Tuesday, February 27, 2007

Finally Sobrato's San Jose Office Deal is Done!

After 4 long years, the castle that Sobrato built will finally be occupied. 488 Almaden Blvd, at the southern gateway to San Jose's downtown is being purchased by BEA Systems. The Sobrato company could not find a tenant to occupy the whole building - they would have easily leased the building if they wanted a multi-tenant building. That's quite some strength and resolve in Mr. Sobrato. In the end, the decision makers at BEA saw the light and will now own their corporate headquarters. This is a boon for downtonn. Approximately 1,000 jobs to be relocated there and its a huge benefit to the condo tower developers. If you were a BEA engineer, would you not put a deposit down on a new condo there?

Monday, February 26, 2007

1031 Exchange time contraints

45 days!!! I'll never find a property in such a short time. Perhaps, yet most investors have much more time than that. At the point you have a buyer making an acceptable offer on your to-be-relinquished property, is when the real clock starts. You should figure 30 days for a simple close of escrow plus the 45 days after. 75 seems better than 45. What savvy sellers do also, is to ask for one or more extensions on the sale at the seller's discretion. If the buyer is motivated, they'll consider this. A couple 30 day extensions is powerful. Best advice is to really understand the market in where and what you want to buy. Really you only need a few days with deep industry knowledge. Happy exchanging.

Sunday, February 25, 2007

1031 Reverse Exchanges

The investment properties market moves fast. You are at a disadvantage when competing for property when you have to write offers contingent on the sale of another property. This is typical in a 1031 exchange when the relinquished property is either "in escrow" pending a closing or worse - not on the market or sitting there without offers. Buyers who are writing offers contingent free will have the upper hand. This is especially true on very well priced or attractive property. The reverse exchange can make you a contingent free buyer. There are hoops, yes. When have there never been hoops? And it costs more, sure. The benefits can be significant though.

Saturday, February 24, 2007

Interesting Real Estate Investment Magazine

In Beta format as of yet - Nuwire Investor - is an online magazine devoted to "alternative investments". One of which is real estate. Their current poll results of what most interests their readership is as follows:
US real estate 39%, International real estate 22%, lending 22% and then the rest is small potatoes in comparison. Is there a trend towards real estate as an investment - absolutely. The lending category is quite interesting too in that people with capital (read baby boomers) want income streams generated from their investments. The rise in popularity of NNN investments is driven by this desire too. OK Mario get to the point - Cap rates will continue to have downward pressure, especially on high quality NNN investments due to higher demand and a ton of capital needing to be placed by those slightly older than me;-)

Tuesday, February 20, 2007

Dirt Lawyers

There are many breeds of attorney out there. Hoge Fenton in San Jose is the kind you want when transacting a real estate transaction. But lawyers are deal killers, some say, and sometimes that is true. I've seen this happen many times. Though, the right attorney understands that transactions should happen and risk is a natural part of real estate and by the way - LIFE! Also - the term "dirt lawyer" is a respected moniker amongst those with JD degrees. Or you can be boring and call them real estate attorneys or... yawn... land use attorneys. Check out their awesome website resource called dirtlawyer.com

Monday, February 19, 2007

51 New Condo Development

Last weekend was Centex's "51" Valentine's debut. I know the grammar doesn't flow well in that sentence, though the development has the flow of an experienced Fung Shui expert.
This development borders the train tracks of the main San Jose station. Wait! That's a good thing. The side that borders the tracks is the popular side for many buyers. I thought it was wonderful. San Jose skyline veiws, urban intrigue downstairs, light from the East and "public" privacy. Walk to see Madonna when she comes in to the Shark Tank. Be a loyal puck head. Shop and dine along the renovated The Alameda. And hop in your car to your Cisco or Yahoo job. I believe this valley is overcoming the housing issue with wonderfully designed condo developments. Kudos to Centex.

