Acquiring distressed real estate in the United States is a tricky prospect but can be very lucrative for those who are able accomplish the task. Many commercial and residential real estate markets throughout the US have seen values decline 40-70% from the market high in 2007 which puts prices in a range where a smart investor or developer can acquire and add considerable value. But, as they say in the real estate world, “buyer beware” for there are many factors to consider in acquiring distressed property.
The key to acquiring good commercial or residential real estate is having quality local knowledge. Unlike acquiring publically held companies for which you can pull up extensive data on the internet, real estate information is extremely difficult to find unless you know where to look. There are some web-based programs available that track real estate, but they are very expensive and not particularly user friendly. The key is to do your homework but also hire good people to help in the acquisition.
Knowing your local market is very important. Most investors research large markets such as San Francisco, New York or Los Angeles and become comfortable with the overall economic factors that influence those markets. They can then locate smaller submarkets, within those markets, where they track key real estate indicators such as leasing activity, sales activity, and building permits to track potential new competition and numerous other factors. Based on these myriad factors you can then target acquiring properties that show the typical signs of distress such as low occupancy or insufficient cash flow to cover debt service requirements.
Finding good distressed properties is an art and not a science. During these troubled times there are many distressed properties on the market but the key to acquiring the right property is having connections with the sellers. Many commercial banks and life companies in the US have large portfolios of underperforming properties. Having a personal contact within these organizations helps the buyer of distressed real estate cut directly to the source. If you do not have the direct contacts, the next best way to find property is to have a large stable of real estate brokers that know your investment parameters. Again, this is a fairly inefficient process because brokers will always market properties to their best clients first and then to the mass market. Remember to stay in close contact with your brokers and constantly reassure them that you have the funds and knowledge to move quickly to close on any property they bring your way.
Thursday, April 1, 2010
Friday, March 5, 2010
US and California prospective on distressed commercial real estate with our banks
Commercial real estate troubles continue to erode US banks balance sheets. The Federal Insurance Deposit Corporation's latest Quarterly Banking Profile (4th Quarter 2009), released this week showed US banks and thrifts had almost $60 Billion in distressed commercial real estate assets on their books, this is up from $52 Billion three months earlier (3rd Quarter 2009). The number of US banking institutions that where listed on the FDIC problem list for YE 2009 there were 702 insured institutions which was up from 552 from the previous quarter (3rd Quarter 2009). The commercial real estate situation continued to get worst during 2009 when we look at distressed asset foreclosed on by US banks and thrifts. The big question will be will these assets expand or decline in 2010 and 2011?
What are we seeing at Stella Capital. California is seeing its fair share of these distressed commercial real estate assets and bank closures. What we have witnessed through out 2009 is that the US banks have been very sluggish to move these distressed properties off their books primarily because the bank were not prepared to this situation. Banks had not put special asset teams together to analyze the real estate and get a plan for disposing of the properties they foreclosed upon. Now that we are into 2010, many of these special asset teams are in place and some of the banks and thrifts seem to have a process and plan in place. Even if the banks are slow to move the properties the bank regulators should start to pressure them to dispose of the real estate. Overall, Stella Capital will see more properties from the banks which should provide some good buying opportunities.
What are we seeing at Stella Capital. California is seeing its fair share of these distressed commercial real estate assets and bank closures. What we have witnessed through out 2009 is that the US banks have been very sluggish to move these distressed properties off their books primarily because the bank were not prepared to this situation. Banks had not put special asset teams together to analyze the real estate and get a plan for disposing of the properties they foreclosed upon. Now that we are into 2010, many of these special asset teams are in place and some of the banks and thrifts seem to have a process and plan in place. Even if the banks are slow to move the properties the bank regulators should start to pressure them to dispose of the real estate. Overall, Stella Capital will see more properties from the banks which should provide some good buying opportunities.
Friday, January 8, 2010
Notable Recent San Francisco Class A Office Tower Transactions
The Billionaire Shorenstein Family purchased 188 Spear Street in downtown San Francisco for $170 psf, thats 56% less than the property was appraised at in 2007.
Another A building, in the heart of the financial district, 250 Montgomery, sold for $172 psf, which represents a 56% price drop from what the previous owner paid ($385)
Taiwanese real estate investor Steven Pan is in contract to buy 49 Stevenson Street, at $190 psf. Mr. Pan was quite active in the San Francisco market in the mid-1990's, at one point he amassed a 1,000,000 square foot portfolio.
Another A building, in the heart of the financial district, 250 Montgomery, sold for $172 psf, which represents a 56% price drop from what the previous owner paid ($385)
Taiwanese real estate investor Steven Pan is in contract to buy 49 Stevenson Street, at $190 psf. Mr. Pan was quite active in the San Francisco market in the mid-1990's, at one point he amassed a 1,000,000 square foot portfolio.
