Thursday, August 8, 2013
Pivoting and liking it....
A couple of years back when we were dreaming and building our vision of Mogul Launcher, our initial thought was that if we loved and needed our service,everyone would love and need our service. I mean, who couldn't benefit from a regional real estate website that provides local real estate news, market analysis and mortgage rates for real estate investors? What real estate agent couldn't benefit from a real estate platform that would allow them to market their property listings? We soon found that our thought turned out to be a a bit off after holding meeting after meeting and hearing from you out there in social media land. It wasn't that our ideas were wrong or ill-conceived. In fact, everyone loves Mogul Launcher but they wanted something different. They wanted something fresh and that they can call their own. We learned fairly quickly that we needed to change direction and not only provide a better service but heed to the needs of our customers if we wanted to compete with the big boys.
“Pivot” is a term used by Eric Ries to describe a change in direction of a startup while staying grounded in learning. We agree 100% with Eric! If we don't learn to pivot, we're building a company that only a few of us would benefit from. As we created Mogul Launcher from it's infancy, we had become protective founders when it came to others suggesting changes to the site. We didn't want to hear that our baby needed to be changed. We liked it just the way we dreamt it to be. We thought everyone else was wrong. It turned out that we were wrong. Through much time and consideration, we had to ask ourselves, "Who are we providing this site for?" We quickly came to the decision that it's for all of us. Ultimately, we want those in the real estate community and those associated with real estate to benefit. In the end, we ate our share of humble pie and refocused our vision to build a 'customer first' real estate tool. After all, we are customers too. Pivoting was difficult to embrace but the more we hear from you and the more we adhere to our mantra of 'customer first', we're learning that we must pivot if we want to achieve any sort of success. So, we are working toward making some changes that we hope you will like and benefit from.
We look forward to hearing from you and please sign up. We need your support as we continue to move forward. Thanks for reading and Happy Hunting!
Tuesday, July 16, 2013
Triumphs, Challenges and looking forward
Looking back and seeing how we got to this point seems surreal to me. I know, I know, we haven't arrived but I get really excited to see how far we have come since the birth of this idea. We have experienced both triumphs and challenges as we have sought to build Mogul Launcher. To be completely honest, we had no idea how we would get the idea from my brain to the world wide web. When we started out, I didn't know the difference between asp.net, PHP and Ruby. We didn't know the price structure we wanted to incorporate in regards to our subscriptions or weather or not we wanted to incorporate ideas with another company. What we did know was that there was a void and a necessity for our idea. We knew that many of people (agents, brokers and investors) shared the same frustrations I had with the real estate sites provided for us. I knew that some of these sites created monopolies that would price some of us out of the market and didn't provide me the information I needed to become an investor in real estate. So, we did what every good entreprenuer does, we took an extended weekend to hammer out a business plan. We began to put to paper who we are, what we wanted to be and where we wanted to go. This was both challenging, fun and exciting. But this was just the beginning.
It would be great to say that everything has been smooth up until this point but i want to be truthful in saying that this is not the case. We have had several challenges along the way. We are on our 3rd developer, we have changed code after building out phase one, we have had several delays and oh.....we all have full time jobs. The full-time job issue isn't really an issue because we all agree that we can sleep when we're dead but our day jobs do occupy time and effort that we would rather be spending on building Mogul Launcher into the resource we envision.
We have encountered great times and we have learned a lot during this time as well. I have learned that I am not that brilliant and that I don't have that much control. I have seen my shortcomings rise to the surface and I have also learned that when you surround yourself with pros to do a job.....you let them do their thing. I had to learn to trust others with my baby and realize that it's their baby too. I look forward to waking up in the morning and tackling the challenges of the day. I love collaborating on ways to improve our site to make it more efficient and streamline the process for our users (fans). I love seeing more people "like" us on FB, become a follower on Twitter, "connect" with others on Linkedin and join as members on our site. This gives us extra incentive to build something that people can find useful.
Looking back, this road has been adventurous and educational. We look forward to making Mogul Launcher into the site for real estate investors to buy, sell, manage and maintain their real estate investments. We look to always improve and provide the best vehicle to make you a better property investor. Thanks for taking the time to read. We look forward to hearing from you on any of our social media platforms and don't forget to spread the word. Happy hunting!
Monday, June 24, 2013
The beginning.....
I thought we would start our first blog from our start, with the beginning of how the idea of Mogul Launcher was birthed. Giving the background to our story, I hope will provide an insight of what we are trying to accomplish.
Growing up, my father was a real estate agent turned real estate investor. As a 5 year old, most of my weekends were spent with him driving around and working on his properties . I got paid $1 a day. (Hey, that was a lot of money for a 5 year old) I learned a lot about tools and maintaining properties as the years whizzed by. I learned how to unplug tubs,sinks and toilets. I fixed leaks including roofs, built walls and dug ditches. (Fun stuff, I know)
When i was 18 years old, fresh out of High school and in college, my dad got real sick and was bed ridden. He brought me into his room and asked if I could help him with his properties until he got well. So I did what any good son would do when their dad needs help. I quit my job and school and started working for him full time. I continued to learn about the real estate business and now from a managerial point of view. (I still unplugged tubs and toilets though)
About 7 years ago I ventured on my own. Owning investment property for the past 7 years, we all know that you run into challenges along the way. It's not as glamorous as people want to make it out to be. As a property investor/owner, I would scour various websites to look for properties, local market news, regional analysis and vendors to help me manage and maintain my investments. A lot of these websites either didn't provide me the information I was looking for or led me down rabbit holes that I deemed useless. In addition, there was one well-known commercial real estate website that charged an arm and a leg to view it's properties and didn't provide much more then that. They were the only real estate site around. We had no other choices.
So, out of this frustration, I came up with the idea of Mogul Launcher. Mogul Launcher not only brings all of this pertinent information to one site, it's a real estate hub. It's a market-place where those interested in real estate investment will be able to utilize our site to assist them with their real estate needs.
We are a company of 5. We are excited about providing Mogul Launcher as a tool for real estate investors. We have completed phase 1 of our site and as we receive feedback, we are trying to button up some loose ends. It is definitely the bare bones of what we envision for Mogul Launcher. We are proud of how it has come out and are excited to get this company off the ground. Our next 3 phases are planned out and ready to go. We are currently looking for funds to get these phases rolled out and will keep you updated as to how we are progressing. We hope you will join us as we build this company into a service that will be helpful in your real estate endeavors.
Happy Hunting!
James
Tuesday, June 18, 2013
New Direction
In the past we have written or posted articles concerning California real estate. We have decided today, June 18th 2013 to go in a new direction with regards to the Mogul Launcher blog. We want to use this platform to bring you into the inner workings of our company. We want to let you in behind the ML curtain, our challenges, successes, failures and new updates. So, we hope you enjoy our blogpost as we move from our start-up phase to wherever our company goes. So, join us as we venture out and build this company to serve the real estate investors here in California.
Happy Hunting,
The Mogul Launcher Team
Tuesday, July 17, 2012
The commercial real estate market has shown steady signs of improvement in recent months, as the regions hardest hit by the recent financial crisis are finding ways to decrease vacancies. As a result, commercial real estate loans will likely experience a similar bounce-back in the coming months.
Allen Matkins and UCLA Anderson recently announced the joint California Commercial Real Estate Survey, which revealed increased optimism in the market.
"Since the end of the recession we have seen developer optimism spread to all markets and types of commercial space along with an increased willingness to go forward with new development," UCLA Anderson Forecast Senior Economist Jerry Nickelsburg explained.
The two organizations noted that high optimism in the commercial office space development sector over the past few years did not necessarily lead to tangible growth, though the survey indicated those sentiments will now bolster construction of new real estate.
If you are looking to obtain a commercial real estate loan and want to ensure your loan application process yields positive results, consider using a service like Boefly. With its advanced algorithms, the firm will put you in contact with thousands of lenders through just one loan application, ensuring your eventual match is the best fit.
The survey found 70 percent of respondents intend to begin developments in locales such as San Francisco and Los Angeles within the next year. Additionally, much of the optimism in the industrial real estate market seems to be the result of strong occupancy rates of 96 percent in Orange County and Los Angeles.
"This growth in multi-family housing is encouraging. It is in markets where there have been substantial job gains – especially for younger workers who prefer to rent apartments in urban areas – and where property values are high," John Tipton, partner at Allen Matkins, said.
Thursday, March 31, 2011
Southern California Real Estate Market Forecast
Spurred by government aid, the Southern California housing market is starting to stabilize and find the bottom. Homeowners were granted a $10,000 state tax credit if they are to purchase a property after May 1, 2010. This helped add some incentive to offer more purchasing in an economy that has not witnessed home prices as low as they are currently since 2003. With that credit expiring at the end of last year, 2011 started with limited buyers but now “purchases in process” are at the highest purchasing yet. There has been a glimpse of optimism around the market recently, much of this based on the increase in pending sales. Just recently in the past months the amount of residential and commercial properties that are “pending sale” to a new buyer has increased almost 25%.
There was some loss after the expiration of homebuyers credit, home sales in the state should continue on a stronger pace due to the recent addition and signing of california based tax programs, but that doesn’t mean they’ll be steady. Scared mortgage rates and unpleasant property sales are advised to endorse a comeback in the state’s markets.
Home sales have improved over the last two years, but still have a long and winding road to get through the tough economic environment. Orange County still has to compensate from costly unemployment, the most demanding element in a housing market revival since unemployed workers don’t certify to acquire homes. There’s no other counties or cities that has experianced so many lossess and financial crisis from the foreclosure disaster as the greater Los Angeles area. But an improving trend in home sales with the help of lower priced distressed properties has helped the area. Another round of lower priced foreclosed homes is beginning to hit the market, and that should aid in the Southland’s recovery with the statewide tax credit.
In commercial sales we are seeing a little reawakening on the small enterprise side and a lot of refinancing happening with the big industrial sectors. Most of this a dance of economics and irregular day by day, we’re not seeing too steady of profit anywhere in particular. The next year should hopefully see big gains in the industrial financial markets but without more development, southern california will be a bit stagnant and not suitable for investors too soon.
throughout the rest of this year, we are believing to see stability coming into the market with the higher purchase power we are seeing consumers having. This will enable more buyers to enter the market, helping to support home prices and better mortgage rates. By those actions occuring there will be an improving financial structure to supply individuals with more loans, equity, and confidance. This has always shown to be a major contributing factor to spurring on improvements throughout all of our economy, real estate is a major back bone to many business industries. If we see this forecasting come through then it will set the foundations for a better and more economically stable Orange County in 2012.
There was some loss after the expiration of homebuyers credit, home sales in the state should continue on a stronger pace due to the recent addition and signing of california based tax programs, but that doesn’t mean they’ll be steady. Scared mortgage rates and unpleasant property sales are advised to endorse a comeback in the state’s markets.
Home sales have improved over the last two years, but still have a long and winding road to get through the tough economic environment. Orange County still has to compensate from costly unemployment, the most demanding element in a housing market revival since unemployed workers don’t certify to acquire homes. There’s no other counties or cities that has experianced so many lossess and financial crisis from the foreclosure disaster as the greater Los Angeles area. But an improving trend in home sales with the help of lower priced distressed properties has helped the area. Another round of lower priced foreclosed homes is beginning to hit the market, and that should aid in the Southland’s recovery with the statewide tax credit.
In commercial sales we are seeing a little reawakening on the small enterprise side and a lot of refinancing happening with the big industrial sectors. Most of this a dance of economics and irregular day by day, we’re not seeing too steady of profit anywhere in particular. The next year should hopefully see big gains in the industrial financial markets but without more development, southern california will be a bit stagnant and not suitable for investors too soon.
throughout the rest of this year, we are believing to see stability coming into the market with the higher purchase power we are seeing consumers having. This will enable more buyers to enter the market, helping to support home prices and better mortgage rates. By those actions occuring there will be an improving financial structure to supply individuals with more loans, equity, and confidance. This has always shown to be a major contributing factor to spurring on improvements throughout all of our economy, real estate is a major back bone to many business industries. If we see this forecasting come through then it will set the foundations for a better and more economically stable Orange County in 2012.
Thursday, December 30, 2010
Real Estate Investing For Newbies
Everyone is aware that investing in property can make you rich in no time. If you know what to do and you play your cards proper, your investment can quickly develop into a winner.
Like any other company, it entails a particular diploma of risk, and that danger will get greater if you don't really know what you're accomplishing, due to the fact as you can win, you can also loose really a bit of dollars if you make lousy investments, specially in the beginning of your company improvement.
However, if you are a newbie in the company you really should not be as well apprehensive, due to the fact all you need to do is get all the info you require earlier than truly producing an investment and generally preserve up-to-date with the novelties in the discipline.For far more information about "investing for beginners", you ought to pay a visit to: investing for beginners
If you are actually fascinating in investing, a single of the issues you could think about in order to get you started off is a actual estate investing plan or a actual estate investing seminar, due to the fact you can get all the facts you want there.
The most critical items you have to know about is the latest legislation; you have to know all the laws and regulations that have any connection to your filed of activity, in order to avert any threat when starting up an investment.