Wednesday, February 14, 2007

Yield maintenance and Defeasance

Most very attractive commercial financing over the last few years has been saddled with the burdens of yield maintenance or defeasance clauses. Essentially this is a prepayment penalty that does not go away, can be huge and can hinder the effective marketing of an investment property. Yield maintenance is simple - a formala is used to calculate what the prepayment penalty is based on the current market interest rates and the remaining term of the loan. This can be a large amount, but a seller can sell if he sees economic benefit. Defeasance is another difficulty all together - the loan cannot be retired, period. Companies such as Capital Defeasance Group provide the solution. The loan is removed from the property, the seller can sell unencumbered, the loan is then replaced to the lender by a portfolio of fixed rate income products (treasury notes and bills) which continue to pay down the loan according to schedule. Simple right? Actually yes, just difficult to explain without a powerpoint presentation. There definitely are significant costs involved. The upside is a property that CAN be sold.

Friday, February 9, 2007

YouTube, risk and REWARDS

As quoted in Michael Liedtke's YouTube article today in the Merc: "You can sort of look at Silicon Valley as a giant casino where you need the slot machines to pay off at certain intervals. It's payoffs like this that makes people want to keep taking risks." - Keith Rabois (a YouTube investor). What does this have to do with real estate in the Bay Area? Mucho my dear investor - The vibrant, the intelligent, the movers and shakers will continue to thrive here - Many will win and those wins will continue to make this a place where everyone wants to attempt to be. With jobs available and payoffs in the minds of each techie out there, Silicon Valley will continue to be a crowded place.

Thursday, February 8, 2007

Good real estate anecdotal evidence

Not scientific, but significant - I keep seeing emails through our intranet of agents asking for homes that are not yet on the market (MLS). This activity is typical of a tight or tightening market. Frustrated agents and their frustrated buyers who can't land a home, seeking an advantage in this market. If there were volumes of homes sitting on the market, this tactic would not be necessary. Beware the Spring - have your pens ready and your track shoes on.

Tuesday, February 6, 2007

Zero cash flow?

Some investors need no cash flow. Why? Normally because they have very good cashflow from other investments and need some tax sheltering. There are many investments out there, especially in high-quality single tenant NNNs such as CVS drug stores that are structured specifically for this purpose. Current financing is in place at the maximum amount so that the income from the property exactly pays the mortgage. What this also provides is extreme leverage. Most of these deals average around 15% downpayment. Who do you know that needs some tax sheltering? Hmmm?

TIC investment in Santa Cruz

A Realtor buddy of mine is working on an interesting investment. He bought a fourplex in Santa Cruz for $250,000 per unit, added $30,000 per unit for new kitchens and baths. $1,500 for a TIC agreement by the preeminent Bay Area legal authority. Now he is selling the units for $400,000 per. Simple? Yes. Profitable? Yes. So, why isn't everyone doing this?

Saturday, February 3, 2007

Positive Leverage

This is a simple bit of real estate investment knowledge. Your cap rate should be higher than the cost of the money you borrow. In this case, every dollar you borrow works to better your rate of return. In fact, if you can finance 100% of an investment with "positive leverage", you should. Doesn't everyone invest this way? No. Negative leverage situations can be justified too. Normally this is the case when you expect significant return based on appreciation or by redevelopment. Yes, almost all Bay Area deals fall in to this category.

Thursday, February 1, 2007

Cupertino - Vallco Mall - Lunar New Year Celebration

During the mid-1980s - Vallco was at its peak of coolness. I remember going in there and being impressed. Then Valley Fair merged their separate Emporium and Macys buildings to put Vallco 6 feet under. A new life is taking hold in Cupertino. Dynasty restaurant is always hopping. The new AMC theatres are going to bring great foot traffic. New condos, perhaps a hotel, household income demographics that are very impressive and a need to have good shopping in the west 85 corridor will bring the once cool mall back. It also helps to have a developer with deep pockets. It won't be Santana Row part deux, but even if it became half of that - wow. Now if Cupertino residents can stop voting down every bit of growth legislation...