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Just an update on the US commercial market:
Retail Distress Still a Hot Commodity
Among all property types, only retail property saw an increase in distressed sales volume last year, up 4% in 2012 over 2011, CoStar data shows. Sales of distressed property for all other types declined. Distressed hospitality sales were down 52% year-to-year; office, down 45%; multifamily, down 26%; and industrial, down 22%.
“Retail seems to be a strong interest for distressed investors at present and there seems to be an ample supply of attractive, newer yet distressed retail properties,” said Ryan Phillips, president of Signature Asset Management in Dallas. “Moderately leased suburban office may be an opportunity in distressed real estate. I would stay away from very low occupancy buildings unless they are small and could be filled with a few leases. Any Class “A” product that is moderately leased could be viable — as long as it is priced as distressed and not at very low cap rates.”
Cheryl Pestor, senior vice president of NAI Capital, Pasadena, CA, also noted the strong interest in retail among investors targeting distressed real estate assets.
“I specialize in retail or service-oriented retail investments with about 20% of my sales working with banks on their REOs, and there is continued interest for retail properties if they are well located corner locations with good visibility,” Pestor said.
While there are always value investors in the market, no matter where the market is in a recovery, Pestor faults seller for not pricing distressed property correctly to incentivize an investor for the risk in buying a property “as is, where is, with all faults.”
John-USA-CommercialRE
Email MeStill gotta love Florida…
Coming back strong after a post-recession starching, Florida is now growing so quickly that the Sunshine State could soon overtake New York as the nation's third most populous state. According to newly released Census Bureau data, Florida's population hit 19.3 million last summer, while New York came in at 19.6 million. But those figures belie growth rates that could have widespread ramifications — especially for Southwest Florida, which has gained 46,000 new residents since 2006.
Florida's population, fueled by job seekers, foreign immigrants and baby boomer retirees, is growing at a much faster percentage rate than New York's — growth that is likely to continue through 2013. Florida grew by 235,000 people in 2012, but a handful of economists contend 2013 growth will be even higher, as high as 360,000 new residents.
“Florida is getting its economic groove back, We are predicting Florida's population will swell by 360,000 this year. New York, by comparison, is expected to add between 50,000 and 100,000 new net residents.
“We do expect very strong population growth over the next few years, accelerating to over 2 percent, which would be double the national average, by 2014, Between 300,000 and 400,000 new net residents would be considered very strong growth. By comparison, during 2005, the peak of last decade's economic growth, 427,000 people moved to Florida.
John-USA-CommercialRE
Email MeI agree Nigel. The term Due Diligence comes to mind very quickly here.
It is just wise and good business to dig into the facts of what people are trying to sell you. Anyone can go on the internet these days and if you want to see good news on an area you can find it; but if you want to see disturbing news on any area you can find that to. But performing your own market analysis is key and it has to begin somewhere.
example…..you have someone posting a deal with 10% return GREAT. I would not recommend simply taking their word for it; test the waters. Between the internet and making a couple phone calls (even skyping) a person can perform tons of due diligence and compare the supposed 10% return to other like kind deals in that area. Even when the 10% deal that is being pitched to you stands out from what that market is currently delivering for return on investment, you must ask the simple question as to why. There are many deals that have a story behind it and that story supports the uncommon higher return. But in the absence of performing the right due diligence most people will gloss over this deal as something is not right and they just move on to the next….
On the flip side of this; when you find a deal that is being misrepresented take a few minutes and file a complaint to the proper licensing board. The key to filing a complaint here in the US is the wording of what was advertised. Does the advertisement say NET return or GROSS return? When it does not say either then a person would find that out on their initial call to that agent or firm. If at any stage in the deal inquiry there is misrepresentation then certainly ask for a confirmation in writing if possible and make a decision as to if the deal is still good enough to go for or not. If a person feels that it is total fluff and just bait to get you engaged then complain about it to that State's Licensing Board. If enough people would ultimately complain against the frauds that are out there then this industry would completely reduce the headaches of false advertising of real estate.
Sorry to get off track on this post but it is so frustrating when the other agents out there make it difficult for those of us who have integrity and ethics about what we do.
