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.
Monday, December 7, 2009
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
FDIC Pressure On Commercial Banks = Opportunity
The next shoe to fall in the United States are the commercial banks that will be brought down due to their bad commercial real estate loans. The big news these days is that over 100 banks have failed this year in the United States, primarily due to bad real estate loans. The FDIC (Federal Deposit Insurance Company) claims to have another 400 banks on their “problem list” and some experts say that many of those banks will fail over the next couple of years.
What does this mean for Stella Capital Real Estate Opportunity Fund? We have focused our buying opportunities around distressed situations and the commercial banks with numerous real estate loans is a great source of properties in our targets markets. We have long standing relationships with many commercial banks that are now showing us properties that they have foreclosed upon. We also work with investment sales brokers who have formed a niche business working with banks that are marketing their properties. Banks has told us how desirable we are to work with primarily for the reasons:
1) We are an all cash buyer.
2) The Fund is NOT a large institution that has rounds of committee meetings to purchase a property.....we are decision makers that after thorough due diligence, are capable of acting quickly.
Either way we are just starting to see many real estate deals that are heavily discounted and this trend will pick up as bank regulators continue to press the banks to clean up their balance sheets, or, be taken over by the FDIC. Essentially the FDIC is saying......Dump your real estate now or we are going to shut you down.
What does this mean for Stella Capital Real Estate Opportunity Fund? We have focused our buying opportunities around distressed situations and the commercial banks with numerous real estate loans is a great source of properties in our targets markets. We have long standing relationships with many commercial banks that are now showing us properties that they have foreclosed upon. We also work with investment sales brokers who have formed a niche business working with banks that are marketing their properties. Banks has told us how desirable we are to work with primarily for the reasons:
1) We are an all cash buyer.
2) The Fund is NOT a large institution that has rounds of committee meetings to purchase a property.....we are decision makers that after thorough due diligence, are capable of acting quickly.
Either way we are just starting to see many real estate deals that are heavily discounted and this trend will pick up as bank regulators continue to press the banks to clean up their balance sheets, or, be taken over by the FDIC. Essentially the FDIC is saying......Dump your real estate now or we are going to shut you down.
Friday, October 2, 2009
Bloomberg Survey:Commercial Real Estate Recovery Unlikely Anytime Soon
Bloomberg recently completed a survey of 115 commercial real estate firms across the United States. The survey found that the U.S. commercial real estate markets are unlikely to recover before 2011-2012 . This is what we have been saying all along at Stella Capital and as this survey shows we will continue to see excellent buying opportunities up until the recovery starts and through the initial phase of the recovery.
The survey showed many US companies are continuing to look for ways to cut costs and reduce their work forces which means office and industrial space will still continue to contract and rents most likely will continue to fall. This trend means we will see vacancy rates increase into 2010 but that trend should reverse in the later part of 2010. This senerio will force many owners to sell their properties at distressed levels as cash flow decreases and they can no longer cover debt payments.
Along with falling rents and increased vacancy the commercial lending industry has a large pipeline of commercial loans that they have foreclosed upon or have filed a notice of default upon and therefore will typically own in 90-120 days. This pipeline of loans that will be converted to real estate owned by the banks will also present a great buying opportunity for Stella Capital. We have already started to see some of these real estate properties being marketed but there is a surplus of properties that the banks are just starting to get their arms around and will be selling through out 2010 and 2011.
All of the above events have formed the perfect storm for commercial real estate here in the US. Stella Capital is ready to take advantageof these great buying opportunities and we are very excited about 2010 and 2011.
The survey showed many US companies are continuing to look for ways to cut costs and reduce their work forces which means office and industrial space will still continue to contract and rents most likely will continue to fall. This trend means we will see vacancy rates increase into 2010 but that trend should reverse in the later part of 2010. This senerio will force many owners to sell their properties at distressed levels as cash flow decreases and they can no longer cover debt payments.
Along with falling rents and increased vacancy the commercial lending industry has a large pipeline of commercial loans that they have foreclosed upon or have filed a notice of default upon and therefore will typically own in 90-120 days. This pipeline of loans that will be converted to real estate owned by the banks will also present a great buying opportunity for Stella Capital. We have already started to see some of these real estate properties being marketed but there is a surplus of properties that the banks are just starting to get their arms around and will be selling through out 2010 and 2011.
All of the above events have formed the perfect storm for commercial real estate here in the US. Stella Capital is ready to take advantageof these great buying opportunities and we are very excited about 2010 and 2011.