As soon as you've received all the legal facts you require, you have to examine it meticulously, simply because you need to steer clear of any chance introduced to your investment out of mere ignorance. Understanding the legal frame of the investment is not at all as challenging as you may well believe (following all, so several individuals are carrying out it), but you do need to be careful and entirely understand all the implications it has.
When you can transfer on to the following step, you want to get data about the existing industry selling price of the property you are thinking of to buy. You must not just ask the seller and get his word for it, since his curiosity is to get the greatest price tag doable.
Rather, you ought to ask an evaluator or make your very own assessment, ask about the rates in that location and other information that may aid you get a clear thought of what the value of the house genuinely is.
If you are nicely knowledgeable on the real latest marketplace worth, you stand a significantly greater opportunity of scoring a deal. You can commence negotiating with the seller in order to acquire a excellent price tag. Keep in mind that the crucial to any negotiation is to know much more than the seller, due to the fact that will assure you finding a bargain and that is the essence of a excellent actual estate investment.
Like any other company, it entails a particular diploma of risk, and that danger will get greater if you don't really know what you're accomplishing, due to the fact as you can win, you can also loose really a bit of dollars if you make lousy investments, specially in the beginning of your company improvement.
However, if you are a newbie in the company you really should not be as well apprehensive, due to the fact all you need to do is get all the info you require earlier than truly producing an investment and generally preserve up-to-date with the novelties in the discipline.For far more information about "investing for beginners", you ought to pay a visit to: investing for beginners
If you are actually fascinating in investing, a single of the issues you could think about in order to get you started off is a actual estate investing plan or a actual estate investing seminar, due to the fact you can get all the facts you want there.
The most critical items you have to know about is the latest legislation; you have to know all the laws and regulations that have any connection to your filed of activity, in order to avert any threat when starting up an investment.
As soon as you've received all the legal facts you require, you have to examine it meticulously, simply because you need to steer clear of any chance introduced to your investment out of mere ignorance. Understanding the legal frame of the investment is not at all as challenging as you may well believe (following all, so several individuals are carrying out it), but you do need to be careful and entirely understand all the implications it has.
When you can transfer on to the following step, you want to get data about the existing industry selling price of the property you are thinking of to buy. You must not just ask the seller and get his word for it, since his curiosity is to get the greatest price tag doable.
Rather, you ought to ask an evaluator or make your very own assessment, ask about the rates in that location and other information that may aid you get a clear thought of what the value of the house genuinely is.
If you are nicely knowledgeable on the real latest marketplace worth, you stand a significantly greater opportunity of scoring a deal. You can commence negotiating with the seller in order to acquire a excellent price tag. Keep in mind that the crucial to any negotiation is to know much more than the seller, due to the fact that will assure you finding a bargain and that is the essence of a excellent actual estate investment.
Tuesday, October 12, 2010
Real Estate Jargon/EDU
The main reason and focus of Mogul Launcher is to benefit and educate investors of all types in purchasing real estate. Commercial Real Estate Investment is a new area for many real estate investors. In an effort to assist those who are not familiar with real estate jargon, this article is meant for you. Below is an alphabetical list of terms used in this field.
Anchored tenants: large national brand tenants such as Albertsons, Longs Drug, Walmart, who bring a lot of traffic in the middle of the shopping cart.
CAM: Maintenance Area. Common fees associated with CAM CAM. For NNN leases, see CAM-term rates, tenants pay rent money to cover propertyTaxes, insurance and maintenance.
Cap Rate: The return of investment in the first year after purchase. Capitalization rate is the ratio of 1 Years operating income for the purchase price. The higher the cap, the higher the rental income. For people who invest in the stock market, the maximum rate is the reciprocal of P E.
Cash On Cash: APR return of your deposit without detection. First year cash flow from your original down dividedPayment.
Conduit loan: as Commercial Mortgage Backed Securities (CMBS) loans, often at lower cost than traditional commercial loans, but in a high prepayment penalty (the so-called sale of a penalty or yield maintenance) or no flexibility in payment.
CPD: car per day or volume of traffic on a road.
CPI. Consumer Price Index is often used to compensate for inflation to calculate the annual rent increase.
Due Diligence Period:the period after the decline of 15-30 days for buyers to verify ownership. The buyer may cancel the contract at that time and for any reason and receive a full refund of the deposit.
estoppel certificate: a letter signed by the lessee provided and confirms the terms and conditions of the current lease.
Full-service leasing: leasing, in which tenants pay rent, utilities, includes all-inclusive.
Gross Income: annual income firstCosts.
Gross lease: the tenant lease to pay rent. The owner pays, insurance fees and maintenance.
Total: Gross Lease able area or gross lettable area. This is the space that can be hired and receive rental income. Not included are facilities for services, elevator, etc.
GRM: Gross Rent Multiplier for apartment. Ratio between purchase price and annual income.
LLC: limited liability company. A legal person established in many investors toown commercial real estate.
LOI: Letter of intent / interest or commitment letter is not normally the property, an offer to buy a business.
May reviewer: Member Appraisal Institute accountants.
Master Lease: Lease signed by the seller to rent space to ensure clear offer for rent.
Mixed Use: retail commercial real estate with the first floor and apartments upstairs.
Triple Net (NNN) Lease: Lease intenants to pay the basic fee plus tax on rental property, insurance and CAM. Absolute NNN NNN lease rental agreement that tenants also pay for property management.
NOI: net operating income. annual income, after all costs (taxes, ins., & Maintenance) other than the payment of the loan.
Hall: Stand-alone building in a strategic position in a large shopping center.
Pass Through: see refund.
Percentage lease: Leasing, in which tenant pays rent based moreShare of income of the tenant.
Phase I Report on the inspection report is an assessment that the contamination of the soil / environment. It is usually required by the lender as part of the process of loan approval for a commercial property.
Phase II report: Report of inspection to soil, groundwater, surface surveys. This control is more complete, including testing to see if there is a pollution of soil and water.
Pro-forma net income: potential, iehigher income when the property is 100% leased.
Proforma Cap Rate: maximum potential rate of adoption is 100% leased property for rent to the market.
Repayment: The amount of the fee for insurance and property taxes CAM, the tenant must pay a basic fee, the owner of the next.
Guaranteed rent: rooms for rent paid by the seller to the buyer for the vacant until it rented.
SBA loans: the government guaranteed loans for home ownership.
SNDA:Subordination, non-interference Attornment. This is an agreement pursuant to the agreement signed by the tenants banks: the lender of a new bond in the position, as landlord in the case of exclusion, tenant rent as valid as long as it is not in default.
TIC: Tenants in common. One way for small / self-directed IRA investors own a share of ownership of high quality as tenants in common.
Anchored tenants: large national brand tenants such as Albertsons, Longs Drug, Walmart, who bring a lot of traffic in the middle of the shopping cart.
CAM: Maintenance Area. Common fees associated with CAM CAM. For NNN leases, see CAM-term rates, tenants pay rent money to cover propertyTaxes, insurance and maintenance.
Cap Rate: The return of investment in the first year after purchase. Capitalization rate is the ratio of 1 Years operating income for the purchase price. The higher the cap, the higher the rental income. For people who invest in the stock market, the maximum rate is the reciprocal of P E.
Cash On Cash: APR return of your deposit without detection. First year cash flow from your original down dividedPayment.
Conduit loan: as Commercial Mortgage Backed Securities (CMBS) loans, often at lower cost than traditional commercial loans, but in a high prepayment penalty (the so-called sale of a penalty or yield maintenance) or no flexibility in payment.
CPD: car per day or volume of traffic on a road.
CPI. Consumer Price Index is often used to compensate for inflation to calculate the annual rent increase.
Due Diligence Period:the period after the decline of 15-30 days for buyers to verify ownership. The buyer may cancel the contract at that time and for any reason and receive a full refund of the deposit.
estoppel certificate: a letter signed by the lessee provided and confirms the terms and conditions of the current lease.
Full-service leasing: leasing, in which tenants pay rent, utilities, includes all-inclusive.
Gross Income: annual income firstCosts.
Gross lease: the tenant lease to pay rent. The owner pays, insurance fees and maintenance.
Total: Gross Lease able area or gross lettable area. This is the space that can be hired and receive rental income. Not included are facilities for services, elevator, etc.
GRM: Gross Rent Multiplier for apartment. Ratio between purchase price and annual income.
LLC: limited liability company. A legal person established in many investors toown commercial real estate.
LOI: Letter of intent / interest or commitment letter is not normally the property, an offer to buy a business.
May reviewer: Member Appraisal Institute accountants.
Master Lease: Lease signed by the seller to rent space to ensure clear offer for rent.
Mixed Use: retail commercial real estate with the first floor and apartments upstairs.
Triple Net (NNN) Lease: Lease intenants to pay the basic fee plus tax on rental property, insurance and CAM. Absolute NNN NNN lease rental agreement that tenants also pay for property management.
NOI: net operating income. annual income, after all costs (taxes, ins., & Maintenance) other than the payment of the loan.
Hall: Stand-alone building in a strategic position in a large shopping center.
Pass Through: see refund.
Percentage lease: Leasing, in which tenant pays rent based moreShare of income of the tenant.
Phase I Report on the inspection report is an assessment that the contamination of the soil / environment. It is usually required by the lender as part of the process of loan approval for a commercial property.
Phase II report: Report of inspection to soil, groundwater, surface surveys. This control is more complete, including testing to see if there is a pollution of soil and water.
Pro-forma net income: potential, iehigher income when the property is 100% leased.
Proforma Cap Rate: maximum potential rate of adoption is 100% leased property for rent to the market.
Repayment: The amount of the fee for insurance and property taxes CAM, the tenant must pay a basic fee, the owner of the next.
Guaranteed rent: rooms for rent paid by the seller to the buyer for the vacant until it rented.
SBA loans: the government guaranteed loans for home ownership.
SNDA:Subordination, non-interference Attornment. This is an agreement pursuant to the agreement signed by the tenants banks: the lender of a new bond in the position, as landlord in the case of exclusion, tenant rent as valid as long as it is not in default.
TIC: Tenants in common. One way for small / self-directed IRA investors own a share of ownership of high quality as tenants in common.
Monday, October 4, 2010
Making An Investment In California Real Estate
If you are thinking about making a real estate investment, you should consider California real estate. The real estate scenario in California is in a real boost now, with so many people willing to buy properties in the region. California homes for sale are one of the most in demand properties – these properties are demanded by not only the local residents but by those people also who are looking forward to rent these properties during their stay in California.
Thus, as a real estate investor one of the wisest decisions would be to buy any property and rent it out to tourists or other people and then sell it off later on. If you rent it out to tourists you will have a steady income while if you choose to sell if off, you will be able to make some good money, because these properties are going to have a boost in their values soon.
Here are some more reasons why making an investment in California real estate is considered to be a wise decision now.
Property values on the rise: Recent statistics have revealed that property values in California are appreciating. You might choose any kind of property; you will find that its value is on the rise. Thus, suppose you make an investment now and you sell if off in a few years, you are sure to make some quick profits. Moreover, if you wish to ensure that you make profits, you should make an investment in Southern California realty. The property values in this place are on a high like never before.
Rent out California real estate: Suppose you choose to buy a property now but at present you do wish to stay there. In such a case, you just need to rent out such a property to students, professionals and tourists. In such a case, you will be able to get a steady income every month. Thus, this is said to be a great idea for those who are looking for an increase in their monthly income.
Use it as your holiday home: If you do not stay in California but love to stay there during your holidays, you can purchase a California real estate and use it as your holiday home. You will be staying there during your holidays – you do not have to rent any additional place and pay hefty amount as bills. Moreover, your friends and relatives will also be able to enjoy the place anytime they wish. If you wish to buy any property as your holiday home, it is best to choose San Clemente real estate. This is the best place in terms of location, entertainment, convenience and comfort.
Prices of property affordable: Southern California realty is considered to be one of the most affordable properties of the region. You can choose between luxury homes, condos, apartments, cottages and villas – you will find that all properties are affordable and are the true value for the money you choose to spend on them.
Thus, as a real estate investor one of the wisest decisions would be to buy any property and rent it out to tourists or other people and then sell it off later on. If you rent it out to tourists you will have a steady income while if you choose to sell if off, you will be able to make some good money, because these properties are going to have a boost in their values soon.
Here are some more reasons why making an investment in California real estate is considered to be a wise decision now.
Property values on the rise: Recent statistics have revealed that property values in California are appreciating. You might choose any kind of property; you will find that its value is on the rise. Thus, suppose you make an investment now and you sell if off in a few years, you are sure to make some quick profits. Moreover, if you wish to ensure that you make profits, you should make an investment in Southern California realty. The property values in this place are on a high like never before.
Rent out California real estate: Suppose you choose to buy a property now but at present you do wish to stay there. In such a case, you just need to rent out such a property to students, professionals and tourists. In such a case, you will be able to get a steady income every month. Thus, this is said to be a great idea for those who are looking for an increase in their monthly income.
Use it as your holiday home: If you do not stay in California but love to stay there during your holidays, you can purchase a California real estate and use it as your holiday home. You will be staying there during your holidays – you do not have to rent any additional place and pay hefty amount as bills. Moreover, your friends and relatives will also be able to enjoy the place anytime they wish. If you wish to buy any property as your holiday home, it is best to choose San Clemente real estate. This is the best place in terms of location, entertainment, convenience and comfort.
