Posts Tagged ‘Commercial Real Estate’
Uncertainty dominates commercial concerns about economic recovery
Unstable market fundamentals and uncertainty over government policy are among the concerns voiced by senior real estate executives about the commercial real estate sector’s outlook for recovery, according to The Real Estate Roundtable’s 3rd Quarter 2010 Sentiment Index. “Uncertainty reigns. Whether it is job creation, unstable capital markets or a volatile mix of current policy and the upcoming mid-term elections – investors and businesses are skittish, causing the commercial real estate outlook to be flat,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. “The good news is last quarter’s view that commercial real estate markets have stopped falling has been confirmed this quarter and values for high quality assets show strength. But the overall sentiment is that the industry is in for a long slow recovery characterized by extreme caution.” More than 110 executives from the commercial real estate sector – encompassing office buildings, shopping malls, warehouses, hotels, and apartment buildings – participated in the survey. For the first time, the survey’s current and future conditions indices merged, scoring an Overall Sentiment Index of 74 (down from 76 in the previous quarter). The score suggests a relatively positive trend and a flat trajectory. The Overall Sentiment Index is calculated based on averages of both current and future indices measured on a scale of 1 to 100. To reach an overall Index of 100, for example, all survey respondents would have to answer that market metrics are “much better” today (current conditions) compared to one year ago, and will also be “much better” 12 months from now (future conditions). Although 62 percent of survey participants reported conditions today as “somewhat better” than a year ago (down from 65 percent in Q2), only 19 percent said conditions are “much better” (up from 17 percent last quarter). Looking forward, 59 percent of respondents predicted conditions one year from now will be “somewhat better” (down from 60 percent in Q2), whereas only 20 percent expect conditions one year from now to be “much better” (down from 28 percent last quarter). However, the overall Current Conditions Index of 74 for Q3 2010 stands in stark contrast to a score of 36 for the same time period last year. One participant’s response: “The only certain thing in the world at the moment is uncertainty. Until companies begin re-hiring and the consumer regains confidence, we will remain stuck in the ditch.” For real estate asset values, respondents report some improvement in expectations, yet emphasize the gap between valuations for Class A assets and all others. According to a survey respondent, “The market remains very murky. The few quality assets that do come to market tend to attract rabid bidding, but there’s still general illiquidity.” Fifty-seven percent of participating executives report asset values are “somewhat higher” than a year ago (up from 35 percent in Q2); 56 percent expect asset values will improve one year from now (the same expectation of 56 percent was reported last quarter). Seventeen percent of survey participants stated that asset values are “much higher” than one year ago (up from 11 percent in Q2); 6 percent said values will be “much higher” one year from now (up from 3 percent last quarter). Instability of capital markets remains a significant cause of unease, although conditions have improved marginally since the previous quarter. Forty-two percent of respondents said debt capital is “somewhat better” today than one year ago (versus 38 percent last quarter); 36 percent characterized debt availability as “much better” (compared to 27 percent in Q2). On the equity side, 54 percent of participants said availability is “somewhat better” than one year ago (versus 50 percent last quarter); 24 percent characterized debt availability today as “much better” than one year ago (compared to 26 percent in Q2). Projecting availability one year from now, 62 percent of participating executives said debt capital will be “somewhat better” (versus 69 percent last quarter); 13 percent said debt availability will be “much better” (compared to 10 percent in Q2). On the equity side, 50 percent said availability will be “somewhat better” one year from now (versus 52 percent last quarter); 17 percent said availability will be “much better” one year from now (compared to 16 percent in Q2). A PDF of the entire Q3 Sentiment Survey Index is available online at http://www.rer.org/.