John-USA-CommercialRE
Email MeInteresting to see the investing strategy across the world is very similar when it comes to investing with no money down or at least with very little.
Even though there are 100% financing available here in the United States, it is not as easy as it sounds. It comes down to knowing the market and taking advice from those who have come and gone before you. Wisdom of others can save you thousands of dollars and many grey hairs….
John-USA-CommercialRE
Email MeHi Richard & Michael,
You guys have some great info for everyone. Do you see a lot of investors asking for how a property calculation is done to determine a "break even" point or computing the internal rate of return on an investment?
I know here in the United States we don't get the average residential investor looking to understand this as much as we do the small and large commercial investors.
I believe I seen a post from Michael earlier on that was the key; "HAVING A PLAN"….
Look forward to reading more.
John-USA-CommercialRE
Email MeRegardless of the Investment Team you form always understand the deal.
Performing due diligence can make the difference between starting a career in investing, or watching your savings fall into a money pit. If you know what to look out for, your new apartment complex can generate a steady stream of income that will help secure your retirement. However, there are many caveats that the buyer must be aware of (and that the seller is not always required to disclose) to make sure they don't make any rookie mistakes. By knowing what to look for and avoid, you can feel like an expert when buying your first apartment complex.
When buying an apartment complex, your goal is to maximize your capitalization rate. Therefore, most new investors focus on 'fixer uppers': apartment complexes that may look a little worse for wear, are being managed inefficiently, or are located in an undesirable part of town (preferably one on the verge of turning around). When an apartment complex has obvious flaws, it makes a great first project for an investor. The start up cost is low, and there is lots of potential for increased income. However, due diligence is important to ensure that the steal you think you've found isn't just a money pit that you will grow to hate.
Income and Expense Statements.
Before you come for your first visit/inspection, be sure to inform the owner that you will be coming for that purpose. Ask that the income and expense statements be made available to you. A large part of what you will learn about the apartment complex will be on those pages. You should look at expenses, net operating income and gross rent to help you to evaluate the income potential of the apartment. By the time you read them you should know the market rent for similar apartment complexes in the area. You should also look at the types of leases that the tenants have. There may be an opportunity to pass more of the apartment's maintenance costs to them.
Physical Inspection
Be sure to carefully look over the apartment, if you like what you have seen on the income and expense statements. When looking over units, check a reasonable percentage of occupied and unoccupied units and assume that the rest of the units are in similar condition. However, if you take the time to look at all of the units you may be able to ask for a reduction in price if some of them will need significant repairs.
While you look over the units, ask questions (if it is not included in the paperwork) about the number of vacancies in the apartment complex. The best investments are apartment complexes with around a 20% vacancy rate or higher. The more vacancies you can fill, the more opportunity you'll have to immediately increase your revenue with minimal investment. However, don't get too excited about a high vacancy rate. Be sure to acquaint yourself with the reason that the units are vacant to avoid making mistakes.
When you look over the property, and go over the accounts, keep in mind that you are looking for a complex that is a steal because of improper management or minor cosmetic flaws (i.e., high vacancy rate, inadequate rental agreements, ugly landscaping or facade, etc.) If you are still interested in the property after you inspect it, be sure you have a professional inspection conducted before you purchase the property. Structural damage and plumbing issues can go unnoticed by the untrained eye and they will be expensive to fix. Remember, ideally you're looking for a property that requires minimum changes that will give you maximum profit.
John-USA-CommercialRE
Email MeHi Richard,
That is correct. Obviously since the 2007 fall out in the banking system here it became extremely difficult to obtain financing for even the domestic "A" credit people but that is behind us for now.
I am literally in the thick of this industry day in and day out and I am seeing more and more leeway with lenders especially in the non-institutional side of commercial financing. As a matter of fact it appears that the commercial lenders are easier to work with than then residential lenders as it pertains to foreign nationals. Of course this goes back to the fact that the lender will be looking to the asset liability more than the borrower themselves.
