consigliere

Protect your cash: Commercial Investment Real Estate Remains Stable

In light of this week's financial sector meltdown, a long time client and friend said to me "You know Thomas, I have seven figures cash in Bank of

America

today.  With what's happening with the other financial giants and BofA saving Merrill Lynch, it really makes me nervous to have that much cash in one bank or any number of banks.  I have decided to take a good portion of it, 60-70%, and put it into more income producing commercial real estate.  There are good deals out there to be had."  I agreed completely.  We are now actively looking for shopping centers with in-place income at 8%+ of purchase price.

Yesterday, another client said he was pulling his hair out while watching MSNBC to see if his $500,000 invested with Morgan Stanley was going to go up in smoke.  He then expressed his confidence in his income producing commercial real estate as compared to the stock market.

Contrary to the news of faltering banks and the stock market diving, commercial investment real estate fundamentals in most markets throughout the U.S remain stable and will continue to do so in the current interest rate environment. Apartment Buildings and Trailer Parks are a hot commodity among investors these days due to the turmoil in the housing market; vacancy rates are dropping and rents are trending upward.  Demand for office and retail properties is down but risk can be mitigated through lower leverage, buying on actual income numbers rather than proforma and through value-add or lease-up incentives.

There are good deals to be found in all US markets from as low as $1MM to $100MM+ across all commercial income property types.  Most everything our clients buy is relatively hands-off for them as owners by nature of a property manager or lease structure such as a triple net lease. These hands-off investments provide stable steady cashflow, appreciation and good residual value.  Many clients are purchasing properties in different geographic areas from themselves and their other properties to diversify risk. Many times the subject property is 3, 7 or even 10 states away from where they reside due to the low to no management needed.

The following table overviews conservative achievable yields in today's market:

To preserve your cash from stock market declines or failing banks, consider a stable long term investment such as commercial income property today.  As your professional commercial investment advisor, I analyze your personal investment situation in terms of yield v. risk to select the right property in the right market to achieve your goals.  Call or email me right now to add or diversify your investment portfolio. We do deals nationwide.

Be well out there,

Thomas

About the Author:

Thomas Morgan, CCIM, CIPS is exclusive global real estate advisor to high net worth individuals, families and their ancillary advisors.  Thomas has been called the "go to guy" for ultra-wealthy clients worldwide who want to use real estate to protect and build their wealth.  Thomas advises clients on all aspects of real estate holdings including commercial investments; private residences; investment analysis; and portfolio strategy and optimization through deliberate asset management.  Thomas can be reached directly at 1.866.539.1777 or thomas@cmcommercial.net

Who is your tenant? S&P Tenant Credit Ratings

When purchasing a single tenant net leased investment, tenant quality and the financial ability of the tenant to perform is of utmost importance.  In essence you are buying the income stream and the bundle of rights subject to the leasehold, so how do you know you will get you monthly rent check for 10, 12, 15 or 20 years?  One way is to have the "market" rate the risk for you.  Here is the  S & P breakdown of credit ratings, to help you assess your risk:

Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following considerations:

Likelihood of payment—capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
 

AAA
An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
 

AA
An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
 

A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
 

BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
 

BB, B, CCC, CC, and C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
 

BB
An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
 

B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
 

CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
 

CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment.
 

C
A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
 

D
An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
 

Plus (+) or minus (-)
The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
 

NR
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy.
 

2008 FIBArk Hooligan Race

as promised.  exercise bike propulsion.  more photos to come.  Video here:  I am at timer 4:30 of 4:54 seconds.

Guest Blogger: 5 Things to Keep in Mind When Purchasing and Financing Your Single-Tenant NNN Property

Guest Post written by Colin L. Paterson, Commercial Mortgage Banker, BMC Capital, LP

5 Things to Keep in Mind When Purchasing and Financing Your Single-Tenant NNN Property:

Single-Tenant NNN Properties can be a great investment for investors seeking minimum management and optimum cash flow of their investment real estate. However, it is important that investors understand their risk when buying and financing a NNN property. While their are many variables to consider, there are 5 things that are of utmost importance to consider before purchasing and financing a Single-Tenant NNN Property:

1) Know your tenant and understand their financials. Since your property's value is directly related to the lease income, it is paramount that the tenant paying the lease income is financially viable. An investor should conduct a thorough analysis of the last two years and YTD balance sheet and P&L statements to make sure that the tenant has enough cash flow to cover it's fixed charges (rent and interest payments), and is not overburdened with debt.