Monday, September 14, 2009
China Investment Corp (CIC) is eyeing US Real Estate
According to a WSJ article on 9/9/09, China's $300 billion sovereign wealth fund is looking to invest in distressed US real estate. Considering the fund's size, a meaningful allocation may be around the $10 to $20 billion levels. This follows a nearly $1 billion recent commitment to a Morgan Stanley property fund.
China owns $1 trillion in US government backed debt, the largest holder in the world, but has very little in terms of hard assets in the US. China has been rebuffed several times attempting to make major US based acquisitions. Chinese investment in US companies with proprietary technology, coupled with majority equity stakes makes many people in Washington DC nervous. The article suggests that the fund could invest through the US Treasury's PIPP program. The two key components that make this vehicle attractive for China, is the possibly to have the US government as a co-investor (VERY favorable financing), and the limitation of a single investor in the PIPP program is capped a 9.9%.
I feel this contributes to the case that from the worldwide investor point of view, they are asking themselves, once we are out of this economic turn down, where is a rebound going to take place first (or early)? China seems to think the United States.
Click here for the full article.
China owns $1 trillion in US government backed debt, the largest holder in the world, but has very little in terms of hard assets in the US. China has been rebuffed several times attempting to make major US based acquisitions. Chinese investment in US companies with proprietary technology, coupled with majority equity stakes makes many people in Washington DC nervous. The article suggests that the fund could invest through the US Treasury's PIPP program. The two key components that make this vehicle attractive for China, is the possibly to have the US government as a co-investor (VERY favorable financing), and the limitation of a single investor in the PIPP program is capped a 9.9%.
I feel this contributes to the case that from the worldwide investor point of view, they are asking themselves, once we are out of this economic turn down, where is a rebound going to take place first (or early)? China seems to think the United States.
Click here for the full article.
Tuesday, August 25, 2009
Commercial Property Distress to Rise Amid Wave of Maturing Debt.
Commercial Property Distress to Rise Amid Wave of Maturing Debt. Even if government programs aimed at restarting the securitization market (CMBS) are successful and constraints on debt capital ease (not likely until the banks get pushed by the regulators), the combination of deteriorating property fundamentals, declining values and tighter underwriting will make it impossible for many owners to refinance maturing loans without considerable equity contributions. During the first quarter of 2009, the distressed component of the marketplace increased by more than 50 percent, and with nearly $400 billion in commercial mortgage debt due to mature at the end of 2009 and 2010, distress will rise further. We see this distressed debt causing owners to sell at depressed prices or banks foreclosing and then selling at heavily discounted prices. Either way we will see many great buying opportunities at the end of 2009 and into 2010.
Tuesday, August 4, 2009
Delinquenct rates on California commercial loans more than doubled
The delinquency rate on California commercial loans has more than doubled on $60 billion worth of loans in the second quarter 2009, according to the California Mortgage Bankers Association in a report released recently. This report shows that the delinquency rate continues to climb each quarter. Our projection is that over the next 12-24 months we will see a substantial number of loan foreclosures which means the lenders will be selling properties they have foreclosed upon at substantial discounts. We have a number of bank/lender relationships and we are just starting to see these properties hit the market. Over the next 1 to 2 years we expect to purchase numerous highly discounted properties from commercial lenders as they move these assets off their balance sheet.
Great article in the Wall Street Journal about the challenging environment for REITS
An article in the WSJ focuses on the tough environment for REITS that is just around the corner. challenging
--tons of debt coming due over the next two years
--lower commercial property values
--dwindling occupancy
--lack of buyers
Major REIT players have staggering debt levels. Maguire Properties, has 94% debt to capital. Despite the 60% run up in the REIT share market, they are still more than 65% off the highs of February 2007.
This will clearly lead to a buyers market for the typical property that a REIT owns....Class A office towers, shopping malls, etc. The advantage to us is that it will trickle to our target markets, where there are very few buyers like us. Most of the large real estate buyers will be cherry picking the portfolios of distress REITS, not paying any attention to our target market....$2 million to %15 million. We're flying below the radar screen
--tons of debt coming due over the next two years
--lower commercial property values
--dwindling occupancy
--lack of buyers
Major REIT players have staggering debt levels. Maguire Properties, has 94% debt to capital. Despite the 60% run up in the REIT share market, they are still more than 65% off the highs of February 2007.