Just as of yesterday I set down with a local community bank here in Central Florida with a foreign national (Chinese businessman) who I am structuring a 70% LTV loan on a $6.8M retail center. As a local community bank there is two stages to the approval process so yesterday was simply a meet and greet between lender and borrower and we addressed a few questions the bank had to prepare for today's first level of approvals. Here locally it is called the bank loan committee meeting and there is high expectations of a full approval on this deal.
Back to the main point; even though the local banks are entertaining a foreign national (by the way this has been very difficult prior to the last 12 months) the bank is performing a lot of financial and market due diligence with the property itself. Of course it is always helpful when a foreign national has good liquidity and a good track record. The other positives the banks look for is the borrower's overall investment plan. The bank wants to see the long term investor verses the buyer who will simply flip a deal.
I will stay in touch and update everyone as to the various lenders and how they are becoming easier to work with.
John-USA-CommercialRE
Email MeWhat is due diligence?
Due diligence is the process of “doing your homework” on the investment property. It is the process of checking, double-checking, and confirming any important information that was used as a basis on determining if the particular property is a good, average, or bad deal. This process takes you on an information-gathering and fact-finding mission. Proper due diligence takes persistence and weeks to accomplish. Due diligence is not used as an excuse to back out of a deal, but it is primarily a means to protect you financially and legally.
Why due diligence?
Proper due diligence will enable you to uncover potential problems with the property or as we call them, “elephants underneath the carpet” before the deal is closed. These potential problems can be very costly (time, money, legal) and can turn a good deal into a bad one very quickly. An educated real estate investor knows and understands the importance of completing their due diligence tasks.
4 Main Parts to Due Diligence:
• Inspections
• Financials
• Legal
• Modeling
Inspection Checklist •Walk-thru inspection of units by yourself, realtor, and property manager first (before you hire and pay for an inspector)
•Then, hire a professional inspection company that includes walk-thru of ALL units, structural, mechanical, electrical, pest (termites)
•Get detailed written report from inspectors
•Get estimates of repairs needed
•Get 5-yr history of capital improvements made
Financial Checklist •Income and expense statements for last 3 years
•Rent rolls for current month
•Lease agreements of all tenants
•Utility bills for last 12 months
•Property income tax returns for last 3 years (link figures to I/E above)
•Property real estate tax receipts for confirmation
•Do your own market rent survey of the local competition to know if your currents are under market and can be increased or if your rents are at the market maximum
•Get list of sales comparables from realtor and convince yourself that you are not over-paying. Hint: make sure the comparables are actually comparable are similar properties (age, class, amenities, and location)
Legal Checklist •Title report (you want clear title)
•Check for building code violations and zoning
•Get insurance policy and claims – a treasure trove of info
•Get service and vendor contracts and review
•Get copies of all surviving guarantees and warranties
•Personal property inventory list (furniture, computer, fixtures, etc.)
•Police reports – research the reputation of the property
Modeling Checklist •Spreadsheet/model the income, expense, debt, returns, and investor pay outs (if any). See our spreadsheet for this.
•Forecast the income and expense model for the next 3 to 5 years
•Have someone (more knowledgeable than you) review your model and come into agreement with you
•After all of this is complete, does this deal still meet your investment objectives?
Critical Tips to Follow During Due Diligence
The mindset we must have: “The seller is guilty until proven innocent”
• Know how many days of due diligence you have to perform. Know the exact start and end dates. You may have the following contingencies in your purchase contract: inspection, title, financing, and appraisal. Each one has its own due date and typically they are tied to your earnest money deposit. If you fail to pay attention to those due dates, you may have waived your rights to getting your earnest money returned to you if you decide to back out of the deal.
• Always follow around the professional inspector and ask plenty of questions – this is a great source of wisdom. Plus, you’re paying for it, right?
• Never believe what the Realtor tells you verbally in terms of any financials such as income and expenses. Get everything IN WRITING. It is absolutely your responsibility to double-check.
• If you are getting close to running out of time on any of your contingency periods – ask your realtor for an extension. Usually, they will give you a 5 to 10 day extension.
• Be Present. What is the opposite of being present? Answer: absent! And what are the possible consequences of being absent during due diligence? NOT GOOD!