Foreclosure Real Estate Investment Strategies
Foreclosure real estate investing can be a profitable niche for those who take time to learn the strategies. Foreclosed realty encompasses a variety of properties including residential homes, vacant land, and commercial real estate. When buying foreclosure real estate, investors must be financially prepared to invest in property repairs or renovation. While foreclosed properties are priced below market value, homes requiring substantial repair can quickly deplete home equity. Investors must engage in due diligence by reviewing comparable sales reports and obtaining home inspections, property appraisals, and repair cost estimates to determine the true cost of buying foreclosure properties. Several options exist for locating foreclosed properties at discounted prices. The most common is to attend public foreclosure auctions. All properties presented through auction are sold in "as-is" condition. Buyers must be prepared to submit payment in full within 24 hours once their bid is accepted. Once realty is transferred, property owners are responsible for removing creditor and tax liens and making necessary repairs. Another option is to seek out foreclosure short sale homes. These properties are in the midst of the foreclosure process and purchase negotiations take place with lenders' loss mitigation department. With short sales, lenders agree to accept less than the full amount owed on the home loan. Properties are listed through realtors or sold directly through the bank. The short sale process can be complex and lengthy; taking up to four months or more to complete. Buyers must obtain prequalified financing prior to submitting an offer. It is important to note that banks rarely accept offers lower than the asking price unless property inspections reveal major problems. Short sale houses can provide investors with a good deal, but may not be the best option for investors who participate in house flipping or plan to use the home to generate rental income. Buyers willing to wait out the process can generally purchase homes at 10- to 20-percent below appraised value. One way to obtain the best price on foreclosure properties is to seek out private investors who specialize in wholesaling. Some investors and investment groups purchase entire bank portfolios consisting of dozens of bank owned foreclosure properties. Also known as real estate owned (REO) homes, these properties are houses that did not sell at auction. One of the biggest advantages of REO property is houses are sold with a clean title. When banks regain ownership of foreclosure real estate they remove attached creditor and tax liens and commence with eviction action when foreclosed homeowners refuse to leave the premises. Investors who buy homes in bulk obtain wholesale pricing and pass savings along to individual buyers. REO homes can often be purchased at 20- to 30-percent below market value and provide investors with instant home equity. It is crucial for real estate investors to become educated about all facets of buying foreclosure properties. Many newbie investors are tempted by the low price tag of foreclosures, but fail to realize the costs associated with rehabbing the property. Foreclosures, short sale and bank owned real estate nearly always require some level of repair. Investors must take time to calculate the true cost of the property before making an offer to buy. Otherwise, investors could hold title to a money pit which could take years to financially recover from. Simon Volkov is a California real estate investor who specializes in buying and selling foreclosure real estate, bank owned properties, and short sale homes. His website offers real estate investing articles and resources to help investors develop strategies to build solid investment portfolios. Learn more at www.SimonVolkov.com.
Great Tips to Make a Great Commercial Foreclosure Purchase
The commercial real estate market is terrible. There are signs that office vacancy is leveling off. Occupancy has stabilized in multifamily. So, the economics of owning these projects is stabilizing. Unfortunately, many owners remain over leveraged and the bad news is about to get worse for them as the markets pick up steam and the economy improves rates are about to begin heading the wrong way. This could not come at a worse time as these owners are going to face loans that can't meet Loan to Value (LTV) ratios suddenly collapse on the basis of Debt Service Coverage (DSCR) as well. Lenders are going to be forced to write these loans down and foreclose to establish credible financing on the assets. For buyers, the good news is these conditions may persist for 36 to 48 months. So, if you are a buyer who can bring substantial equity capital or all equity to deals, the opportunity to buy properties at sharply depressed values and to lock it very solid cash on cash returns has never been greater and the condition will improve for you even further in the coming months and years. Principals and investors should be gathering resources for acquisitions now. The greatest opportunities may well be some of the best assets as the trigger for defaults is being driven by very strong underwriting characteristics that created values that today's commercial market will not support. The best locations, the highest trafficed roads, the best sources of employment, the best shopping, and the very best facilities combined with properties that provide the greatest possible average occupancy letter may in fact represent some of the most at risk assets. Investors bringing plans with conservative loan to values, captive debt or 100% equity purchase plans, proven management, and bank accounts that say "low risk" to bankers are going to be the preferred purchasers. Investors without a great deal of experience or with no experience should seek to attach their funds to proven players where they can substitute those credentials for their own lack. On the other hand, if you are an investor who is in this position. Your best bet is to cut a deal with outside investors to improve your underwriting ratios. Put in significant cash reserves. Reduce your LTV position. Improve your DSCR position. And, position to move ahead as a leader in this environment and avoid becoming a casualty. Take the lessons learned and become the experienced buyer. Blake Ratcliff (US Naval Academy Graduate & Marine Officer, Serial startup entrepreneur, COO/CEO, multifamily / residential investment founder, and property manager). Blake's crafted 100+ business plans, prepared and delivered 1000+ investor presentations, and is an expert financial modeler. A deeply experienced real estate business person and startup business expert, Blake hones your Business plans, reports, and presentations.