Wednesday, January 6, 2010
Speaking Engagement in London, Distressed Asset Highlights
Speaker at London Conference
I am speaking at the Islamic Finance Forum conference in London January 20th. This is a great forum to discuss our Shariah compliant version of the real estate fund with numerous European and Middle Eastern investors. We will also be addressing leading financial organizations who understand Shariah law and can originate creative financing the fund.
Starting the decade with numerous distressed real estate deals:
David Lynn, head of US research and investment strategy for ING, said recovery will be "a gradual process, not a crescendo like the early 1990s." He believes that we will not see the domestic US economy improving and stronger fundamentals that lead to rising income and property values until 2012 and 2013. If this is the case then 2010 and 2011 should be ripe for acquiring distressed real estate.
Noting that the volume of distressed assets grew by 557% in the past 12 months, Lynn also charted the upward progress of commercial real estate loans maturing in the next few years. This year, $306 billion will come due; next year, it will be $320 billion. In 2011, that total to rise to $370 billion, and in 2012 $420 billion of loans will mature. Further giving rise to distress--and buying opportunities--will be more bank failures. This year, about 130 financial institutions have gone under, and while the body count will not reach the nearly 3,000 that amassed during the S&L crisis, Lynn says we’ll see failures "in the high hundreds" this time, mostly small and regional banks.
All of the above statements point to a great time to be buying commercial real estate in California. Let the games begin.
Mark Stevens
I am speaking at the Islamic Finance Forum conference in London January 20th. This is a great forum to discuss our Shariah compliant version of the real estate fund with numerous European and Middle Eastern investors. We will also be addressing leading financial organizations who understand Shariah law and can originate creative financing the fund.
Starting the decade with numerous distressed real estate deals:
David Lynn, head of US research and investment strategy for ING, said recovery will be "a gradual process, not a crescendo like the early 1990s." He believes that we will not see the domestic US economy improving and stronger fundamentals that lead to rising income and property values until 2012 and 2013. If this is the case then 2010 and 2011 should be ripe for acquiring distressed real estate.
Noting that the volume of distressed assets grew by 557% in the past 12 months, Lynn also charted the upward progress of commercial real estate loans maturing in the next few years. This year, $306 billion will come due; next year, it will be $320 billion. In 2011, that total to rise to $370 billion, and in 2012 $420 billion of loans will mature. Further giving rise to distress--and buying opportunities--will be more bank failures. This year, about 130 financial institutions have gone under, and while the body count will not reach the nearly 3,000 that amassed during the S&L crisis, Lynn says we’ll see failures "in the high hundreds" this time, mostly small and regional banks.
All of the above statements point to a great time to be buying commercial real estate in California. Let the games begin.
Mark Stevens
Monday, December 7, 2009
Green Jobs
The US Green Building Council just announced a report done by Booz Allen Hamilton that the green building industry could generate 7.9 million jobs in the next four years. The report also said the green industry could generate about $554 billion in gross domestic product between now and 2013 with about $396 billion of that coming in wages. That would be a big increase from the roughly 2 million people employed nationwide by the green building industry that currently pumps about $100 million into the GDP annually.
As many of you know, California leads the world in the green industry. We have numerous green based companies staying on the cutting edge of the green industry most of which are based in Silicon Valley. We have community colleges and universities that offer course work in the green industry. We also have labor union apprenticeship programs that teach skilled laborers how to install and maintain solar panels and other energy savings devises.
The green industry will be a major factor as the US starts to work its way out of this recession. The job growth created by the green industry will help occupy offices and industrial buildings currently vacant and greatly help real estate values in 2013-2015 when we will be selling our buildings.
As many of you know, California leads the world in the green industry. We have numerous green based companies staying on the cutting edge of the green industry most of which are based in Silicon Valley. We have community colleges and universities that offer course work in the green industry. We also have labor union apprenticeship programs that teach skilled laborers how to install and maintain solar panels and other energy savings devises.
The green industry will be a major factor as the US starts to work its way out of this recession. The job growth created by the green industry will help occupy offices and industrial buildings currently vacant and greatly help real estate values in 2013-2015 when we will be selling our buildings.
Tuesday, November 3, 2009
Candidiates for California Governor: Thoughts on the Future
I attended a breakfast meeting the other day in San Francisco that included most of the major candidates for Governor of California, as well as Governor Schwarzenegger.
Here are my notes:
Gov. Schwarzenegger just meet with President Obama at the White House and the main focus of their meeting was the implementation of the $50 billion USD that the state is receiving from the economic stimulus plan. The Governor reported that 110,000 jobs were created as a direct result of this. The state has only received a portion of the allocated money from Washington. Future funding will go well to create jobs predominately by spending directed towards infrastructure projects.
The major theme shared by all candidates: JOBS!!! Creating jobs and retaining California's "State of Imagination" culture intact. That's the key.
Obviously, the critical component of our strategy, is the ability to "bounce back" as quickly as possible. Monies committed from Washington, along with every single candidate focusing on the state economy should assist the recovery with a much greater impact than most other states.