Prices of property affordable: Southern California realty is considered to be one of the most affordable properties of the region. You can choose between luxury homes, condos, apartments, cottages and villas – you will find that all properties are affordable and are the true value for the money you choose to spend on them.
Tuesday, August 17, 2010
Alarming California Real Estate Numbers From Appraiser’s Conference
posted by cehwiedel on August 16, 2010 @ 5:14 am
The Appraisal Institute’s Southern California Chapter-the largest of its chapters in the country-hosted its 16th Annual Summer conference on Thursday, July 29, 2010. The chapter presented an excellent program of continuing education that was well attended by both residential and commercial appraisers.
During the session, Norris-who is considered to be a top authority on the Southern California real estate market-shared some intriguing insights. He believes the region is in an artificial market and is concerned about the shadow inventory that could flood the market, forcing prices even lower. However, this isn’t the shadow inventory of bank-owned homes you may have heard about; he refers to all the houses that may yet go into foreclosure. The problem will vary by region, but referring to Riverside County in Southern California, Norris presented some pretty alarming statistics:
• 23% of prime borrowers are not making payments
• 47% of non-prime borrowers are not making payments
• 90% of properties are upside down on value-to-loan (60% owe more than 150% of value)
Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default.
These numbers are frightening when considering the inventory that may come into the market in the next few years. Norris added that lenders and the federal government have slowed the foreclosure process to prevent a further deterioration of housing prices. But this artificial slowing of foreclosures belies the fact that there are still major waves of residential mortgage defaults on the horizon. It will be interesting to see if this policy plays out for the best or backfires and causes another flood of foreclosure properties into the market . . .
A postscript or comment on this from a reader of The Big Picture:
Southern California: 23% of prime borrowers / 47% of non-prime borrowers not making mortgage payments is alarming…to me anyway.
I think that the banks are technically insolvent. If they did their accounting according to the rules, they would have to write down the value of non-performing loans. Given that this many loans are in the non-performing category, if the banks followed the rules, they would not have enough capital to remain in business and the FDIC would have to close them as they have closed 108 banks so far this year. The higher level problem is that the FDIC might have to close many / most banks, which would really upset the economy.
So, the banks are extending (Letting people stay in houses without making payments) and pretending (bending / breaking the accounting rules to hide the extent of their (and our) problems)…
Assuming that Riverside County numbers are typical of the entire state of California is not a valid assumption.
Perched here in coastal Orange County, inland California real estate generally looks at least as bad as Riverside County numbers suggest. However, coastal California real estate looks more buoyant.
The two real estate markets split like the poopy economy as a whole: if you’re out-of-work, it sucks to be you right now. If you have a job, things aren’t so bad. The anxiety then rests in keeping your job and paying down your debts just as fast as you can.
The Appraisal Institute’s Southern California Chapter-the largest of its chapters in the country-hosted its 16th Annual Summer conference on Thursday, July 29, 2010. The chapter presented an excellent program of continuing education that was well attended by both residential and commercial appraisers.
During the session, Norris-who is considered to be a top authority on the Southern California real estate market-shared some intriguing insights. He believes the region is in an artificial market and is concerned about the shadow inventory that could flood the market, forcing prices even lower. However, this isn’t the shadow inventory of bank-owned homes you may have heard about; he refers to all the houses that may yet go into foreclosure. The problem will vary by region, but referring to Riverside County in Southern California, Norris presented some pretty alarming statistics:
• 23% of prime borrowers are not making payments
• 47% of non-prime borrowers are not making payments
• 90% of properties are upside down on value-to-loan (60% owe more than 150% of value)
Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default.
These numbers are frightening when considering the inventory that may come into the market in the next few years. Norris added that lenders and the federal government have slowed the foreclosure process to prevent a further deterioration of housing prices. But this artificial slowing of foreclosures belies the fact that there are still major waves of residential mortgage defaults on the horizon. It will be interesting to see if this policy plays out for the best or backfires and causes another flood of foreclosure properties into the market . . .
A postscript or comment on this from a reader of The Big Picture:
Southern California: 23% of prime borrowers / 47% of non-prime borrowers not making mortgage payments is alarming…to me anyway.
I think that the banks are technically insolvent. If they did their accounting according to the rules, they would have to write down the value of non-performing loans. Given that this many loans are in the non-performing category, if the banks followed the rules, they would not have enough capital to remain in business and the FDIC would have to close them as they have closed 108 banks so far this year. The higher level problem is that the FDIC might have to close many / most banks, which would really upset the economy.
So, the banks are extending (Letting people stay in houses without making payments) and pretending (bending / breaking the accounting rules to hide the extent of their (and our) problems)…
Assuming that Riverside County numbers are typical of the entire state of California is not a valid assumption.
Perched here in coastal Orange County, inland California real estate generally looks at least as bad as Riverside County numbers suggest. However, coastal California real estate looks more buoyant.
The two real estate markets split like the poopy economy as a whole: if you’re out-of-work, it sucks to be you right now. If you have a job, things aren’t so bad. The anxiety then rests in keeping your job and paying down your debts just as fast as you can.
Saturday, July 17, 2010
Real Estate Recovery
It’s been three years since the sub-prime mortgage crisis began, triggering a global recession. Richard K. Green, director of the USC Lusk Center for Real Estate, takes stock of the housing market in California and other states. How close are we to real estate recovery, and will we ever see pre-2007 prices again?
“The main answer is things have stopped getting worse, and they stopped getting worse a year ago,” Green says.
“California is doing a little better than the rest of the country — particularly places like Arizona, Nevada, Florida, Michigan and Ohio,” he notes. “California was among the hardest-hit states, and we’re starting to come out of it; those other places aren’t.”
However, even in California, housing prices and home sales are far from realizing 2006 peaks. “In Los Angeles, prices are about where they were in 2002. In San Bernardino, Riverside, Fresno and Kern Counties, they’re lower,” Green says. “We’re seeing small increases, but it’s hard to know how to interpret that, because what’s being sold is changing.” He explains that rising prices may simply be due to shifts in the type of housing stock involved; for example, foreclosures made up half of home sales in the region a year ago, but in 2010 dropped to a third.
“Overall, we’re just bumping along flat,” Green says.
Looking to the future, Green believes that cities like Riverside and Bakersfield may never return to 2006 prices in our lifetime (discounting possible inflation). However, the prospects for other parts of Southern California are rosier. On L.A.’s Westside, prices have the potential to reach their old highs within a year or two.
As with all real estate, demand is key. “Places in Malibu are like buying a piece of art, not a home,” Green says. “Rich people value trophies, and a house in Malibu is a trophy.”
Discounting these isolated gems, many places may not rebound to 2006 levels. Before the crash, prices had really gotten out of hand in certain areas, Green says. The mortgage crisis, dire as it was, had a corrective effect.
“The main answer is things have stopped getting worse, and they stopped getting worse a year ago,” Green says.
“California is doing a little better than the rest of the country — particularly places like Arizona, Nevada, Florida, Michigan and Ohio,” he notes. “California was among the hardest-hit states, and we’re starting to come out of it; those other places aren’t.”
However, even in California, housing prices and home sales are far from realizing 2006 peaks. “In Los Angeles, prices are about where they were in 2002. In San Bernardino, Riverside, Fresno and Kern Counties, they’re lower,” Green says. “We’re seeing small increases, but it’s hard to know how to interpret that, because what’s being sold is changing.” He explains that rising prices may simply be due to shifts in the type of housing stock involved; for example, foreclosures made up half of home sales in the region a year ago, but in 2010 dropped to a third.
“Overall, we’re just bumping along flat,” Green says.
Looking to the future, Green believes that cities like Riverside and Bakersfield may never return to 2006 prices in our lifetime (discounting possible inflation). However, the prospects for other parts of Southern California are rosier. On L.A.’s Westside, prices have the potential to reach their old highs within a year or two.
As with all real estate, demand is key. “Places in Malibu are like buying a piece of art, not a home,” Green says. “Rich people value trophies, and a house in Malibu is a trophy.”
Discounting these isolated gems, many places may not rebound to 2006 levels. Before the crash, prices had really gotten out of hand in certain areas, Green says. The mortgage crisis, dire as it was, had a corrective effect.
Monday, June 14, 2010
Worst May Be Over For Commercial Real Estate
By Roger Vincent-L.A. Times
After nearly three years of declines there are signs that Southern California's beaten-down commercial real estate market has struck bottom — setting up the possibility of a rebound later this year.
In a sign of the easing, heavyweight investors armed with buckets of cash are on the prowl, looking to snap up office buildings, warehouses, shopping centers and apartments at the market's low, industry observers say. The buyers are choosy, but the most desirable buildings elicit bidding wars when they come up for sale.
The auction earlier this year of Wilshire-Bundy Plaza, a prominent Brentwood office building, drew 40 bidders. The 14-story building will sell for $111 million to Santa Monica landlord Douglas Emmett Inc. if a Bankruptcy Court approves the deal, said real estate broker Bob Safai of Madison Partners.
"That's an incredible price in today's marketplace," Safai said. Now he is trying to sell 801 S. Figueroa St., a 25-story tower in downtown Los Angeles that he hopes will garner $180 million.
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Although commercial building landlords in many markets are still struggling with high vacancy rates and weak rents, the erosion in some sectors has slowed, piquing the interest of buyers. In addition, reinvigorated banks have been able to postpone or avoid liquidating billions of dollars' worth of distressed real estate loans sitting on their books, helping to solidify prices.
In a similar fashion, Southern California's housing market hit bottom more than a year ago and prices have been trudging higher ever since, partly because a feared wave of fresh foreclosures hasn't materialized.
If the commercial real estate market continues to gain strength it would represent a significant shift in economic risk because many experts had feared that mass defaults by landlords on their loans could cripple banks and drive the country deeper into recession.
"It's true that thousands of commercial loans must be worked out and some of these properties will enter the market in 2010," investment banker David Rifkind said. But "federal policy has been accommodating to banks and they are not being forced to realize losses."
With rents falling and the economy trembling, commercial real estate transactions had been rare during the downturn. Owners were holding on in hopes that prices would stop falling and buyers were holding back, waiting for the low point.
But a philosophical change has become apparent among investors, Rifkind said.
"There is so much money sitting on the sidelines that when distressed assets or even small pools of loans come to market, there is a flood" of interest, said Rifkind, managing partner of George Smith Partners.
"That became palpable to us in the first quarter," he said. "Money can't stay on the sidelines for long periods of time. It has to retool and be put to use."
That's not to say property values are leaping up across the board, however. Researchers at the Massachusetts Institute of Technology said that prices of commercial property sold by major institutional investors nationwide fell slightly in the first quarter compared with the last quarter of 2009, according to its index.
Prices were 41% below their mid-2007 peak, MIT said, but not down significantly from the temporary bottom reached at the end of the second quarter last year.
"Overall, the behavior of the index since mid-2009 is not inconsistent with a pattern of bouncing along the bottom, essentially moving sideways," said David Geltner, director of research at MIT's Center for Real Estate.
Similar conclusions emerged in another popular index tracked by Moody's and Real Estate Analytics. Prices were down overall in the last quarter from a year ago, including a 3% dip in office prices. Apartment and industrial buildings, however, both increased in value for the second consecutive quarter.
"The past four or five months have shown us the market is establishing a base," said Neal Elkin, president of Real Estate Analytics. "Whether it's a bottom or not remains to he seen."
Healthy properties — buildings in good locations that are nearly fully leased — have lost about 35% of their value from the peak, while distressed properties are down about 60%, Elkin said.
Investors naturally want to snatch up bottom-of-the-cycle bargains, but so far there haven't been a lot of big bargains to be had. The expected wave of bank-owned foreclosed properties hasn't materialized because lenders have been extending loans to building owners instead of calling them in as many investors expected.
A huge amount of capital for acquisition was assembled over the last year on the expectation that as much as $1 trillion worth of real estate loans were in distress and banks would be forced to dump properties to clean up their balance sheets.
"The debt hasn't gone anywhere, but how it's going to play out is proving to be much different" from what investors hoped for, Elkin said. Banks won't have to take losses until they complete the process of healing their balance sheets and build up their capital reserves, he said.
"It's not going to be another RTC."
The federally owned RTC — Resolution Trust Corp. — liquidated billions of dollars' worth of real estate assets including bad loans that came from institutions that failed during the savings and loan crisis of the 1980s. Many of the assets sold at deep discounts from their previous prices.
Among those looking to pounce on deals is BH Properties, a Los Angeles investment firm that obtained an eight-figure revolving line of credit from Wells Fargo Bank last month for the purpose of commercial real estate acquisitions.
Such credit lines have been virtually unheard of for the last year and a half, said Steve Jaffe, executive vice president of BH Properties. "We are cautiously bullish on today's market," he said.
The firm is targeting the Inland Empire, Phoenix and Las Vegas, markets where the recession hit real estate hard. They haven't done any deals yet but they are hardly alone among investors. With most banks now stable and property owners desperately hanging on, there has been no tidal wave of cheap real estate coming up for sale.