2) Make sure the rent/sf is in line with market rents. Just b/c a NNN property has a high cap rate, does not necessarily mean it's a good deal, if the tenant is paying a much higher rent/sf than the market. Consider what another tenant would pay to lease the subject property if the existing tenant were to leave. Your real estate broker should be able to give you market rent comps.

3) "Location, location, location". This famous maxim holds true whether you're buying a single family house or commercial real estate. Thus, it is vital you understand the location, demographics, traffic counts, traffic generators, and what will drive supply and demand in the future. Note: a general rule of thumb for most lenders financing NNN properties is that they require the 5 mile population to be 50,000 or greater.

4) Length of the lease term: It is important to understand the lease term length and what your outstanding loan balance will be at the end the lease term. Most lenders who lend on NNN properties, require at least 15 years remaining on the lease in order give a 25 year amortization, if the LTV is 50% or greater.

5) Keep a reserve account. This is line with another famous maxim in real estate investing: "Prepare for the worst, hope for the best". Yes, even though you're buying a NNN property, it is essential that you are financially prepared if the tenant were to leave. The reserve account should be kept for 1) replacement reserves, in the event you as the landlord are required to make a capital improvements; 2)Tenant Improvements and Leasing Commissions (TILC), in the event the tenant were to leave and you have to find another tenant to move in. Yes, even though you're buying a NNN property, it is essential that you are financially prepared if the tenant were to leave and stop paying rent. Note: a general rule of thumb most lenders require is for the borrower to have a least 6 months of mortgage payments available in liquid assets to be used if the tenant were to leave.

While there are other variables to consider, keeping the above 5 things in mind before purchasing and financing your NNN property, will greatly increase your likelihood of investment success. Happy investing!

Guest Posted by Colin L. Paterson
Commercial Mortgage Banker
BMC Capital, LP
Colin can be reached at 916-646-6334 or : cpaterson(atsign)bmccapital.com    or  www.bmccapital.com

not too seriously

a local coffee shop I visit has a sign above the door that reads "take your coffee seriously, not yourself".  With that credo in mind as well as taking a play out of Deyl's blog, my future posts and this blog for that matter will ...um yes.... take themselves less seriously. 

Yes, investment real estate can be a serious business but also an immensely fun and exciting one as well.  In a world where life and business blend together in one continuous flow, fun is essential.  As Ben & Jerry say (said) "If is is not fun, why do it?". 

Here we go (new blog category), let's not take ourselves or our lives too seriously.....see next post ha ha :)

on the ground: grand cayman ritz

I am here in Grand Cayman for a few days for a shareholder's meeting with clients.  We are staying at the Ritz on Seven Mile Beach.  Yes, it is "ritzy". 

The resort is 144 acres and has 365 rooms, 5 restaurants and 2 bars.  They have quite the program set-up for real estate purchasers and several projects in the works.  To name a few ...The Residences and The DeckHouses have been met with an outstanding reception, Orion Developers is building upon its previous success with an impressive new development of vacation homes known as

Secret

Harbour.  Designed by the firms Zurcher Architects and VITA Planning & Landscape Architecture, the Secret Harbour vacation homes will have a unique charm inspired by the special spirit and atmosphere of maritime Mediterranean villages.  Located on a private island within the acreage of the resort's property, Secret Harbour will be composed of 120 residential units and will have mainly boat access to travel locally rather than car.

Ownership of the resort's real estate has its privledges.... a fleet of BMW's and a chauferred Rolls Royce Phantom (sticker $333,000) and a few  Riva boats hand made by Ferretti in Europe (only 24 made each year).  And...if you buy the 20,000 sf "Seven South" house a Phantom will be included in the purchase... price tag:  a cool $44MM.