This will clearly lead to a buyers market for the typical property that a REIT owns....Class A office towers, shopping malls, etc. The advantage to us is that it will trickle to our target markets, where there are very few buyers like us. Most of the large real estate buyers will be cherry picking the portfolios of distress REITS, not paying any attention to our target market....$2 million to %15 million. We're flying below the radar screen
Tuesday, June 9, 2009
Silicon Valley
There has been very limited transaction volume in all of California but in Silicon Valley, transaction volume dropped to an all time low. A mere $9 million in office transactions traded during the first quarter of 2009 in Silicon Valley, a 98 percent drop compared with the first quarter of 2008 when $716 million was sold. The star performer was the industrial market, with $67 million traded. Still, that was down about 65 percent from a year ago. The commercial banks in California are about to start selling commercial real estate that they have foreclosed upon so transaction volume should pick up.
A vacant research and development building just closed this month in Silicon Valley. The buyer paid $111 per square foot (PSF) in June 2007 and our sources say the building closed for $47.50 PSF down 57% in two years. To get this steal the buyer had to put up a large cash deposit and close in 15 days which not many entities can do. This type sale might represent the bottom of the market.
We closely watch Silicon Valley for properties. Silicon Valley houses the worlds largest concentration of high technology companies and before this market starts to recover there will be many great deals to be made.
A vacant research and development building just closed this month in Silicon Valley. The buyer paid $111 per square foot (PSF) in June 2007 and our sources say the building closed for $47.50 PSF down 57% in two years. To get this steal the buyer had to put up a large cash deposit and close in 15 days which not many entities can do. This type sale might represent the bottom of the market.
We closely watch Silicon Valley for properties. Silicon Valley houses the worlds largest concentration of high technology companies and before this market starts to recover there will be many great deals to be made.
Friday, May 1, 2009
Investor Impressions From The Stella Capital Visit In Asia
We went to several countries in Asia last week market sound our distressed real estate strategy. We probably had 30 one on one meetings, plus a presentation to over 60 people in a five star hotel conference room. Everyone "gets it". There is not alot of rocket science to what we are doing.......we're buying great properties, great locations at a severe discount.
Probably the only objection or concern that we had could be summed up with this question. "Why would I want to own a building all the way in California at 30% off when I can buy a newly built building here in Malaysia at 50% off?"
My Answer is in two parts:
1)Safety. Lets say the world economy gets worse, I feel that property in select areas of California would take less of a hit than a property in Malaysia. With a value/distressed strategy such as ours, the most difficult thing to do is to pick the bottom. No one can do that. But we are attempting to buy properties in the bottom segment of a real estate cycle, if our timing is off slightly, I'd rather have the cushion of owning a high quality property that will not get beat up so bad. We can all take a 5% to 10% price decline, but it would be tough to swallow a 25% to 50% price decline.
2)First to rebound. As the hockey great Wayne Gretzky says, "I skate to where the puck is going to be, not where it has been" Its all about the rebound....which areas are going to come back first. I could go on and on about how great California is/was/going to be, but in summary, on its own, California is the seventh largest economy in the world. I recently read a 100+ page report by one of the largest investment banks that interviewed over 200 institutional investors from around the world that managed a collective $1 trillion in assets. The most interesting question was: "Once the world economy shows signs of improving, where is the first place you would invest?" 46% replied the United States. So you have to ask yourself not where is the money now, but rather where is it GOING to be invested?
Probably the only objection or concern that we had could be summed up with this question. "Why would I want to own a building all the way in California at 30% off when I can buy a newly built building here in Malaysia at 50% off?"
My Answer is in two parts:
1)Safety. Lets say the world economy gets worse, I feel that property in select areas of California would take less of a hit than a property in Malaysia. With a value/distressed strategy such as ours, the most difficult thing to do is to pick the bottom. No one can do that. But we are attempting to buy properties in the bottom segment of a real estate cycle, if our timing is off slightly, I'd rather have the cushion of owning a high quality property that will not get beat up so bad. We can all take a 5% to 10% price decline, but it would be tough to swallow a 25% to 50% price decline.
2)First to rebound. As the hockey great Wayne Gretzky says, "I skate to where the puck is going to be, not where it has been" Its all about the rebound....which areas are going to come back first. I could go on and on about how great California is/was/going to be, but in summary, on its own, California is the seventh largest economy in the world. I recently read a 100+ page report by one of the largest investment banks that interviewed over 200 institutional investors from around the world that managed a collective $1 trillion in assets. The most interesting question was: "Once the world economy shows signs of improving, where is the first place you would invest?" 46% replied the United States. So you have to ask yourself not where is the money now, but rather where is it GOING to be invested?