"This is going to be a slow trickle," Rifkind said, "not a rush."
After nearly three years of declines there are signs that Southern California's beaten-down commercial real estate market has struck bottom — setting up the possibility of a rebound later this year.
In a sign of the easing, heavyweight investors armed with buckets of cash are on the prowl, looking to snap up office buildings, warehouses, shopping centers and apartments at the market's low, industry observers say. The buyers are choosy, but the most desirable buildings elicit bidding wars when they come up for sale.
The auction earlier this year of Wilshire-Bundy Plaza, a prominent Brentwood office building, drew 40 bidders. The 14-story building will sell for $111 million to Santa Monica landlord Douglas Emmett Inc. if a Bankruptcy Court approves the deal, said real estate broker Bob Safai of Madison Partners.
"That's an incredible price in today's marketplace," Safai said. Now he is trying to sell 801 S. Figueroa St., a 25-story tower in downtown Los Angeles that he hopes will garner $180 million.
Get a daily snapshot of business, financial and technology news delivered to your inbox with our Business Daily newsletter. Sign up »
Although commercial building landlords in many markets are still struggling with high vacancy rates and weak rents, the erosion in some sectors has slowed, piquing the interest of buyers. In addition, reinvigorated banks have been able to postpone or avoid liquidating billions of dollars' worth of distressed real estate loans sitting on their books, helping to solidify prices.
In a similar fashion, Southern California's housing market hit bottom more than a year ago and prices have been trudging higher ever since, partly because a feared wave of fresh foreclosures hasn't materialized.
If the commercial real estate market continues to gain strength it would represent a significant shift in economic risk because many experts had feared that mass defaults by landlords on their loans could cripple banks and drive the country deeper into recession.
"It's true that thousands of commercial loans must be worked out and some of these properties will enter the market in 2010," investment banker David Rifkind said. But "federal policy has been accommodating to banks and they are not being forced to realize losses."
With rents falling and the economy trembling, commercial real estate transactions had been rare during the downturn. Owners were holding on in hopes that prices would stop falling and buyers were holding back, waiting for the low point.
But a philosophical change has become apparent among investors, Rifkind said.
"There is so much money sitting on the sidelines that when distressed assets or even small pools of loans come to market, there is a flood" of interest, said Rifkind, managing partner of George Smith Partners.
"That became palpable to us in the first quarter," he said. "Money can't stay on the sidelines for long periods of time. It has to retool and be put to use."
That's not to say property values are leaping up across the board, however. Researchers at the Massachusetts Institute of Technology said that prices of commercial property sold by major institutional investors nationwide fell slightly in the first quarter compared with the last quarter of 2009, according to its index.
Prices were 41% below their mid-2007 peak, MIT said, but not down significantly from the temporary bottom reached at the end of the second quarter last year.
"Overall, the behavior of the index since mid-2009 is not inconsistent with a pattern of bouncing along the bottom, essentially moving sideways," said David Geltner, director of research at MIT's Center for Real Estate.
Similar conclusions emerged in another popular index tracked by Moody's and Real Estate Analytics. Prices were down overall in the last quarter from a year ago, including a 3% dip in office prices. Apartment and industrial buildings, however, both increased in value for the second consecutive quarter.
"The past four or five months have shown us the market is establishing a base," said Neal Elkin, president of Real Estate Analytics. "Whether it's a bottom or not remains to he seen."
Healthy properties — buildings in good locations that are nearly fully leased — have lost about 35% of their value from the peak, while distressed properties are down about 60%, Elkin said.
Investors naturally want to snatch up bottom-of-the-cycle bargains, but so far there haven't been a lot of big bargains to be had. The expected wave of bank-owned foreclosed properties hasn't materialized because lenders have been extending loans to building owners instead of calling them in as many investors expected.
A huge amount of capital for acquisition was assembled over the last year on the expectation that as much as $1 trillion worth of real estate loans were in distress and banks would be forced to dump properties to clean up their balance sheets.
"The debt hasn't gone anywhere, but how it's going to play out is proving to be much different" from what investors hoped for, Elkin said. Banks won't have to take losses until they complete the process of healing their balance sheets and build up their capital reserves, he said.
"It's not going to be another RTC."
The federally owned RTC — Resolution Trust Corp. — liquidated billions of dollars' worth of real estate assets including bad loans that came from institutions that failed during the savings and loan crisis of the 1980s. Many of the assets sold at deep discounts from their previous prices.
Among those looking to pounce on deals is BH Properties, a Los Angeles investment firm that obtained an eight-figure revolving line of credit from Wells Fargo Bank last month for the purpose of commercial real estate acquisitions.
Such credit lines have been virtually unheard of for the last year and a half, said Steve Jaffe, executive vice president of BH Properties. "We are cautiously bullish on today's market," he said.
The firm is targeting the Inland Empire, Phoenix and Las Vegas, markets where the recession hit real estate hard. They haven't done any deals yet but they are hardly alone among investors. With most banks now stable and property owners desperately hanging on, there has been no tidal wave of cheap real estate coming up for sale.
"This is going to be a slow trickle," Rifkind said, "not a rush."
Monday, May 17, 2010
Signs of Commercial Real Estate Recovery
by David Reinholtz
While the housing and real estate crisis has gained national attention with regard to homeowners and private property foreclosures, one major facet of this economic downturn has been with commercial real estate, and it hasn't had the attention of its private counterpart. Commercial properties have seen a drastic increase in vacancies and this, in turn, has caused lease rates to plummet. This snowball effect put the brakes on many new commercial development projects as well.
Yet, finally, at the start of the new year, there are signs that the commercial real estate market has reached the bottom and is beginning to show some signs of life developing. A recent survey conducted by the Allen Matkins/UCLA Anderson School, indicates that investors and developers are beginning to see the earliest signs of recovery, though these researchers warn that the strongest effects may not be seen until 2012.
The recovery will be geographically specific, depending on the city and the number of new construction projects that had been completed within the past two years. These new construction projects in certain cities have, for the most part, remained vacant or at reduced vacancies, awaiting the full economic recovery. In these instances, these new construction projects may very well stall or delay recovery in these regions. San Diego is a prime example of a city in which recovery may be slower than the national average.
The Allen Matkins/UCLA survey has been conducted on a regular, monthly basis during the most recent economic recession and it has been several months since the survey noted any measurable optimism about future forecasts in the commercial real estate market. Developers and investors generally make their decisions about projects approximately two years before the projects are completed.
The significance of this survey then indicates that since investors and developers are beginning to feel some optimism, then they are beginning to see hope for business recovery and subsequent new projects having businesses willing to lease or purchase space within this time frame. Six months ago, these same investors and developers had a pessimistic view about the future, which meant that unless something changed, the market would continue to remain stagnant or worse, continue to fall.
This new survey certainly indicates that there is a level of interest in future commercial real estate ventures and bodes well for a long-term recovery process. While this survey was conducted throughout Southern California, its effects can be related to other regions throughout the country. The key factor, as previously mentioned, will be the level of new construction that was completed in a region during the past two years.
For example, this survey indicates that Los Angeles will experience a recovery in the commercial real estate market first in Southern California. Its new construction paled in comparison to San Diego or Orange County in recent years. Another aspect to consider is that Los Angeles wasn't a victim of the collapse of as many finance companies as other regions around it, which meant that there are fewer commercial vacancies.
The survey also takes into consideration the recovery of lease rates as well as vacancies. While Los Angeles should recover on all three fronts faster then its southern counterpart, vacancies are expected to improve throughout San Diego and Orange counties. What is still troubling for this region, however, is that while the economic recovery begins, lease rates are not expected to recover until well beyond 2012.
In fact, commercial lease rates should expect to fall further this year before leveling out at approximately 20 percent below their mid-2008 peak. However, according to survey specialist Richard Ellis, vacancy and net absorption should improve in the year 2011. The major factor that much of this improvement relies upon, of course, is overall employment and job growth.
While the nation continues to wait on signs of true recovery, commercial real estate investors and developers are finally seeing signs of a brighter future for the commercial real estate market.
While the housing and real estate crisis has gained national attention with regard to homeowners and private property foreclosures, one major facet of this economic downturn has been with commercial real estate, and it hasn't had the attention of its private counterpart. Commercial properties have seen a drastic increase in vacancies and this, in turn, has caused lease rates to plummet. This snowball effect put the brakes on many new commercial development projects as well.
Yet, finally, at the start of the new year, there are signs that the commercial real estate market has reached the bottom and is beginning to show some signs of life developing. A recent survey conducted by the Allen Matkins/UCLA Anderson School, indicates that investors and developers are beginning to see the earliest signs of recovery, though these researchers warn that the strongest effects may not be seen until 2012.
The recovery will be geographically specific, depending on the city and the number of new construction projects that had been completed within the past two years. These new construction projects in certain cities have, for the most part, remained vacant or at reduced vacancies, awaiting the full economic recovery. In these instances, these new construction projects may very well stall or delay recovery in these regions. San Diego is a prime example of a city in which recovery may be slower than the national average.
The Allen Matkins/UCLA survey has been conducted on a regular, monthly basis during the most recent economic recession and it has been several months since the survey noted any measurable optimism about future forecasts in the commercial real estate market. Developers and investors generally make their decisions about projects approximately two years before the projects are completed.
The significance of this survey then indicates that since investors and developers are beginning to feel some optimism, then they are beginning to see hope for business recovery and subsequent new projects having businesses willing to lease or purchase space within this time frame. Six months ago, these same investors and developers had a pessimistic view about the future, which meant that unless something changed, the market would continue to remain stagnant or worse, continue to fall.
This new survey certainly indicates that there is a level of interest in future commercial real estate ventures and bodes well for a long-term recovery process. While this survey was conducted throughout Southern California, its effects can be related to other regions throughout the country. The key factor, as previously mentioned, will be the level of new construction that was completed in a region during the past two years.
For example, this survey indicates that Los Angeles will experience a recovery in the commercial real estate market first in Southern California. Its new construction paled in comparison to San Diego or Orange County in recent years. Another aspect to consider is that Los Angeles wasn't a victim of the collapse of as many finance companies as other regions around it, which meant that there are fewer commercial vacancies.
The survey also takes into consideration the recovery of lease rates as well as vacancies. While Los Angeles should recover on all three fronts faster then its southern counterpart, vacancies are expected to improve throughout San Diego and Orange counties. What is still troubling for this region, however, is that while the economic recovery begins, lease rates are not expected to recover until well beyond 2012.
In fact, commercial lease rates should expect to fall further this year before leveling out at approximately 20 percent below their mid-2008 peak. However, according to survey specialist Richard Ellis, vacancy and net absorption should improve in the year 2011. The major factor that much of this improvement relies upon, of course, is overall employment and job growth.
While the nation continues to wait on signs of true recovery, commercial real estate investors and developers are finally seeing signs of a brighter future for the commercial real estate market.
Monday, May 10, 2010
THE INDUSTRIAL REAL ESTATE MARKET IN L.A. IS GROWING STRONGER
In FASCINATING INFORMATION, Trends, Uncategorized, all, statistics |
By Jodi Summers
“This particular cycle has caught us with something we have never seen before. We have been left with a significant amount of industrial space,” observed Ken Jackson, director of sales and acquisitions at Dynamic Builders. “Nonetheless, the demand for industrial space is still strong, he said.”When you are Downtown, and look to the southeast and see the one-story and two-story buildings out there, there are thousands of apparel and general merchandise companies that started there. It shows the huge strength of L.A.”
In 2009, the industrial market had one of the worst years in decades, purchase prices and lease rates reached 10-year lows. The U.S. vacancy rate for industrial properties hit 10.3% at the end of last year, according to the Urban Land Institute. Other firms, such as Grubb & Ellis, peg it slightly higher at 10.7%. Locally, we have always been blessed, as Los Angeles, peaked at 3.3% in the fourth quarter of last year, according to the Los Angeles Economic Development Corporation – up from 2.2% a year earlier.
Now, the industrial property market is slowly returning. “The worst has passed,” confirmed Craig Meyer, a managing director for Jones Lang LaSalle. “We’re clearly at the bottom looking up.”
Major cargo hubs like Los Angeles, Seattle, Kansas City, Houston and Dallas are expected to bounce out of the slump faster than other markets. While Phoenix, Chicago and Detroit are among the cities projected to lag.
Exports are up and manufacturing activity jumped last month to the fastest pace in more than five years. Around the ports of Los Angeles and Long Beach, which together handle about 40% of the nation’s cargo container shipments, sales and leasing activity for industrial properties began rising last summer. Cargo volume posted a 28% annual increase in February, reinforcing the continued strengthening of the industrial real estate market.
By Jodi Summers
“This particular cycle has caught us with something we have never seen before. We have been left with a significant amount of industrial space,” observed Ken Jackson, director of sales and acquisitions at Dynamic Builders. “Nonetheless, the demand for industrial space is still strong, he said.”When you are Downtown, and look to the southeast and see the one-story and two-story buildings out there, there are thousands of apparel and general merchandise companies that started there. It shows the huge strength of L.A.”