2 years, 5 hour exam and 4 letters later....CCIM

Just returned from the CCIM mid-year meetings in Newport Beach CA.  (nice place)  I finally finished my CCIM education and designation!  I enjoyed the process very much and highly recommend the program to ANYBODY who is in commercial real estate or wants to learn about commercial real estate.  This goes for brokers, principals, lenders, developers, business operators (tenants)....you will benefit from the education and networking and can use the knowledge in everyday practice.  I love t-bars and my HP10bii (maybe time to progress up to a HP platinum) (see below) !!!  -Thomas Morgan, CCIM  (those four letters, not the other four!)

PS- Deyl-  checkout the sushi bar at the Marriott Newport Beach Resort and Spa.  Best I have had in while.

Permanent Financing for Retail Properties

Authored by consigliere guest blogger: Mark Jeffries, Vice President, Q10 | Essex Financial Group

Over the past 9 months or so, the credit markets have experienced a shake-up unlike any in recent memory.

The main impact of this on retail property permanent financing is related to the fall-out of Conduit or CMBS (Commercial Mortgage Backed Securities) lenders.  As recently as the summer of 2007, retail property owners and purchasers were able to obtain 80% loan-to-value financing from a CMBS lender without much difficulty.  Life Insurance Companies were typically offering 70-75% financing with similar fixed rates to CMBS.  Today, without the need to compete with CMBS, Life Insurance Companies have scaled back to leverage levels in the 65-70% range.  The good news is that fixed rates from Life Companies are currently in the 5.75% to 6.5% range, are most often non-recourse, and can offer fixed terms of up to 25 years.  One of the potential dangers on the horizon is inflation, which could lead to higher interest rates across the board.

If a property owner is considering a refinance it makes sense to lock in a rate soon rather than later in my opinion.  We’re happy to provide financing estimates and analysis to assist borrowers in making difficult strategic capital decisions.  Retail properties continue to be viewed favorably by Life Companies as vacancy rates remain low in most markets.  We anticipate the capital markets will stabilize later in the year, and CMBS will return to the scene but likely on a more limited basis.

Mark can be reached at 303.843.4023

Introducing ReferralRewards- Enjoy the Mexican Caribbean.... on me

On a recent visit to the Hyatt Caribe, sitting on the balcony of our top floor suite overlooking the amazingly crisp blue Caribbean, I thought to myself... this is great, I would love to share this place with my friends and clients.

So, no reason not to.

And with that, I introduce the ReferralRewards Program.

I work hard to provide clients with top notch real estate advisory services and live by the motto "a referral is the best compliment I can receive".  Beginning today, on an annual basis, I will hold a drawing every December 1st for a lucky client or associate to receive a trip for two to the Mexican Caribbean. Every referral we receive will equal one entry in the drawing with no upward limit as to the number of entries. 10 referrals from one client equals 10 entries for that client. (Incoming referrals from other associates accepted as well: lenders, bankers, title, surveyors, appraisers, etc.)

The referral can be for any type of commercial real estate anywhere in the U.S.  We specialize in national commercial investment sales, primarily NNN and retail deals but have large network of commercial brokers who can handle any type of commercial transaction including leasing.  We will also consider residential referrals on a case by case basis as we have residential brokers in our network who can service these deals.

I did a great job for you and can do a great job for your friends, family and associates. Ask yourself today "Who needs real estate services?" And when the answer comes simply call or email me with their name and number and we will enter you into the ReferralRewards Program. One referral. Two referrals. Three and four... the blue Caribbean outside your door!.

Then when you are sitting on the beach sipping your Margarita, ask yourself "Who can I refer next year?" Adios Amigo

Call or email today... 

...........................................
Thomas G. Morgan, CIPS
CM Commercial
866.539.1777 toll-free
866.539.1788 fax
www.cm-commercial.net

where in the world?

This is a cool free service....shows a map of where you have been in the world..... kind of like where is waldo?  how about where is tmo?