Seth Chandler
Here are my notes:
Gov. Schwarzenegger just meet with President Obama at the White House and the main focus of their meeting was the implementation of the $50 billion USD that the state is receiving from the economic stimulus plan. The Governor reported that 110,000 jobs were created as a direct result of this. The state has only received a portion of the allocated money from Washington. Future funding will go well to create jobs predominately by spending directed towards infrastructure projects.
The major theme shared by all candidates: JOBS!!! Creating jobs and retaining California's "State of Imagination" culture intact. That's the key.
Obviously, the critical component of our strategy, is the ability to "bounce back" as quickly as possible. Monies committed from Washington, along with every single candidate focusing on the state economy should assist the recovery with a much greater impact than most other states.
Seth Chandler
Monday, November 2, 2009
Great cover story in Time Magazine, "Why California Is Still America's Future"
As the majority of our target markets are in the state of California, I found this cover article (dated November 2, 2009) really hits the nail on head as to why California has a history of being the leader of all American States, on many different levels.
Here are selected quotes:
In fact, the pioneering megastate that gave us microchips, freeways, blue jeans, tax revolts, extreme sports, energy efficiency, health clubs, Google searches, Craigslist, iPhones and the Hollywood vision of success is still the cutting edge of the American future — economically, environmentally, demographically, culturally and maybe politically. It's the greenest and most diverse state, the most globalized in general and most Asia-oriented in particular at a time when the world is heading in all those directions. It's also an unparalleled engine of innovation, the mecca of high tech, biotech and now clean tech. In 2008, California's wipeout economy attracted more venture capital than the rest of the nation combined. Somehow its supposedly hostile business climate has nurtured Google, Apple, Hewlett-Packard, Facebook, Twitter, Disney, Cisco, Intel, eBay, YouTube, MySpace, the Gap and countless other companies that drive the way we live.
When it comes to energy, California is not just ahead of the game; it's playing a different game. Its carbon emissions per capita are less than half the U.S. average. And from 2006 to '08, it attracted $3 of every $5 invested in U.S. clean tech — five times as much as the No. 2 state. It's by far the national leader in green jobs, green patents, supply from renewables and savings from efficiency
Today, it's still the home of the new new thing. It is electric-vehicle start-ups like Tesla, Fisker and Better Place taking on the Big Three, or the local-organic foodies behind California cuisine going after Big Ag. It's Kaiser Permanente, the HMO whose model of salaried doctors in group practice may be the future of health care, or the University of California at Irvine's law school, which opened this semester with free tuition and was instantly more selective than Harvard or Yale. It's SpaceX, the private rocket-launching company, or Kogi, the Korean taco truck that announces its location over Twitter to flash mobs of Angelenos. "The beauty of California is the idea that you can reinvent yourself and do something totally creative," says Kogi's Roy Choi, a former chef at the Beverly Hilton. "It's still the Wild West that way."
Read the full article on TIME.com
Here are selected quotes:
In fact, the pioneering megastate that gave us microchips, freeways, blue jeans, tax revolts, extreme sports, energy efficiency, health clubs, Google searches, Craigslist, iPhones and the Hollywood vision of success is still the cutting edge of the American future — economically, environmentally, demographically, culturally and maybe politically. It's the greenest and most diverse state, the most globalized in general and most Asia-oriented in particular at a time when the world is heading in all those directions. It's also an unparalleled engine of innovation, the mecca of high tech, biotech and now clean tech. In 2008, California's wipeout economy attracted more venture capital than the rest of the nation combined. Somehow its supposedly hostile business climate has nurtured Google, Apple, Hewlett-Packard, Facebook, Twitter, Disney, Cisco, Intel, eBay, YouTube, MySpace, the Gap and countless other companies that drive the way we live.
When it comes to energy, California is not just ahead of the game; it's playing a different game. Its carbon emissions per capita are less than half the U.S. average. And from 2006 to '08, it attracted $3 of every $5 invested in U.S. clean tech — five times as much as the No. 2 state. It's by far the national leader in green jobs, green patents, supply from renewables and savings from efficiency
Today, it's still the home of the new new thing. It is electric-vehicle start-ups like Tesla, Fisker and Better Place taking on the Big Three, or the local-organic foodies behind California cuisine going after Big Ag. It's Kaiser Permanente, the HMO whose model of salaried doctors in group practice may be the future of health care, or the University of California at Irvine's law school, which opened this semester with free tuition and was instantly more selective than Harvard or Yale. It's SpaceX, the private rocket-launching company, or Kogi, the Korean taco truck that announces its location over Twitter to flash mobs of Angelenos. "The beauty of California is the idea that you can reinvent yourself and do something totally creative," says Kogi's Roy Choi, a former chef at the Beverly Hilton. "It's still the Wild West that way."
Read the full article on TIME.com
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