In 2009, the industrial market had one of the worst years in decades, purchase prices and lease rates reached 10-year lows. The U.S. vacancy rate for industrial properties hit 10.3% at the end of last year, according to the Urban Land Institute. Other firms, such as Grubb & Ellis, peg it slightly higher at 10.7%. Locally, we have always been blessed, as Los Angeles, peaked at 3.3% in the fourth quarter of last year, according to the Los Angeles Economic Development Corporation – up from 2.2% a year earlier.
Now, the industrial property market is slowly returning. “The worst has passed,” confirmed Craig Meyer, a managing director for Jones Lang LaSalle. “We’re clearly at the bottom looking up.”
Major cargo hubs like Los Angeles, Seattle, Kansas City, Houston and Dallas are expected to bounce out of the slump faster than other markets. While Phoenix, Chicago and Detroit are among the cities projected to lag.
Exports are up and manufacturing activity jumped last month to the fastest pace in more than five years. Around the ports of Los Angeles and Long Beach, which together handle about 40% of the nation’s cargo container shipments, sales and leasing activity for industrial properties began rising last summer. Cargo volume posted a 28% annual increase in February, reinforcing the continued strengthening of the industrial real estate market.
Wednesday, April 21, 2010
How To Avoid Hiring A Bad Property Management Company
In Southern California, property management is an important aspect of investing in real estate. The profitability of your property is dependent on hiring a qualified, helpful and professional property management company.
Hiring the wrong management company can mean losing thousand of dollars. Property owners who hire the right property management company however, can enjoy the benefits of a lucrative property investment.
Some of the most common, and often, detrimental mistakes a property owner makes is not doing enough research. The more research you do, the more you can avoid hiring a bad management company.
Property management companies that also sell properties, often nation wide corporations like Century 21, etc. are often a bad idea. They usually are primarily real estate agents, who also do property management because they want to manage when you choose the sell the property. A property management company like this is not a good idea because they make more money selling than managing. You would benefit more from a smaller, specialized company that deals only with property management in your area and nothing else.
Make sure you check the references of your management company’s other clients. Don’t be afraid to make a few phone calls, and get a good track record. You shouldn’t sign anything before you have a good idea that the company you’re hiring is the best at property management and one that you can trust. On the other hand, as an owner, you shouldn’t be too demanding of references either. A good property management company will not release all of their clients’ information to you, because it is private and confidential information. The management company won’t be making an obscene amount of money managing your property, so they can always tell you to take your business elsewhere. You will do well with around 3 references to talk to, and get an idea of how they work with their clients.
Some other things to keep in mind: Is the company licensed in the state of California? Is the company insured? Do they have a fidelity bond to protect you in case an employee mishandles your money? Will they provide you with reports? Will they market your property? How do they deal with late charges? How do they handle tenant complaints? And so on. These are some tips for making sure you hire a good property management company that will professionally and efficiently manage your property, helping you turn your home/apartment/condo/commercial property into a steady investment.
Hiring the wrong management company can mean losing thousand of dollars. Property owners who hire the right property management company however, can enjoy the benefits of a lucrative property investment.
Some of the most common, and often, detrimental mistakes a property owner makes is not doing enough research. The more research you do, the more you can avoid hiring a bad management company.
Property management companies that also sell properties, often nation wide corporations like Century 21, etc. are often a bad idea. They usually are primarily real estate agents, who also do property management because they want to manage when you choose the sell the property. A property management company like this is not a good idea because they make more money selling than managing. You would benefit more from a smaller, specialized company that deals only with property management in your area and nothing else.
Make sure you check the references of your management company’s other clients. Don’t be afraid to make a few phone calls, and get a good track record. You shouldn’t sign anything before you have a good idea that the company you’re hiring is the best at property management and one that you can trust. On the other hand, as an owner, you shouldn’t be too demanding of references either. A good property management company will not release all of their clients’ information to you, because it is private and confidential information. The management company won’t be making an obscene amount of money managing your property, so they can always tell you to take your business elsewhere. You will do well with around 3 references to talk to, and get an idea of how they work with their clients.
Some other things to keep in mind: Is the company licensed in the state of California? Is the company insured? Do they have a fidelity bond to protect you in case an employee mishandles your money? Will they provide you with reports? Will they market your property? How do they deal with late charges? How do they handle tenant complaints? And so on. These are some tips for making sure you hire a good property management company that will professionally and efficiently manage your property, helping you turn your home/apartment/condo/commercial property into a steady investment.
Friday, April 9, 2010
Hope for California's future?
By: E. Scott Reckard
Job losses are staggering. Declines in property values are among the worst in the nation. The percentage of immigrant residents is even falling.
But California, it seems, has managed to retain some of its traditional allure.
Many Golden State residents believe their longer-term personal situations, and the economy, are going to improve despite pervasive negative feelings about the state’s current economic woes, according to a poll released Thursday by Citibank.
To be sure, nine of 10 Californians said the state’s job and real estate markets are no better than fair, and seven in 10 saw few signs of an improving economy.
Solid majorities of respondents to the poll by the New York bank detected no signs of improvement in the state’s small-business environment, the quality of its schools and education, the tourist industry, or commercial real estate.
Nonetheless, “Seventy-four percent of young people still feel this is an excellent place to live,” Rebecca Macieira-Kaufmann, Citibank’s president of California operations, said in an interview.
Key responses to questions about California:
-- 91% said economic conditions are only fair or poor.
-- 91% said job opportunities are only fair or poor.
-- 76% said they see no signs of the job market improving.
-- 65% said they see no signs the real estate market is improving.
And yet ....
-- 64% said California is a good or great place to live.
-- 62% were comfortable with their level of debt.
As so often happens, the poll detected a split between denizens of Northern California and Southern California.
Just half (52%) of Los Angeles-area residents believed that the economy would improve in 12 months, compared with about two-thirds (64%) in San Francisco. In the Bay Area, 62% said job opportunities would be better in the next 12 months, versus 56% of Southern Californians.
Indeed, 14% of Bay Area residents described current job opportunities as excellent or good. In the Southland, only 5% agreed.
Macieira-Kaufmann said Citi uses the survey, conducted quarterly, to stimulate conversations with its customers about their financial situations and plans.
The poll, by ABT SRBI Public Affairs, was conducted in English and Spanish by telephone March 23-31 among a random sample of 1,201 Californians ages 18 and older. The margin of sampling error for the entire group was plus or minus 3 percentage points, with a larger margin of error for subgroups.
Job losses are staggering. Declines in property values are among the worst in the nation. The percentage of immigrant residents is even falling.
But California, it seems, has managed to retain some of its traditional allure.
Many Golden State residents believe their longer-term personal situations, and the economy, are going to improve despite pervasive negative feelings about the state’s current economic woes, according to a poll released Thursday by Citibank.
To be sure, nine of 10 Californians said the state’s job and real estate markets are no better than fair, and seven in 10 saw few signs of an improving economy.
Solid majorities of respondents to the poll by the New York bank detected no signs of improvement in the state’s small-business environment, the quality of its schools and education, the tourist industry, or commercial real estate.
Nonetheless, “Seventy-four percent of young people still feel this is an excellent place to live,” Rebecca Macieira-Kaufmann, Citibank’s president of California operations, said in an interview.
Key responses to questions about California:
-- 91% said economic conditions are only fair or poor.
-- 91% said job opportunities are only fair or poor.
-- 76% said they see no signs of the job market improving.
-- 65% said they see no signs the real estate market is improving.
And yet ....
-- 64% said California is a good or great place to live.
-- 62% were comfortable with their level of debt.
As so often happens, the poll detected a split between denizens of Northern California and Southern California.
Just half (52%) of Los Angeles-area residents believed that the economy would improve in 12 months, compared with about two-thirds (64%) in San Francisco. In the Bay Area, 62% said job opportunities would be better in the next 12 months, versus 56% of Southern Californians.
Indeed, 14% of Bay Area residents described current job opportunities as excellent or good. In the Southland, only 5% agreed.
Macieira-Kaufmann said Citi uses the survey, conducted quarterly, to stimulate conversations with its customers about their financial situations and plans.
The poll, by ABT SRBI Public Affairs, was conducted in English and Spanish by telephone March 23-31 among a random sample of 1,201 Californians ages 18 and older. The margin of sampling error for the entire group was plus or minus 3 percentage points, with a larger margin of error for subgroups.
Monday, April 5, 2010
Wall Street's Next Crisis
by Jesse Eisinger
Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property.
So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.
Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.
For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows.
In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate.
The implosion is going to be a refreshingly simple and familiar story. The commercial-real-estate frenzy has none of the nagging complications found in the residential market. There aren't any targets of predatory lending. There are no huge failures by government regulators. The aftermath won't see people thrown out of their homes—an unadulterated societal ill regardless of whether they should have known better or were tricked into taking on loans they couldn't afford.
Let's make it clear up front: The commercial-real-estate blowup—while ugly—won't be as bad as the current housing crisis. It's a smaller market, and any single property often has a diversified group of tenants with different sources of income. The supply of buildings didn't increase dramatically over the past several years, as in residential real estate. And the losses won't be as severe, because many commercial spaces can be refashioned for new occupants.
But there will be trouble, in part because of the rise of the untested commercial-real-estate structured-finance market. Just as with residential mortgages, Wall Street banks package commercial-real-estate loans, slicing them up into tranches according to risk and parceling them out to a range of investors. In 1995, $15.7 billion worth of commercial-mortgage-backed securities were issued. Through the third quarter of 2007, $196.9 billion was issued, according to Commercial Mortgage Alert, a trade publication. That amount means 2007 will be a record year, even though issuance collapsed in the fourth quarter as investors panicked over the credit crunch. Right now, there is about $730 billion in commercial-mortgage-backed securities outstanding. "Not only have we been in a rising tide, but the loans are very different in underwriting standards than even five or 10 years ago," says Alan Todd, head of commercial-mortgage-backed-securities research at J.P. Morgan. "We haven't been through a cycle yet" with these new structures, he adds ominously.
The perennial lesson to be drawn from the coming slump: You can't protect greedy and myopic people from themselves. With residential mortgages, one of the most persistent myths to take hold in recent years was that home prices on a national level had never decreased in a given year. That wasn't true, but perhaps we can forgive people for being hopeful.
The commercial-real-estate market has no such excuses. Everyone knew that the business is highly cyclical. Indeed, a huge downturn had occurred as recently as the early 1990s, within the memory of most of the professionals now in the market.
Amid the tall office spires of America's cities, big-money pros have simply been playing a game of greater fool, trying to bring in huge returns with borrowed money and sell out before the arrival of the crash they knew was coming. And in this case, the fools won't just be famous developers. Some of the same banks and Wall Street firms now entangled in the subprime residential crisis will also be caught in the mess. The commercial-real-estate meltdown will be a market failure, pure and simple. We will be able to look at the wreckage in the next several years with wonder and awe, untroubled this time by sympathy for those left holding the bag.
Here's what we know about what happened in commercial real estate: Lending standards fell, starkly. Or as I prefer to see it, they were thrown out of the 60th-floor window of that gleaming office tower in downtown Atlanta/Phoenix/New York/San Francisco/insert your city here. The gap between the cost of debt servicing and the cash actually being generated by the buildings narrowed. What's more, it used to be that banks made loans for no more than 80 percent of the value of a property to ensure a healthy cushion of protection, but by the early part of 2007, loans were sometimes made for 120 percent of a property's value. Who would be so crazy as to lend more than a property is worth? Anyone who believes in perpetual-motion machines—that is, that rents and underlying property values must always go up.
A prime example is Tishman Speyer Properties, which paid a record price for two giant New York apartment complexes. To make the purchase work, the company must now figure out a way to kick out current tenants—many of whom have their rents stabilized by law—at a faster rate than has been managed in years past, in order to replace them with ones who will pay more. Historically, that turnover has been about 6 percent, says Todd, but Tishman Speyer is assuming a rate of more than double that for the first couple of years, and 10 percent for the next few after that.
Free money frothed up the market. The clear top—as clear at the time as it is in hindsight—was when real estate mogul Sam Zell sold his Equity Office Properties to the Blackstone Group, a private equity firm. Blackstone had entered into a bidding war with Vornado Realty Trust for E.O.P. and ended up paying much more than it had initially bid. Yet Blackstone managed to unload so many E.O.P. properties so fast that the deal looks brilliant. The bag holders are ultimately the ones who will appear foolish. Indeed, in a sign of things to come, one titan already does: Harry Macklowe, a famed New York real estate buccaneer, leveraged himself to the gills to buy seven New York office buildings from E.O.P., a side agreement to the Blackstone purchase. He borrowed $7.6 billion, based on stratospheric valuations, while putting a minuscule $50 million of his own equity into the deal, financing much of the purchase with short-term debt. Since the summer, Macklowe has struggled to refinance the debt in increasingly choppy markets. And he has had to put up as collateral his trophy property, the General Motors Building in midtown Manhattan.
Lending standards had been loosening across the industry for years. Standard & Poor's and Moody's both voiced early concerns in late 2004 and the beginning of 2005. Sure, "supply and demand is in balance, but that's not a license to loan more money against a given cash flow," says Tad Philipp, Moody's managing director of commercial-mortgage finance. "What we were seeing was riskier and riskier loans, and the loans got riskier still. And we are just past the top of the cycle."
