Sunday, April 22, 2007

Wholesale Bankruptcy Retail Space - Need Some?

123 retail lease locations available to purchase from one bankruptcy of Hancock Fabrics. If you are a retail landlord, don't assume that if your tenant goes under, that this will leave you with vacant space. As have other companies such as Warehouse Records and Kmart, Hancock Fabrics which declared bankruptcy will generate revenue for their debtors through the sale of these leasehold interests. Most of these sites have under market value rents and therefore have value. The value is determined by the discrepancy between current and market rate rents and the remaining term of the lease plus any options to renew. Do you know of anyone who wants 10,767 square feet in Vacaville for another 16 years? The only other space near me is in Newark, though that has only 2 years remaining. Rats!

Monday, April 16, 2007

The Perfect Apartment Unit Mix

The most common apartment investor request is for a building with a predominance of two bedroom units. Don't show them a building of 1 bedrooms and, the horror, a building of studios. I'm going to step out on a limb here - I love studios and 1's. One bedrooms tend to have overall low occupancies. This is important when the landlord pays for water, garbage, etc. Realistically less toilet flushes (ok, sorry, but true) which means less plumber calls and lower utility bills. Studios are even more so this way. If I was in need of crashing at a friends apartment, I would choose the friend with the most ample space. Reasonable? Or I could definitely be swayed by location.... sure. Something to think about.

Residential Stats Santa Clara County

More divergance - listings are increasing while escrows are dropping off. This continued pressure in the middle of the buying season will cool off prices overall. Again - not in the hot areas - although definitely in central San Jose and east.

Investing in Phoenix - Low Unemployment

From US Bank Economic Update - Low unemployment and strong job growth in the Phoenix Metro. It's all about jobs. Think Silicon Valley - housing is strong due to job growth. In Phoenix, the same rule applies. 3.9% unemployment. 4.3% job growth over last year. More importantly, construction jobs did not take a huge percentage of this growth. Growth was in the best areas - business and professional services. Housing prices have slumped in that market, though, with strong job growth, that will change.

Friday, April 13, 2007

Yield Maintenance or Defeasance?

Lenders may give you an option of yield maintenance or defeasance when selecting a loan for a commercial property. The rate of the YM tends to be higher to offset the lender's increased risk of receiving the money back and having to reinvest it. This higher cost does add some flexibility if you decide to sell the building before the 10th year. You need to ask yourself what is more likely in the next few years.

Tuesday, April 10, 2007

Credit vs. Non-Credit Tenants

There is more risk - as the market suggests - in non-credit rated tenants. The mom and pop nail salon seems more risky than the Quizno's. A retail center of Quizno-quality name brands will sell at a lower cap rate than a center made up of neighborhood service providers. The difference in costs also is evident in financing. 5.9% vs. 6.78% is the difference in 10 year fixed money from credit to non-credit tenants as quoted from one lender's rate sheet today. Fair, yes. Higher risk/reward center will also command higher cost of capital. I suggest that the higher upside would be in a neighborhood center that can be converted to name brand tenants over time.

Rental House Cap Rates

What is the cap rate on your rental house? Annual income less expenses over current market value, right? The "less expenses" part is the nebulous part of the analysis. Needed items to include are major capital improvements that don't happen yearly. Roof replacements, new kitchens, bathroom remodels, landscaping, painting - all of these should be prorated every year to give a more fair cap rate. Don't be surprised if you get a 2.3% cap rate as I just did on my rental house. So, does that 4% cap rate apartment building look better? Maybe... That's another discussion.

Monday, April 9, 2007

Monthly Santa Clara County Stats

More active listings coming on the market and less deals going in to escrow. Divergent paths between the two stats. This is true in both the single family market and the condo/townhouse market in Santa Clara County. Yet, this is opposite of what is happening in Cupertino, Saratoga, Los Gatos, Palo Alto and Los Altos. We have micro-markets and it is very evident.

Cap Rate Compression

The general feeling is that cap rates are too low. Compared to what? If you compare it to rates 5 years ago, yes. That is a poor comparison though. Cap rates need to be compared to the cost of money and what interest rates will do in the near future. Also, new and significant pressure is coming from the baby boomers moving equity into stable commercial investments. Down payments are higher and not just because lenders are requiring it. More so due to the fact that very conservative buyers are buying into commercial property and being very risk adverse. All cash purchases abound. Leverage at a later stage in life is not so important. Cash flow, security, stability, asset protection rule the deals. Cap rates will continue to compress in the near term - think 10 to 20 years - just in time for the Gen Xers to step in.

Saturday, April 7, 2007

Intero @ Santana Row?

Functionality at the workplace. Something to think about when considering investing in an office building or perhaps a retail center. Intero's new office at Santana Row - I wasn't sure what to make of it. Office space in a very high rent retail location - does that make sense? I had my ahah moment while in the yoga class today at Club One in Santana Row. The cost of this operation is actually low. Yes the rent is high, though staffing is minimal. It is a high profile space and very, very functional to the whole company, especially to gym rats like me who will end up working more effectively and longer because of this unique satellite office. Price per square foot is not the only factor of space. My bet is I will be more profitable, as will the company due to this added tool and asset that now exists. The world is a-changin'. Grab your laptop and be ready to move.