Thursday, April 30, 2009
The Most Recent Office Vacancy Rates Do Not Seem To Be In Line With Job Losses
Think about this for a moment. We've had MASSIVE job losses, the worst economy since the great depression-16 months into it, yet office vacancy rates are around 12%. I've seen estimates that the overall negative absorption is only around 15 to 25 million square feet. Hardly much inventory at all. The early 1990's witnessed a peak vacancy rate of 13%. Look to your left, now look to your right, isn't this economy much worse?
I think that there is a huge discrepancy between what is available for lease and what is hidden, or off market. When you look back at the last real estate correction (2001) in our target market (California), it was primarily related to the tech bubble. Small technology companies they were supposed to grow 100 fold in five years swallowed millions of square feet of office space. After they blew up, immediately their office space went on the market, it was either absorbed, or it would sit on the shelf as inventory. You knew about the available space. What I think we are seeing now, and my point, it that vacancy rates should be a lot higher for the simple reason that the companies that are initiating layoffs, are major FORTUNE 500 companies. They are very reluctant to surrender nice sizable properties for the simple reason that it is so hard to acquire properties that fit their needs. Many large companies probably expect to rehire, the economy to turn around soon, or various other reasons to hang in there. But if this does not happen quickly, they will be forced to unload. Much different attitude than a small tech company with 100 employees.
My feeling is there are lots of unlisted office space available that are not being reflected in the most recent vacancy rate reports. Reality is that the true vacancy rate could be in the high teens. That puts tremendous pressure on values....and creates more situations for us to sniff around in and buy the right property at our price.
I think that there is a huge discrepancy between what is available for lease and what is hidden, or off market. When you look back at the last real estate correction (2001) in our target market (California), it was primarily related to the tech bubble. Small technology companies they were supposed to grow 100 fold in five years swallowed millions of square feet of office space. After they blew up, immediately their office space went on the market, it was either absorbed, or it would sit on the shelf as inventory. You knew about the available space. What I think we are seeing now, and my point, it that vacancy rates should be a lot higher for the simple reason that the companies that are initiating layoffs, are major FORTUNE 500 companies. They are very reluctant to surrender nice sizable properties for the simple reason that it is so hard to acquire properties that fit their needs. Many large companies probably expect to rehire, the economy to turn around soon, or various other reasons to hang in there. But if this does not happen quickly, they will be forced to unload. Much different attitude than a small tech company with 100 employees.
My feeling is there are lots of unlisted office space available that are not being reflected in the most recent vacancy rate reports. Reality is that the true vacancy rate could be in the high teens. That puts tremendous pressure on values....and creates more situations for us to sniff around in and buy the right property at our price.
Thursday, March 26, 2009
Great Cover Article in the WSJ today about how Delinquency Rates on Commercial Real Estate Loans are Skyrocketing
On one hand, I'm shocked at the accelerated pace of defaults. I thought we
would see these levels in several months. Not now! On the other hand, this
is what we want. Our main focus is commercial Real Estate in California.
With the amount of delinquencies coming, that translates into lots of distressed
sales in our target markets. There will be many opportunities to pick our
"pitch to hit". My prediction is that we will have two or three times the
amount of inventory to choose from in a short while.
would see these levels in several months. Not now! On the other hand, this
is what we want. Our main focus is commercial Real Estate in California.
With the amount of delinquencies coming, that translates into lots of distressed
sales in our target markets. There will be many opportunities to pick our
"pitch to hit". My prediction is that we will have two or three times the
amount of inventory to choose from in a short while.
Highlights for the Wall Street Journal article:
- Commercial Real Estate loan defaults have doubled since September
- US Banks could suffer as much as $250bb in commercial r/e related losses in this downturn versus $48bb in the recession of the early 1990's
- Declines in Commercial r/e could be between 35% to 45%
- Of the estimated $154bb in Commercial r/e loans coming due over the next three years, 2/3 may not qualify for refinancing
Monday, March 9, 2009
Opportunties are here.
The Stella Capital is seeking prospective real estate investments. As one of the only "100% cash, quick close" buyers in our target market, many real estate brokers are giving us first shot of their inventory. We are finding real estate sellers with numerous reasons to sell, the most prevalent being the inability to refinance current loans. We have also seen many local California bankers reaching out to either sell a discounted note on property or directly sell real estate that they currently own. As cash buyers of real estate we are able to pick and choose the most profitable deals and take advantage of this depressed real estate market.
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