Real Insight. Real Estate.

Posts Tagged ‘property’

An interesting article in the New York Times last week highlighted the heated debate that is taking place amongst lenders, realtors, mortgage brokers, and appraisers in the residential real estate market.  The debate stems from the new Home Valuation Code of Conduct, which has been in effect since May 1st as a method of reducing the inherent conflict of interest amongst lenders, brokers, appraisers, and owners.

Personally, I think the Code of Conduct creates more problems than it solves.  But after reading the article I began to wonder if there was any imminent threat of similar regulation creeping into the commercial real estate market as well.  After all, sloppy lending and bogus valuations have caused every bit of trouble in the commercial space as they have in residential.  If we don’t regulate the valuation process which, believe me, is the last thing I want to see, how do we arrive at better property valuations that best serve all the parties involved in a transaction?  How can we value a property in stagnant markets where no transactions are taking place for comparison? Read the rest of this entry »

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Many times, when an individual, or a large developer/operator purchases a commercial property, they buy it through a limited partnership or limited liability company.  There are many reasons as to why they do this.  Anonymity is one.  Most wealthy people are private, and do not want to be bothered, whether it is by brokers or any other third party looking to drum up new business.  Probably the chief reason, however, has to do with tax law, as property level gains are not attributed the same way to the individuals who are members of the LP or LLC as if they owned the property outright as individuals.  Essentially it provides a corporate veil of ownership, both in terms of who actually owns the property, as well as how Uncle Sam views its capital gains/losses.  Furthermore, if there is ever an accident, or other mitigating factor whereby a lawsuit is brought upon the owner of a property, it again can help protect the personal assets of the actual owners if they are found guilty of a civil lawsuit, limiting the plaintiff solely to property level monies. But wait, there’s one other big reason single purpose entities (SPE’s) exist… and it isn’t to protect the owner. Read the rest of this entry »

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Real Questions…

…. and Unintended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

These questions succinctly sum up the entire commercial real estate market. Other statements examine facets of the problem, but they all revolve around this problem we’ll call, “The Bid/Offer Spread”.

Every day, the fund managers who still have jobs wake up, read the Wall Street Journal and say to themselves, “If I’m going to buy a property, I deserve a discount.” Any possible ‘green shoots’ notwithstanding, unemployment is high, the economy is in recession, global icons are getting destroyed (or taken over by the government), and the banking system as a whole is only viable because the Feds have stepped in with HUGE assistance programs. You can also throw in the fact that recent liquid market action (rally in gold, commodities and TIPS while the 10yr notes sells off ) is telling us we might even have an inflation problem in the not-so-distant future. Read the rest of this entry »

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