John-USA-CommercialRE
Email Me242 new homes scheduled to be built in Bradenton, Florida… Why Florida??? Why not!!!
John-USA-CommercialRE
Email MeThe Market is looking up according to Rob (and many other professionals) that lives in Orlando. The area’s housing market in 2013, is on the rise according to a new report by ClearCapital.
Metro Orlando is slated to see home prices go up 3 percent this year, which ranked 26th among the nation’s top 50 markets, said Truckee, Calif.-based ClearCapital’s Home Data Index Market Report. The region in 2012 saw home prices increase 8.6 percent when compared with the previous year and 1.2 percent quarter-over-quarter, the report said.
Regardless of an UP or DOWN market; if you either know what you are doing or at least have a team that does then risk is manageable. So you have those that complain about everything and then you have those who obtain the education and learn how to maneuver the up and down markets.
Love the feedback.
John-USA-CommercialRE
Email MeIn support of where Nigel is coming from in this conversation and the fact that it is my back yard; last week Governor Rick Scott announced that Verizon Communications, will establish a finance and accounting “Center of Excellence” in Lake Mary, Florida. Verizon will receive $6 million in state and local tax incentives plus an additional $1.5 million in workforce training for a total of $7.5 million. A nice bump to the local economy…
According to Governor's office, this new facility will initially create 300 jobs by the fourth quarter of 2014 and bring a $50 million capital investment to the Orlando area. An additional 400 jobs are projected to be added by 2016. Those jobs will have come at a cost of $10,000 each in tax incentives and 750 jobs .
“Verizon’s choice to locate their Center of Excellence in Lake Mary is great news for Florida families" said Governor Scott. "With the second largest drop in unemployment rate in the country, this addition of 750 new jobs with Verizon is more proof we have made the right choices over the past two years to keep our economy growing.”
I guess it comes down to is the glass half full or empty? No matter where you invest if you look at the worst in a market you are going to find it. Having professionals on your team will help to leverage the risk. For those who don't like Florida for investing then honestly that leaves that much more real estate for us that do.
Later gents.
John-USA-CommercialRE
Email MeHi Nigel
How correct you are. There are many places to invest in the United States but one must be careful not to believe just anyone and stay away from the fluff. Depending on the location ad the product type (commercial industry) then a person could net 4-plus % on a McDonalds ground lease or could net 9% on a retail store or shopping center. It all depends on your people who you team with. Having the best team will always be the safest play.
Here is a link that can assist with some great up to date news: http://www.marcusmillichap.com/Video/bloomberg_112712.asp
John-USA-CommercialRE
Email MeWow; the unbelievers out there. The LoopNet link below is to an active listing. The listing is marketed as "Make an Offer" however if those who are un believers out there want to see plain and simple facts just email me off line. I will respond with a Confidentiality Agreement for you to execute (this is for the purpose of not disclosing the owner's financials to just anyone). Once I get the CA returned I will then forward you the marketing package complete with rent roll, income statement and other data to confirm this deal generates a 16% return.
Now for clarification for those who may have not read my post correctly. A CAP rate and a Net Return are different. As I referenced the net returns for assets in the 17, 20 or 25% this is simply the net cash after debt service divided by the down payment or AKA / Cash-on-Cash Return.
Now to say properties are generating a 20% CAP rate is a far reach. Guys, I hope this clears up whatever misunderstanding is out there.
John-USA-CommercialRE
Email MeGentlemen,
Seeing how I partner with Nigel in the Property Know How America; I must side with Nigel and I can certainly back up the returns in question here.
As a Commercial Real Estate Broker for many years and given that fact that I am an agent with Marcus & Millichap; I can confirm with all confidence that the 17%, 20% and 25% net return on investment are real. Though my primary focus is in Florida where I live I also am very active in Texas, California and the entire East Coast of the United States. Even though I can’t personally be an expert in every market; the firm I represent can. M&M keeps an extremely close watch on each major market in every state from the vacancy trend of specific property types to how Wall Street will and is impacting the capital used to leverage these properties.