Despite their misgivings, the ratings agencies kept slapping seals of approval on commercial-real-estate structures. Just as they did when rating securities containing residential mortgages, the agencies relied heavily on recent historical data, which were misleading. Such transactions are designed so that investors who take on the most risk stand to get wiped out first. What happened is that the level of cushioning shrank dramatically, meaning damage from bad loans will seep into higher-rated tranches more quickly than generally expected.
To its credit, Moody's started requiring higher levels of protection in the spring of 2007. S&P and Fitch, according to a J.P. Morgan analysis, lagged significantly—and won market share as a result. Those two will come to regret that they didn't respond faster to the Moody's move. And of course, those stuck with the paper won't be able to ignore what they bought during the frothy times, when commercial-real-estate structured finance became a big, lucrative business for Wall Street. As financial firms pushed these securities out the door, the structures took on alarming qualities.
As Todd explains, in the early part of the decade, commercial-mortgage-backed-securities deals rarely had any one loan that was so big it dominated the pool. But in recent years, the top 15 loans in a 200-loan pool could make up 40 to 65 percent of the pool's total value. In the old days, any single default wouldn't hurt a structure disproportionately. That's no longer true. Investors and ratings agencies haven't fully appreciated how hairy these structures have become, according to some commercial-mortgage experts. Todd calls this blindness to risk the agencies' and investors' "biggest mistake" with regard to commercial real estate. "You are disproportionately exposed to the largest loans.... It's been so good for so long, we don't have models set up to look at defaults properly," he says.
In recent months, as real estate developers have scrambled for funding from lenders, a standoff has developed. The banks haven't been able to find buyers for structured financial products. At some point, the banks will have to come down in price, and then they will take losses, just as they have with leveraged loans made to corporations being taken over by private equity. Since the losses haven't happened yet and since we've reached the end of a very good year in commercial real estate, Wall Street is understandably reluctant to face reality. Why take losses that will eat into this year's bonuses if you can take the losses next year, when, as everyone knows, the market will be bad?
We've seen this throughout the financial markets in 2007. This has been the season of see no evil, hear no evil, speak no evil—until you absolutely have to. But you can't hold off losses forever, as the huge write-offs at banks have demonstrated. Through the first nine months of 2007, Wachovia was by far the top contributor of loans in the commercial-real-estate-structures business, followed by Lehman, Credit Suisse, Morgan Stanley, and J.P. Morgan, according to Commercial Mortgage Alert. Now the firms are sitting on those loans, waiting to unload them. "The problem is there are no buyers. Nobody wants to take a really big loss and jump the gun too quickly," an investment professional at a commercial-real-estate investment trust told me. "There's a game of chicken going on."
A few weeks ago, a hedge fund manager emailed me a PowerPoint presentation on the commercial-real-estate market. It opened with a typically dry title: "2008 C.M.B.S. Forecast."
I clicked through to the first page, "Capital Markets." It had a picture of a derailed train. The next page, "Credit Fundamentals," included a photo of a bridge collapsing in a hurricane. Next came "Property Values," featuring an imploding skyscraper. The fourth page was "Economic Outlook"—a ship run aground on the rocks.
Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property.
So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.
Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.
For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows.
In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate.
The implosion is going to be a refreshingly simple and familiar story. The commercial-real-estate frenzy has none of the nagging complications found in the residential market. There aren't any targets of predatory lending. There are no huge failures by government regulators. The aftermath won't see people thrown out of their homes—an unadulterated societal ill regardless of whether they should have known better or were tricked into taking on loans they couldn't afford.
Let's make it clear up front: The commercial-real-estate blowup—while ugly—won't be as bad as the current housing crisis. It's a smaller market, and any single property often has a diversified group of tenants with different sources of income. The supply of buildings didn't increase dramatically over the past several years, as in residential real estate. And the losses won't be as severe, because many commercial spaces can be refashioned for new occupants.
But there will be trouble, in part because of the rise of the untested commercial-real-estate structured-finance market. Just as with residential mortgages, Wall Street banks package commercial-real-estate loans, slicing them up into tranches according to risk and parceling them out to a range of investors. In 1995, $15.7 billion worth of commercial-mortgage-backed securities were issued. Through the third quarter of 2007, $196.9 billion was issued, according to Commercial Mortgage Alert, a trade publication. That amount means 2007 will be a record year, even though issuance collapsed in the fourth quarter as investors panicked over the credit crunch. Right now, there is about $730 billion in commercial-mortgage-backed securities outstanding. "Not only have we been in a rising tide, but the loans are very different in underwriting standards than even five or 10 years ago," says Alan Todd, head of commercial-mortgage-backed-securities research at J.P. Morgan. "We haven't been through a cycle yet" with these new structures, he adds ominously.
The perennial lesson to be drawn from the coming slump: You can't protect greedy and myopic people from themselves. With residential mortgages, one of the most persistent myths to take hold in recent years was that home prices on a national level had never decreased in a given year. That wasn't true, but perhaps we can forgive people for being hopeful.
The commercial-real-estate market has no such excuses. Everyone knew that the business is highly cyclical. Indeed, a huge downturn had occurred as recently as the early 1990s, within the memory of most of the professionals now in the market.
Amid the tall office spires of America's cities, big-money pros have simply been playing a game of greater fool, trying to bring in huge returns with borrowed money and sell out before the arrival of the crash they knew was coming. And in this case, the fools won't just be famous developers. Some of the same banks and Wall Street firms now entangled in the subprime residential crisis will also be caught in the mess. The commercial-real-estate meltdown will be a market failure, pure and simple. We will be able to look at the wreckage in the next several years with wonder and awe, untroubled this time by sympathy for those left holding the bag.
Here's what we know about what happened in commercial real estate: Lending standards fell, starkly. Or as I prefer to see it, they were thrown out of the 60th-floor window of that gleaming office tower in downtown Atlanta/Phoenix/New York/San Francisco/insert your city here. The gap between the cost of debt servicing and the cash actually being generated by the buildings narrowed. What's more, it used to be that banks made loans for no more than 80 percent of the value of a property to ensure a healthy cushion of protection, but by the early part of 2007, loans were sometimes made for 120 percent of a property's value. Who would be so crazy as to lend more than a property is worth? Anyone who believes in perpetual-motion machines—that is, that rents and underlying property values must always go up.
A prime example is Tishman Speyer Properties, which paid a record price for two giant New York apartment complexes. To make the purchase work, the company must now figure out a way to kick out current tenants—many of whom have their rents stabilized by law—at a faster rate than has been managed in years past, in order to replace them with ones who will pay more. Historically, that turnover has been about 6 percent, says Todd, but Tishman Speyer is assuming a rate of more than double that for the first couple of years, and 10 percent for the next few after that.
Free money frothed up the market. The clear top—as clear at the time as it is in hindsight—was when real estate mogul Sam Zell sold his Equity Office Properties to the Blackstone Group, a private equity firm. Blackstone had entered into a bidding war with Vornado Realty Trust for E.O.P. and ended up paying much more than it had initially bid. Yet Blackstone managed to unload so many E.O.P. properties so fast that the deal looks brilliant. The bag holders are ultimately the ones who will appear foolish. Indeed, in a sign of things to come, one titan already does: Harry Macklowe, a famed New York real estate buccaneer, leveraged himself to the gills to buy seven New York office buildings from E.O.P., a side agreement to the Blackstone purchase. He borrowed $7.6 billion, based on stratospheric valuations, while putting a minuscule $50 million of his own equity into the deal, financing much of the purchase with short-term debt. Since the summer, Macklowe has struggled to refinance the debt in increasingly choppy markets. And he has had to put up as collateral his trophy property, the General Motors Building in midtown Manhattan.
Lending standards had been loosening across the industry for years. Standard & Poor's and Moody's both voiced early concerns in late 2004 and the beginning of 2005. Sure, "supply and demand is in balance, but that's not a license to loan more money against a given cash flow," says Tad Philipp, Moody's managing director of commercial-mortgage finance. "What we were seeing was riskier and riskier loans, and the loans got riskier still. And we are just past the top of the cycle."
Despite their misgivings, the ratings agencies kept slapping seals of approval on commercial-real-estate structures. Just as they did when rating securities containing residential mortgages, the agencies relied heavily on recent historical data, which were misleading. Such transactions are designed so that investors who take on the most risk stand to get wiped out first. What happened is that the level of cushioning shrank dramatically, meaning damage from bad loans will seep into higher-rated tranches more quickly than generally expected.
To its credit, Moody's started requiring higher levels of protection in the spring of 2007. S&P and Fitch, according to a J.P. Morgan analysis, lagged significantly—and won market share as a result. Those two will come to regret that they didn't respond faster to the Moody's move. And of course, those stuck with the paper won't be able to ignore what they bought during the frothy times, when commercial-real-estate structured finance became a big, lucrative business for Wall Street. As financial firms pushed these securities out the door, the structures took on alarming qualities.
As Todd explains, in the early part of the decade, commercial-mortgage-backed-securities deals rarely had any one loan that was so big it dominated the pool. But in recent years, the top 15 loans in a 200-loan pool could make up 40 to 65 percent of the pool's total value. In the old days, any single default wouldn't hurt a structure disproportionately. That's no longer true. Investors and ratings agencies haven't fully appreciated how hairy these structures have become, according to some commercial-mortgage experts. Todd calls this blindness to risk the agencies' and investors' "biggest mistake" with regard to commercial real estate. "You are disproportionately exposed to the largest loans.... It's been so good for so long, we don't have models set up to look at defaults properly," he says.
In recent months, as real estate developers have scrambled for funding from lenders, a standoff has developed. The banks haven't been able to find buyers for structured financial products. At some point, the banks will have to come down in price, and then they will take losses, just as they have with leveraged loans made to corporations being taken over by private equity. Since the losses haven't happened yet and since we've reached the end of a very good year in commercial real estate, Wall Street is understandably reluctant to face reality. Why take losses that will eat into this year's bonuses if you can take the losses next year, when, as everyone knows, the market will be bad?
We've seen this throughout the financial markets in 2007. This has been the season of see no evil, hear no evil, speak no evil—until you absolutely have to. But you can't hold off losses forever, as the huge write-offs at banks have demonstrated. Through the first nine months of 2007, Wachovia was by far the top contributor of loans in the commercial-real-estate-structures business, followed by Lehman, Credit Suisse, Morgan Stanley, and J.P. Morgan, according to Commercial Mortgage Alert. Now the firms are sitting on those loans, waiting to unload them. "The problem is there are no buyers. Nobody wants to take a really big loss and jump the gun too quickly," an investment professional at a commercial-real-estate investment trust told me. "There's a game of chicken going on."
A few weeks ago, a hedge fund manager emailed me a PowerPoint presentation on the commercial-real-estate market. It opened with a typically dry title: "2008 C.M.B.S. Forecast."
I clicked through to the first page, "Capital Markets." It had a picture of a derailed train. The next page, "Credit Fundamentals," included a photo of a bridge collapsing in a hurricane. Next came "Property Values," featuring an imploding skyscraper. The fourth page was "Economic Outlook"—a ship run aground on the rocks.
Wednesday, March 24, 2010
Mortgage reform: What is to be done?
By Chris McLaughlin
Over the past 18 months, the government has taken extraordinary steps to keep the housing market viable. Home sales reversed their four-year descent, and prices stabilized. So far. But it has cost $126 billion to date, and the bill is still growing. What’s next? With the Obama administration largely mute on the issue, Congress will hold its first hearing today about how to restructure the mortgage system in the wake of the financial crisis. “Don’t make the American taxpayer responsible for handling speculative situations or bubbles,” he said. Rep. Spencher Bachus, ranking Republican on the committee, said in a subsequent CNBC interview that he would prefer government exit the industry entirely. “We need to phase it out over time,” he said. “America is about competition and innovation. The federal model simply is not the efficient model.” Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration. And even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run agree that the housing recovery remains too fragile for the government to step away anytime soon. “The first priority is we have to keep financing homes, and we don’t have a way to do that without Fannie and Freddie,” said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. “We have to deal with the realities of where we are today.” Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year.
DSNews.com – short sales now number 1
According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, last month distressed properties – those involving homes acquired as part of a foreclosure or pre-foreclosure sale – accounted for 48.1% of the home purchase transactions tracked by the survey. The February numbers were up significantly from the 37.3% level recorded as recently as November. It was also the highest distressed property market share seen since last July. Stepped up government efforts, including temporary foreclosure moratoriums and a push to qualify more financially troubled homeowners for mortgage modifications, temporarily reduced the number of distressed properties coming on the housing market in the fall and much of this past winter. But now a growing number of distressed properties appear to be hitting the housing market. There are three major types of distressed properties: damaged REO, move-in ready REO, and short sales. During the period from November to February, sales in all three categories rose. Damaged REO grew from 12.3% to 14.4%; move-in ready REO grew from 12.6% to 16.6%, and short sales grew from 12.4% to 17.1%. “Short sales now account for the No. 1 category of distressed property,” commented Thomas Popik, research director for Campbell Surveys. “Losses on short sales are typically lower than for REO, and both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply want to walk away from their properties, mortgage servicers are having trouble expeditiously processing these complicated transactions.”
