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
Monday, November 2, 2009
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
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