, and patience will be required in this cycle much like it has in previous cycles.

At least we should be able to come through it with less of the volatility investors will experience in the stock and bond markets — it is a world in search of Beta!

The California Franchise Tax Board has announced that they will be requiring, for the 2012 tax year, a listing of property parcel numbers for any property taxes deducted as an itemized deduction. In anticipation, they have recently published guidance on the issue of Real Estate Taxes reminding us that real estate taxes are deductible only if certain conditions are met.

The tax must be based on the assessed value of the real property. Any flat fee, not charged as a percentage of your home value, would be non-deductible. Examples would be flood or fire district fees, landscape maintenance fees, sewer service fees, etc.

Your county tax invoice likely lists many line items that add up to your total property tax due. The image on the right is a sample of what that detail may look like on your tax bill.

General Tax Levy: Notice the General Tax Levy, and the items under the section Voted Indebtedness are all calculated as a percentage of the property value.

Direct Assessments: Now see the section Direct Assessments. These items are all a flat fee, with no “rate” listed. This portion of the tax bill does not meet the definition of a tax, and would not be deductible. This remains true even though your payments are made directly to the taxing authority.

These are not new rules. This guidance reflects current law.

This FTB guidance fails to mention that if your property is a business-use property, such as a rental property, the non-tax portion of your real estate taxes would likely be deductible as a business expense.

Lori Shrout is a manager at Gumbiner Savett Inc., one of the largest CPA and business advisory firms in Southern California.

While the party may be short-lived, some of the larger macroeconomic factors predicted for 2012 are starting to take shape. As Commercial Property Executive reported this morning, Greece is set to take a $172 billion bailout to jump-start its economy. And, earlier this month, job figures – both from January and revised figures from November and December – were up much more than economists predicted. The first month of this year saw 243,000 net positions added, adding fuel to the U.S. economic engine.

And it’s that employment figure that will have the most implications for commercial real estate, according to a report by services firm Cushman & Wakefield Inc. “The projected acceleration in US employment growth in the coming year has major implications for the US commercial real estate market,” the firm noted. “All major sectors: office, industrial, retail and multi-family, will benefit. If we assume that the 3.2 million jobs projected to be added in the next 12 months are distributed among industries in the same proportion as current employment, the (country) will add approximately 660,000 jobs in office-using industries, 345,000 jobs in the manufacturing and distribution sectors and 350,000 in retail.”

So: Where the jobs go, so does the capital.

John Manning, managing director of real estate investment banking for Jones Lang LaSalle Inc., explained his take on the relationship between employment and investor capital. “In locations such as gateway cities where the economy is strong and leasing velocity is high,” he said, “asset values have come back up. We’re starting to see more transaction volume and higher values in those markets.”

“Investors (have been) looking favorably at multi-family assets in the last few years, Manning said, “but the office sector is coming back into favor. Last year was the year of the big ‘pop,’ when rents went up substantially. Certain submarkets, such as Silicon Valley, you’re seeing rents increase 20 to 30 percent or more in a 12-month period. Those are areas that capital will be chasing. The technology sector is really leading the West Coast out of its previous economic recession.”

If the economy continues to expand, and the engine of growth keeps driving, the biggest problem is going to be finding available capital for acquisitions. But a recent  survey of both borrowers and lenders conducted by JLL found that the outlook is “broadly optimistic,” as 56 percent of lenders and 44 percent of borrowers expect credit to be more available in the coming 12 months. “There is little doubt that borrowers are feeling more optimistic about the capital available for their refinancing, acquisition and even construction needs, having met lenders with more appetite for risk as the commercial real estate credit markets continue to improve,” the firm noted. “Lenders also have bold ambitions to place more capital into real estate mortgages in 2012, setting up what should be a strong transaction market environment in 2012.”

Source: SNL Financial. Data current as of Feb. 17, 2012.