More regulation needed
Philadelphia Federal Reserve Bank President Charles Plosser said yesterday that better regulation is needed to dissuade financial market players from taking excessive risks after the “too big to fail problem” undermined discipline. “The too big to fail problem has essentially removed much of that market discipline,” Plosser told an economic conference in Prague. “We have to have ways of disciplining the actors in the marketplace so that they don’t take excessive risks, and in many cases the market can do that and do that quite effectively. But when we protect creditors, when we protect people from failure, we encourage them to take risks.” Bernanke made clear at the weekend that large financial firms continued to play a crucial role in the global economy, and Plosser said different, but not necessarily more regulations were needed. “Government regulation and government oversight will never replace the marketplace officially … when there is regulation they will look for ways around that regulation in order to be successful,” he said. “We will always as regulators be behind that curve. The only way we can be effective in protecting financial stability is to have regulations and rules that complement and encourage more market discipline, not replace it.” If only things were as simple as adding more bureaucrats.
DSNews.com – seven more banks fail
The FDIC’s failed bank list jumped to 37 for the year after seven more community banks fell over the weekend – three in Georgia, and one each in Alabama, Minnesota, Ohio, and Utah. Appalachian Community Bank in Ellijay, Georgia had 10 branch locations, with $1.01 billion in total assets and $917.6 million in deposits. Bank of Hiawassee, based in Hiawassee, Georgia, ran five branches and had $377.8 million in assets and $339.6 million in deposits. Century Security Bank in Duluth, Georgia operated two branches and had $96.5 million in assets and $94 million in deposits. First Lowndes Bank in Fort Deposit, Alabama was a four-branch institution, with $137.2 million in assets and $131.1 million in deposits. Minnesota’s State Bank of Aurora operated out of a single branch office. It had $28.2 million in assets and $27.8 million in deposits. The single branch of American National Bank in Parma, Ohio had approximately $70.3 million in assets and $66.8 million in deposits. Bank Corp. in Draper, Utah, had $1.6 billion in assets and $1.5 billion in total deposits.
Goodbye to Acorn
The Association of Community Organizers for Reform Now
(ACORN) will no longer darken our doors nationally, after a meeting of the board over the weekend. The fate of the local branches remains unclear. Although the majority will cease operation on April 1, as the non-profit continues to look for ways to settle its debts, some may rebrand themselves and operate around under a different name. In an e-mail sent to reporters, ACORN said: “[We] have a great deal to be proud of — from promoting homeownership to helping rebuild New Orleans, from raising wages to winning safer streets, from training community leaders to promoting voter participation— ACORN members have worked hard to create stronger to communities, a more inclusive democracy, and a more just nation.” ACORN began a turn for the worst when, in September, videos emerged online of ACORN workers allegedly giving some fraudulent advice to filmmaker James O’Keefe and his associate, Hannah Giles. House Republicans last year began an investigation into how Acorn’s political arm was funded. Republican investigators on the House Oversight and Government Reform Committee determined that “there were no firewalls” between Acorn’s federally subsidized housing activities and its political wings, said Kurt Bardella, a spokesman Rep. Darrell Issa, the top Republican on the committee. Officials of Acorn Housing, created by the main Acorn group in the mid-1980s, have said they had a separate board and budget, though the two organizations shared office space in some cities. Congress last year cut off federal funding for Acorn Housing. Federal money last year provided about three-quarters of the group’s budget of $24 million. A large offshoot formerly known as Acorn Housing, which counsels low-income homeowners, has changed its name to Affordable Housing Centers of America and plans to continue operations.
Over the past 18 months, the government has taken extraordinary steps to keep the housing market viable. Home sales reversed their four-year descent, and prices stabilized. So far. But it has cost $126 billion to date, and the bill is still growing. What’s next? With the Obama administration largely mute on the issue, Congress will hold its first hearing today about how to restructure the mortgage system in the wake of the financial crisis. “Don’t make the American taxpayer responsible for handling speculative situations or bubbles,” he said. Rep. Spencher Bachus, ranking Republican on the committee, said in a subsequent CNBC interview that he would prefer government exit the industry entirely. “We need to phase it out over time,” he said. “America is about competition and innovation. The federal model simply is not the efficient model.” Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration. And even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run agree that the housing recovery remains too fragile for the government to step away anytime soon. “The first priority is we have to keep financing homes, and we don’t have a way to do that without Fannie and Freddie,” said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. “We have to deal with the realities of where we are today.” Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year.
DSNews.com – short sales now number 1
According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, last month distressed properties – those involving homes acquired as part of a foreclosure or pre-foreclosure sale – accounted for 48.1% of the home purchase transactions tracked by the survey. The February numbers were up significantly from the 37.3% level recorded as recently as November. It was also the highest distressed property market share seen since last July. Stepped up government efforts, including temporary foreclosure moratoriums and a push to qualify more financially troubled homeowners for mortgage modifications, temporarily reduced the number of distressed properties coming on the housing market in the fall and much of this past winter. But now a growing number of distressed properties appear to be hitting the housing market. There are three major types of distressed properties: damaged REO, move-in ready REO, and short sales. During the period from November to February, sales in all three categories rose. Damaged REO grew from 12.3% to 14.4%; move-in ready REO grew from 12.6% to 16.6%, and short sales grew from 12.4% to 17.1%. “Short sales now account for the No. 1 category of distressed property,” commented Thomas Popik, research director for Campbell Surveys. “Losses on short sales are typically lower than for REO, and both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply want to walk away from their properties, mortgage servicers are having trouble expeditiously processing these complicated transactions.”
More regulation needed
Philadelphia Federal Reserve Bank President Charles Plosser said yesterday that better regulation is needed to dissuade financial market players from taking excessive risks after the “too big to fail problem” undermined discipline. “The too big to fail problem has essentially removed much of that market discipline,” Plosser told an economic conference in Prague. “We have to have ways of disciplining the actors in the marketplace so that they don’t take excessive risks, and in many cases the market can do that and do that quite effectively. But when we protect creditors, when we protect people from failure, we encourage them to take risks.” Bernanke made clear at the weekend that large financial firms continued to play a crucial role in the global economy, and Plosser said different, but not necessarily more regulations were needed. “Government regulation and government oversight will never replace the marketplace officially … when there is regulation they will look for ways around that regulation in order to be successful,” he said. “We will always as regulators be behind that curve. The only way we can be effective in protecting financial stability is to have regulations and rules that complement and encourage more market discipline, not replace it.” If only things were as simple as adding more bureaucrats.
DSNews.com – seven more banks fail
The FDIC’s failed bank list jumped to 37 for the year after seven more community banks fell over the weekend – three in Georgia, and one each in Alabama, Minnesota, Ohio, and Utah. Appalachian Community Bank in Ellijay, Georgia had 10 branch locations, with $1.01 billion in total assets and $917.6 million in deposits. Bank of Hiawassee, based in Hiawassee, Georgia, ran five branches and had $377.8 million in assets and $339.6 million in deposits. Century Security Bank in Duluth, Georgia operated two branches and had $96.5 million in assets and $94 million in deposits. First Lowndes Bank in Fort Deposit, Alabama was a four-branch institution, with $137.2 million in assets and $131.1 million in deposits. Minnesota’s State Bank of Aurora operated out of a single branch office. It had $28.2 million in assets and $27.8 million in deposits. The single branch of American National Bank in Parma, Ohio had approximately $70.3 million in assets and $66.8 million in deposits. Bank Corp. in Draper, Utah, had $1.6 billion in assets and $1.5 billion in total deposits.
Goodbye to Acorn
The Association of Community Organizers for Reform Now
(ACORN) will no longer darken our doors nationally, after a meeting of the board over the weekend. The fate of the local branches remains unclear. Although the majority will cease operation on April 1, as the non-profit continues to look for ways to settle its debts, some may rebrand themselves and operate around under a different name. In an e-mail sent to reporters, ACORN said: “[We] have a great deal to be proud of — from promoting homeownership to helping rebuild New Orleans, from raising wages to winning safer streets, from training community leaders to promoting voter participation— ACORN members have worked hard to create stronger to communities, a more inclusive democracy, and a more just nation.” ACORN began a turn for the worst when, in September, videos emerged online of ACORN workers allegedly giving some fraudulent advice to filmmaker James O’Keefe and his associate, Hannah Giles. House Republicans last year began an investigation into how Acorn’s political arm was funded. Republican investigators on the House Oversight and Government Reform Committee determined that “there were no firewalls” between Acorn’s federally subsidized housing activities and its political wings, said Kurt Bardella, a spokesman Rep. Darrell Issa, the top Republican on the committee. Officials of Acorn Housing, created by the main Acorn group in the mid-1980s, have said they had a separate board and budget, though the two organizations shared office space in some cities. Congress last year cut off federal funding for Acorn Housing. Federal money last year provided about three-quarters of the group’s budget of $24 million. A large offshoot formerly known as Acorn Housing, which counsels low-income homeowners, has changed its name to Affordable Housing Centers of America and plans to continue operations.
Tuesday, March 23, 2010
The Curious Case for a Real Estate Shortage
by BRIAN DAVIS
At a time when almost everyone in the real estate industry, and most homeowners trying to sell, are desperate for more buyers and market activity, some analysts are predicting a real estate shortage in the next few years.
Really? Is a real estate shortage even possible in the foreseeable future?
David Crowe, the head economist for the National Association of Homebuilders, is arguing forcefully that America will in fact see a real estate and rental lease shortage in the coming years, and points to the relatively little real estate development currently underway (about 591,000 new homes in 2010, and 87,000 new rental lease units). Population growth and its subsequent demand should outstrip those figures pretty easily.
But wait a minute – is David Crowe a reliable source? He’s paid to push for more real estate development! Still, the argument is so brazen, so counterintuitive, that perhaps there’s something there.
Consider for a moment that the number of distinct households has contracted quite a bit since early 2008, as more people are living under a single roof to consolidate resources and slash expensive rental lease or mortgage costs. Single and young people in particular who lose their jobs or take pay cuts are often quick to move in with a friend or with family, or to sign a rental lease on an extra bedroom in their home to help pay the bills.
Then there are the people who would likely have moved out on their own, but didn’t because of the poor job market. Many in Generation Y are camping out with Mom and Dad for an extra year or two to save money and slash costs, where a few years ago their counterparts were quick to go sign a rental lease on a flashy apartment in the drinking district of their local city.
In short, the demand for real estate is artificially contracted at the moment, and is poised to expand back to normal levels as soon as jobs reappear and people feel confident in signing a new deed or rental lease.
But here’s where things get interesting: there are currently about 14.2 million vacant homes in America right now, which is a discouraging high number for any real estate professional. It will take years to fill all of those vacant homes, even using the most generous estimates of population growth and expansion in the number of households. And it doesn’t matter.
A hefty percentage of that vacant real estate sits in areas that will either not recover economically, or will recover slowly, and those homes are effectively irrelevant for the housing recovery. Because the demand for real estate will follow the job recovery, what we’ll see is a rental lease and real estate shortage erupt in areas where employment recovery blossoms, as hungry job seekers eagerly move where the jobs are. Rural areas, and systemically depressed areas (such as much of Michigan and Ohio), will sit fallow and all of their vacant real estate will have not the slightest effect on housing demand.
There may well be a housing shortage, as our biased friend Mr. Crowe suggests. If and when it comes, it will be extremely location-sensitive, with hot pockets of demand and large swaths of untouched, unwanted real estate.
At a time when almost everyone in the real estate industry, and most homeowners trying to sell, are desperate for more buyers and market activity, some analysts are predicting a real estate shortage in the next few years.
Really? Is a real estate shortage even possible in the foreseeable future?
David Crowe, the head economist for the National Association of Homebuilders, is arguing forcefully that America will in fact see a real estate and rental lease shortage in the coming years, and points to the relatively little real estate development currently underway (about 591,000 new homes in 2010, and 87,000 new rental lease units). Population growth and its subsequent demand should outstrip those figures pretty easily.
But wait a minute – is David Crowe a reliable source? He’s paid to push for more real estate development! Still, the argument is so brazen, so counterintuitive, that perhaps there’s something there.
Consider for a moment that the number of distinct households has contracted quite a bit since early 2008, as more people are living under a single roof to consolidate resources and slash expensive rental lease or mortgage costs. Single and young people in particular who lose their jobs or take pay cuts are often quick to move in with a friend or with family, or to sign a rental lease on an extra bedroom in their home to help pay the bills.
Then there are the people who would likely have moved out on their own, but didn’t because of the poor job market. Many in Generation Y are camping out with Mom and Dad for an extra year or two to save money and slash costs, where a few years ago their counterparts were quick to go sign a rental lease on a flashy apartment in the drinking district of their local city.
In short, the demand for real estate is artificially contracted at the moment, and is poised to expand back to normal levels as soon as jobs reappear and people feel confident in signing a new deed or rental lease.
But here’s where things get interesting: there are currently about 14.2 million vacant homes in America right now, which is a discouraging high number for any real estate professional. It will take years to fill all of those vacant homes, even using the most generous estimates of population growth and expansion in the number of households. And it doesn’t matter.
