Commercial Real Estate Finance

Posts Tagged ‘developers’

In a recent CNN Money article, the author hoots and hollers about the next big real estate rip-off: home resale fees.  The fee, which essentially stipulates that as a housing development is being developed, the developer writes into all home purchase contracts that they are to receive a 1% resale fee every time that home is sold in the future for up to 99 years.  The article claims that this is such a rip-off, compares into to nothing more than price gouging, and says it has absolutely no value to consumers.  Hence, it has politicians and consumer advocates’ attention.  But are these groups really all that informed? Read the rest of this entry »

For years, the place where I got my start in the business, Marcus & Millichap, made a killing on single tenant net lease deals.  Most often, these deals were being sold by merchant developers who had great relationships with a particular retailer, be it Walgreens (WAG), CVS or Advanced Auto Parts (AAP).  In other cases, there were sale leaseback transactions.  Either way, Marcus’ ability to shift capital across geographic boundaries was unmatched because of the timing and financial pressure of 1031 tax-deferred exchanges.  Investors would buy deals well outside their geographic comfort area so long as the credit of the single tenant was good, the return was OK, the lease was long, and they could defer their capital gains.  But with the new accounting regulations in the financial reform we have seen of late, the onus for companies to do sale leasebacks is changing in a big way. Read the rest of this entry »

A “desert island” is one that is uninhabited by humans.  Usually this is because it hasn’t been discovered yet, the terrain is too tough to develop, or it is simply is too far away from a mainland to realistically support an economy. But what happens when islands that are created nearby a mainland for the sole purpose of development and occupancy by humans goes indefinitely uninhabited?  Perhaps those qualify as ‘deserted desert islands’. And if you want the scenic view of the economic crisis, deserted desert islands might be the place to start.  While Florida might provide you with some (oily) sand, vacant shoreline buildings, and some stalled beachfront developments, it is nothing compared to the picture above. That picture is of “The World,” a cluster of man-made islands off the coast of Dubai.  Read the rest of this entry »

Over the last six months, I’ve seen numerous marketing packets (mostly from law firms) advertising professional expertise to help owners/developers of real estate to get financing through ARRA bonds.  Curiously, in spite of all this marketing, I have yet to hear of a private development project in my local market that successfully secured ARRA bond financing.  I think the reason for this is that no matter how savvy you are when it comes to low-cost government subsidized financing, there is simply too much luck involved in issuing ARRA bonds.  And as far as I remember, none of the law firms whose marketing packages I’ve seen had “Luck” as an area of expertise.

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In a recent article in the Wall Street Journal it is suggested that while malls and office parks have suffered from the real estate swoon that has been talked to death at this point, there is a sector of commercial real estate that really has not been hit all that hard.  And it isn’t some niche asset class like medical office buildings or student housing, but rather a class of commercial assets defined by their lease structure, rather that the type of tenant they house. Read the rest of this entry »

In times like these, savvy real estate owners all sing a similar tune.  Why build when you can buy for half the cost (or at least significantly below replacement cost)?  And this is a good question.  Yet despite the cyclical nature of real estate, land is bought and sold at all times during the cycle. And this got us to thinking.  If an asset like land, which by nature does not produce income, can continue to change hands, then what are the real drivers of modeling a land deal? How speculative is it really?

That got us thinking even more (we try not to think too much… it makes us tired) about other similar markets for assets of a speculatively priced nature.  Fine art is one particular commodity/asset class that comes to mind. So let’s examine the similarities and differences between pricing for raw land in the realm of real estate, and the pricing of fine art in the world of the aristocrat. Read the rest of this entry »

Week of April 11-17

- As more deals come to market, market observers are getting hopeful the commercial mortgage-backed securities market is beginning to revive.

- Cafaro: It’s possible to make money with low leverage.

- Based on guidance reports and other public statements, public REITs are planning to break ground on $1 billion in new development this year.

- Hedge fund manager James Chanos is concerned the rapid price buildup in China’s property market might burst as soon as this year.

- The Fed fears inflation and price deceleration going forward.
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Let’s get one thing clear. Pension funds are real estate investors. But they are passive investors. They are not experts, not do they hold themselves out to be. They simply are looking to allocate a portion of their massive coffers into a sector that generally has yielded above average returns and long term capital appreciation, something their constituency values greatly. So it has made a lot of sense for them to partner up with shrewd business and real estate minds to place their money for them to attract the best returns possible. For the last several decades, this partner has most often been private equity groups. Most pension funds have come to regret this decision over the last 18 months, as their portfolios have been hammered, almost across the board, but with particular pain in the real estate sector. But I have to ask, was this a failure of their own making? Read the rest of this entry »

Real estate is a competitive industry. Many successful real estate entrepreneurs were former professional sports players. This is because the tenacity, dedication and hard-work necessary to succeed translates very well from the field to the board room. In Part 1 of this two-part series, we asked:

1. Is overpaying to keep an asset away from competitor a sound strategy?

2. How does tenant rollover/free agency affect decision making?

Today, we ask two more interesting questions, starting with:

Does short term reward outweigh longer term risk? Read the rest of this entry »

Medical Office Buildings, commonly referred to as MOBs, are one of the few darlings of the current real estate finance industry.  They garner low rates, great terms, and even bankers’ whose commercial loan portfolios took a drubbing want to lend in that space. Need proof? I was at lunch with a banker a couple weeks ago who said that they simply were not doing any construction lending of any kind, period.  When I followed up that comment asking him about medical office buildings, his response was “Oh, well, yeah.  We’d definitely make an exception there.”

While many real estate insiders expected a slow down of the medical office frenzy once Scott Brown’s surprise victory in taking Ted Kennedy’s vacant Senate seat potentially swayed the fate of the healthcare reform bill, it has simply delayed the inevitable.  The popular belief was that the future growth of the sector was going to be fueled only by the 30 million plus currently uninsured people the healthcare reform bill would have added to the system.  But when you figure demand will generate supply, you better make sure to look at the whole picture. Read the rest of this entry »