Again, I’m not an expert at everything but I can personally attest to these same returns in every State across this Country. As for the classification of property types, yes there is an expectation of higher returns when it comes to C & D grade properties due to the upside potential. And with the C & D grade properties the lenders become a bit more conservative and it helps to have a resume with prior experience in the investment arena with this type of asset. But let’s shift the higher return mindset to the A &B grade properties. Certainly depending on the inventory of the area is a factor but given the fact my firm leads the nation in sales of every commercial product type the facts are that A & B grade assets alike do trade in CAP rates north of 8,9 and 10%. Now when you leverage those same assets your returns are even more attractive. I could go on and on about this subject for days but there is simply no need to have to prove myself when I have the inventory and closed deals as proof enough.
Regarding the financing: As most agents in this industry have experience; lenders have tightened up their requirements on many fronts but as a broker who likes to insure my deals close I have resources that simply get the job done. For instance; I just received three different term sheets last week from three different lenders quoting 25-30 years amortization, 4.5% to 5.125%, with 25% to 35% down. And to top that off these lenders were fixing the terms and providing non-recourse debt. But the absolute best part of this lending scenario is that the buyers were foreign nationals. Now of course I would not simply give out the names of these lenders as I have worked my rear off to obtain such relationships and contacts in this industry. But I can certainly refer a deal to them for you.
Be it the reader or members of this site finds my comments true or not; I can support and back up with facts as to each and every mention herein. Should any reader wish to inquire more about how these same returns and leverage can work for you; simply contact Nigel with your inquiry.
Wish I had more time to chat about this but it’s midnight in Florida and I got to go. Later gents.
John-USA-CommercialRE
Email Mezmagen,
I am a Commercial Broker in the Florida market but through my firm I'm able to represent Commercial RE all across the United States. We have a pulse on every market in America; how can I help?
John-USA-CommercialRE
Email MeGood update on the market here Nigel. Most markets nationwide have become stabilized and lenders are beginning to open doors again that we have not seen for years. A lot of the debt that was taken on in late 2007 and 2008 is not coming due so the properties that are over leveraged at that time are now finding their way back on the market and we are seeing some great deals out there.
John-USA-CommercialRE
Email MeEveryone should take Nigel's advice on this one…
Nothing against Detroit or any of the other cities mentioned before hand but be careful and take the time to do your due diligence before spending a dime. Unfortunately there are people in the States and across the globe that are going to scam people with false expectations of real estate in America.
It may take a little more effort and time but there are ways to research yourself and get more comfortable with certain areas of the country before you even reach out to someone in the states to rely on for assistance.
John-USA-CommercialRE
Email MeI was just checking out there website. I don't want to say anything bad about a company that I know nothing about but typically here in the USA Real Estate firms HAVE to disclose certain info like license #, physical address here in the states, etc. ALways check out the Better Business Bureau in the area you are inquiring on before making a decision to move forward.
If I can help, reach me though my website: http://www.usainvestment.net
John-USA-CommercialRE
Email MeI agree with Ziv….
Though I'm a Real Estate Broker here in Florida I hate to say there are plenty of people out there trying to take advantage of those whom are out of the area.Always do as much due diligence as you can. Here are a couple of website to get you started:
For business practices: http://centralflorida.bbb.org/
For individual licensing and company licensing: http://www.myfloridalicense.com/dbpr/ with this site you can see if the person or company has had any complaints filed against them, if the license is active, etc. And one thing for sure is that the State of Florida will certainly prosecute anyone who takes advantage of others.If I can be of any assistance in this or otherwise; here is how to reach me via my site: http://www.usainvestment.net
John-USA-CommercialRE
Email MeBeing a Commercial RE Broker in Florida I can certainly attest to the fact that the HOT spots for Florida can vary depending on the type of property you are searching for. For instance; Apartments are simply good all over. Retail is best in the major MSA's like Orlando, Miami, Jacksonville, Tampa. Industrial is good in most places. Regarding Housing; it is better and safer to lean towards the major MSA's and most anywhere on the East Coast of Florida….
maybe this will help provide a better idea: http://www.usainvestment.net
John-USA-CommercialRE
Email Me