A hefty percentage of that vacant real estate sits in areas that will either not recover economically, or will recover slowly, and those homes are effectively irrelevant for the housing recovery. Because the demand for real estate will follow the job recovery, what we’ll see is a rental lease and real estate shortage erupt in areas where employment recovery blossoms, as hungry job seekers eagerly move where the jobs are. Rural areas, and systemically depressed areas (such as much of Michigan and Ohio), will sit fallow and all of their vacant real estate will have not the slightest effect on housing demand.
There may well be a housing shortage, as our biased friend Mr. Crowe suggests. If and when it comes, it will be extremely location-sensitive, with hot pockets of demand and large swaths of untouched, unwanted real estate.
Monday, March 15, 2010
Commercial real estate: A protracted recovery
Thu, 2010-03-11 12:09 — Michael Lagazo
Rising vacancies and falling rents are impacting all sectors of commercial real estate. Landlords are focusing on tenant retention and negotiating lease extensions at low rents with favorable allowances to sustain revenues. The Beige Book Jan. 13, 2010 Summary indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report. Commercial real estate markets deteriorated in most districts based on information collected on or before Jan. 5, 2009. Commercial real estate transactions and leasing activity are minimal with isolated minor increases in sales. Commercial construction activity is reported to be shrinking rapidly (http://bit.ly/7zmicc).
Bloomberg reporters, Beth Williams and Stuart Bern, note that U.S. commercial real estate prices have fallen more than 40 percent from their peak in October 2007, while the default rate on commercial mortgages more than doubled in the third quarter of 2009 to 3.4 percent from the previous year, according to data compiled by Moody’s Investors Service and Real Estate Econometrics.
Grubb & Ellis indicates that in 2010, commercial real estate fundamentals will decline more slowly than in 2009, with most property types reaching bottom near the end of 2010 and beginning a slow recovery starting in 2011. Robert Bach, senior vice president, chief economist at Grubb & Ellis, reports in the Jan. 19, 2010 Weekly Market Insight that vacancy rates in Q4 2009 increased by 30 basis points for office and 20 basis points for industrial compared with third quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010.
As featured in the Jan. 19, 2010 National Real Estate Investor podcast titled, “Commercial Real Estate: Hey, Save a Piece of Stimulus Pie for Me!”, John B. Levy, founder of John B. Levy and Company, the real estate investment banking firm, does not anticipate resurgence in commercial real estate values until 2011. Levy offers a clearly improved outlook for 2010 compared to last year, anticipating a protracted recovery of values and pricing with gradual increases depending on how the economy grows as well as the rebirth of commercial mortgage-backed securities (CMBS). According to Levy, the first and second quarters of 2010 will be slow improving in the second half of the year, but favorable overall compared to 2009’s totals.
In a Jan. 13, 2010 Bloomberg interview, Kenneth Laub, a broker for five decades, and consultant and founder of Kenneth Laub & Company, is said to have handled more than $40 billion of real estate transactions since its inception in 1969, says, “It’s not a supply/demand thing; it’s an overleveraged condition." Unlike previous cycles driven by supply and demand where inventories have been overbuilt making it a landlords’ market or diminished rents make it a tenants’ markets, the current market is driven by a need to deleverage. Ultimately, Laub said that a coming recovery will extend beyond typical periods of two to three years. “It won’t be a typical part of a cycle where we’re down for two or three years and things recover. It will be longer than we’ve gone through before.”
Wall Street Journal Real Estate Reporter Christina S.N. Lewis explains that, despite property prices bottoming, a large number of commercial assets remain underwater, with loans worth more than the property's value. That distressed debt totals hundreds of billions of dollars on bank balance sheets and in commercial-mortgage-backed securities held by institutional investors.
Any stabilization applies to only the top quartile of properties—fully leased buildings with steady rental income located in established markets. "[In general] I wouldn't say there's been any improvement in pricing for a property that isn't top-tier," said Robert M. White Jr., president and founder of Real Capital.
Michael Stuart elaborates in the January issue of Commercial Investment Real Estate that loan demand continues to decline or remain weak and credit quality continues to deteriorate. Amassing capital in a credit-restricted market tops real estate priorities. Stuart recommends pursuing non-traditional capital-raising options. For instance, Simon recently sold $500 million of five-year unsecured bonds priced to yield 5.46 percent, bringing the total capital Simon has raised in bond and equity offerings since March 2009 to $3.4 billion. Its cash available for strategic acquisitions, including capacity on its revolving line of credit, is now in excess of $6 billion.
Moody’s Investors Service said that commercial property prices rose one percent in November, after 13 consecutive months of declines, according to their latest Moody’s/REAL Commercial Property Price Index (CPPI).
Here are some excerpts from the Moody’s/REAL report:
►After 13 consecutive months of declining property values, the Moody’s/REAL Commercial Property Price Index (CPPI) measured a one percent increase in prices in November. Prices began falling over two years ago and significant declines were seen throughout 2009, with several months experiencing five percent-plus value drops. The one percent growth in prices seen in November is a small bright spot for the commercial real estate sector, which has seen values fall in excess of 43 percent from the peak.
►Transaction volume fell in November. Overall, 362 total sales were recorded, with an aggregate value of $4.1 billion.
►We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short-term lease structures, such as multi-family, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.
“We are beginning to see some early, yet encouraging, recovery signals, as the manufacturing sector is improving,” said Craig Meyer, managing director and head of Jones Lang LaSalle’s North American Industrial Services team. National Real Estate Investor reports that rental rate appreciation is not expected to begin until consumer spending and production activity trends reverse.
“There will be giant opportunities that come out of this,” said Laub. Opportunity lies in overleveraged and underfinanced distressed assets. Record-level inventory is available in all sectors. Bargain hunting hedge funds, foreign investors and solvent real estate companies will acquire properties with diminished values. In a Jan. 19, 2010 Bloomberg interview, Laub said that prices and values will begin to stabilize once unemployment stabilizes. At approximately 200-square feet per unemployed worker, demand for space will increase once companies begin hiring.
New services are emerging as property owners seek to restructure their finances, acquire tenants or liquidate assets. In a Jan. 15, 2010 squarefeetblog post, Stan Mullin, the former head of SIOR, wrote a detailed article covering receiverships that explains how commercial agents will benefit from working with court-approved receivers to preserve the value of an asset after a default. There is a major upsurge in receiverships as a result of the crisis, and most of the major commercial real estate (CRE) firms have either revived or setup service lines to service the loan industry.
“We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before,” Laub said.
Deleveraging is just getting underway. Deleveraging takes two to three years at which time gross domestic product (GDP) growth is suppressed. The market is only at the beginning stage or renegotiating between mortgage holders and developers.
“The rebirth of the CMBS market is absolutely going to happen this year,” said Levy. “Last year, we had three CMBS deals, and that was three more than anyone predicted. The CMBS market in 2010 won’t resemble the one we knew and loved in 2007, but we will see a rebirth with reasonable and rational underwriting. I even think we’ll see the first multi-borrower CMBS deal this year.”
Rising vacancies and falling rents are impacting all sectors of commercial real estate. Landlords are focusing on tenant retention and negotiating lease extensions at low rents with favorable allowances to sustain revenues. The Beige Book Jan. 13, 2010 Summary indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report. Commercial real estate markets deteriorated in most districts based on information collected on or before Jan. 5, 2009. Commercial real estate transactions and leasing activity are minimal with isolated minor increases in sales. Commercial construction activity is reported to be shrinking rapidly (http://bit.ly/7zmicc).
Bloomberg reporters, Beth Williams and Stuart Bern, note that U.S. commercial real estate prices have fallen more than 40 percent from their peak in October 2007, while the default rate on commercial mortgages more than doubled in the third quarter of 2009 to 3.4 percent from the previous year, according to data compiled by Moody’s Investors Service and Real Estate Econometrics.
Grubb & Ellis indicates that in 2010, commercial real estate fundamentals will decline more slowly than in 2009, with most property types reaching bottom near the end of 2010 and beginning a slow recovery starting in 2011. Robert Bach, senior vice president, chief economist at Grubb & Ellis, reports in the Jan. 19, 2010 Weekly Market Insight that vacancy rates in Q4 2009 increased by 30 basis points for office and 20 basis points for industrial compared with third quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010.
As featured in the Jan. 19, 2010 National Real Estate Investor podcast titled, “Commercial Real Estate: Hey, Save a Piece of Stimulus Pie for Me!”, John B. Levy, founder of John B. Levy and Company, the real estate investment banking firm, does not anticipate resurgence in commercial real estate values until 2011. Levy offers a clearly improved outlook for 2010 compared to last year, anticipating a protracted recovery of values and pricing with gradual increases depending on how the economy grows as well as the rebirth of commercial mortgage-backed securities (CMBS). According to Levy, the first and second quarters of 2010 will be slow improving in the second half of the year, but favorable overall compared to 2009’s totals.
In a Jan. 13, 2010 Bloomberg interview, Kenneth Laub, a broker for five decades, and consultant and founder of Kenneth Laub & Company, is said to have handled more than $40 billion of real estate transactions since its inception in 1969, says, “It’s not a supply/demand thing; it’s an overleveraged condition." Unlike previous cycles driven by supply and demand where inventories have been overbuilt making it a landlords’ market or diminished rents make it a tenants’ markets, the current market is driven by a need to deleverage. Ultimately, Laub said that a coming recovery will extend beyond typical periods of two to three years. “It won’t be a typical part of a cycle where we’re down for two or three years and things recover. It will be longer than we’ve gone through before.”
Wall Street Journal Real Estate Reporter Christina S.N. Lewis explains that, despite property prices bottoming, a large number of commercial assets remain underwater, with loans worth more than the property's value. That distressed debt totals hundreds of billions of dollars on bank balance sheets and in commercial-mortgage-backed securities held by institutional investors.
Any stabilization applies to only the top quartile of properties—fully leased buildings with steady rental income located in established markets. "[In general] I wouldn't say there's been any improvement in pricing for a property that isn't top-tier," said Robert M. White Jr., president and founder of Real Capital.
Michael Stuart elaborates in the January issue of Commercial Investment Real Estate that loan demand continues to decline or remain weak and credit quality continues to deteriorate. Amassing capital in a credit-restricted market tops real estate priorities. Stuart recommends pursuing non-traditional capital-raising options. For instance, Simon recently sold $500 million of five-year unsecured bonds priced to yield 5.46 percent, bringing the total capital Simon has raised in bond and equity offerings since March 2009 to $3.4 billion. Its cash available for strategic acquisitions, including capacity on its revolving line of credit, is now in excess of $6 billion.
Moody’s Investors Service said that commercial property prices rose one percent in November, after 13 consecutive months of declines, according to their latest Moody’s/REAL Commercial Property Price Index (CPPI).
Here are some excerpts from the Moody’s/REAL report:
►After 13 consecutive months of declining property values, the Moody’s/REAL Commercial Property Price Index (CPPI) measured a one percent increase in prices in November. Prices began falling over two years ago and significant declines were seen throughout 2009, with several months experiencing five percent-plus value drops. The one percent growth in prices seen in November is a small bright spot for the commercial real estate sector, which has seen values fall in excess of 43 percent from the peak.
►Transaction volume fell in November. Overall, 362 total sales were recorded, with an aggregate value of $4.1 billion.
►We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short-term lease structures, such as multi-family, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.
“We are beginning to see some early, yet encouraging, recovery signals, as the manufacturing sector is improving,” said Craig Meyer, managing director and head of Jones Lang LaSalle’s North American Industrial Services team. National Real Estate Investor reports that rental rate appreciation is not expected to begin until consumer spending and production activity trends reverse.
“There will be giant opportunities that come out of this,” said Laub. Opportunity lies in overleveraged and underfinanced distressed assets. Record-level inventory is available in all sectors. Bargain hunting hedge funds, foreign investors and solvent real estate companies will acquire properties with diminished values. In a Jan. 19, 2010 Bloomberg interview, Laub said that prices and values will begin to stabilize once unemployment stabilizes. At approximately 200-square feet per unemployed worker, demand for space will increase once companies begin hiring.
New services are emerging as property owners seek to restructure their finances, acquire tenants or liquidate assets. In a Jan. 15, 2010 squarefeetblog post, Stan Mullin, the former head of SIOR, wrote a detailed article covering receiverships that explains how commercial agents will benefit from working with court-approved receivers to preserve the value of an asset after a default. There is a major upsurge in receiverships as a result of the crisis, and most of the major commercial real estate (CRE) firms have either revived or setup service lines to service the loan industry.
“We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before,” Laub said.
Deleveraging is just getting underway. Deleveraging takes two to three years at which time gross domestic product (GDP) growth is suppressed. The market is only at the beginning stage or renegotiating between mortgage holders and developers.
“The rebirth of the CMBS market is absolutely going to happen this year,” said Levy. “Last year, we had three CMBS deals, and that was three more than anyone predicted. The CMBS market in 2010 won’t resemble the one we knew and loved in 2007, but we will see a rebirth with reasonable and rational underwriting. I even think we’ll see the first multi-borrower CMBS deal this year.”
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