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Spring Fever: How to handle the rush

Monday, May 9th, 2011

It seems that as each new spring season rolls around so do the tenants looking for rentals, almost as if synchronized with the sun’s rotation.  With new tenants also come new challenges and owners need to make sure their property management teams are ready for the big rush.  Below you will see some of obstacles that we work to overcome.

1)      Hot Leads, and LOTS of them! – Employees that have worked through this season in the past will come to expect to be VERY busy during this time of year.  Newer employees may become overwhelmed more easily.  Having great procedures and support staff are critical to the success of these employees.  I would also suggest having weekly face to face meetings as well as tracking tools to help everyone stay on task.  Communication is KEY!

2)      Ring, ring, ring! – The phones seem to ring off the hook this time of year. Leasing agents are usually out and about doing showings and some customers may become frustrated by not being able to speak with them.  It is a great idea to have someone in the office that is also a licensed agent to field calls and answer minor questions.

3)      Ready, set, GO! – Properties fill up fast this time of year.  Sometimes by the time an appointment has been set to view a property it has already been secured by another party. This discourages some potential tenants and makes them want to give up the race. With a little encouragement and a LOT of great customer service a property will be found for them.  Reassure the clients of this and follow up, follow up, follow up to secure a lease and help them come in first for the property of their dreams!  

Sometimes the workload is overwhelming but in the long run it is very worth it.  Leasing agents have a chance to catch up on their commissions from the long winter, admin and support staff are tasked with coming up with new ways to organize, marketing people learn new ways to track and pinpoint referral sources.  When everyone is busy and working hard for a common goal, camaraderie and teamwork is not hard not to catch on to.  Overall attitudes and morale become increasingly more positive which increases productivity.  Now if we could just keep spring here all year long!

Kara Kayser works as the Marketing Assistant for Legacy Real Estate.  She is responsible for assisting in the  coordination of marketing efforts designed around growing commercial and residential real estate sales.  Her expertise lies in social media and web marketing.  Kara has a Bachelor’s degree in Business Administration from Augustana College and comes to Legacy with a varied background of experiences which include human resources, recruiting, sales, marketing, customer service and accounting.  You can reach Kara at kkayser@legacysiouxfalls.com.

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Press Release:LAW FIRM RELOCATING TO SECURITY NATIONAL BANK CENTER

Wednesday, April 6th, 2011

Downtown legal landscape receives new look

Johnson, Heidepriem & Abdallah LLP will move into the main floor of Security National Bank Center at Ninth Street and Main Avenue. The firm plans to move in June, with an open house during the state bar association’s conference in Sioux Falls.

“We are very excited to have such a prestigious law firm moving in to the building,” said Les Kinstad, Broker with Legacy Real Estate.

The Security building provides additional space for the law firm on a prime corner of downtown. The firm is adding a partner and may reach 10 lawyers in the next few years.

“They gave us a great opportunity and created a space that would really fit our needs,” Abdallah said.

The firm has had input into the design of the main floor, which will feature an atrium with a conference area. Offices on the mezzanine level will overlook the main floor.

“I don’t think there will be anything like it in Sioux Falls,” Abdallah said.

The firm is working with designers to open up windows on the main level and bring the building back to how it looked when it opened in 1917.  The move nearly completes the Security building’s rehabilitation. Andy Fleming, Property Manager with Legacy Real Estate, said upper-floor loft apartments are all rented, and 3rd and 4th floors are 90% occupied.  Tenants include 9th & Mane Salon Suites, Gallardo Trust, The Hayzlett Group as well as Legacy Real Estate.

Johnson, Heidepriem & Abdallah picked its new spot, in part, because of its street-level location and the ability to have a one of a kind space in downtown Sioux Falls.

 

 

Legacy Real Estate is a full service real estate firm working with investors, business owners and other clients to maximize their real estate goals. Founded in 2002, the Legacy team offers their expertise in property management, investments, historic renovation and tax credits, and commercial and residential leasing and sales. Our mission is to fulfill your legacy through our relationships, commitment, dedication and hard work. To view our real estate opportunities visit our website at www.legacysiouxfalls.com.

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What is a net lease?

Monday, March 14th, 2011

Net leaseFrom Wikipedia, the free encyclopedia

The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. 

In commercial real estate, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses which normally would be paid by the property owner (known as the “landlord” or “lessor”). These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities and other items.[1] Contents [hide] 1 Types of net leases 1.1 Single net lease 1.2 Double net lease 1.3 Triple net lease 1.4 Bondable lease 2 Economics 3 References The precise items that are to be paid by the tenant are usually specified in a written lease. For properties that are leased by more than one tenant, such as a shopping center, the expenses that are “passed through” to the tenants are usually prorated among the tenants based on the size (square footage) of the area occupied by each tenant. The term “net Lease” is distinguished from the term “gross lease”. In a net lease, the property owner receives the rent “net” after the expenses that are to be passed through to tenants are paid. In a gross lease, the tenant pays a gross amount of rent, which the landlord can use to pay expenses or in any other way as the landlord sees fit. [edit] Types of net leasesThere are standard names in the commercial real estate industry for different sets of costs passed on to the tenant in a net lease. [edit] Single net leaseIn a single net lease (sometimes shortened to Net or N), the lessee or tenant is responsible for paying property taxes as well as the base rent. Double- and triple-net leases are more common forms of net leases because all or the majority of the expenses are passed on the tenant.[2] [edit] Double net leaseIn a double net lease (Net-Net or NN) the lessee or tenant is responsible for real estate taxes and building insurance. The lessor or landlord is responsible for any expenses incurred for structural repairs and common area maintenance. “Roof and structure” is sometimes calculated as a reserve, the most common amount is equal to $0.15 per square foot.[citation needed] [edit] Triple net leaseA triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three ‘Nets’) on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area. This form of lease is most frequently used for commercial freestanding buildings however, it has also been used in single family residential rental real estate properties.[3] [edit] Bondable leaseA bondable lease (also called an “absolute triple net lease”, “true triple net lease”, or a “hell-or-high-water lease”) is the most extreme variation of a triple net lease, where the tenant carries every imaginable real estate risk related to the property. Notably, these additional risks include the obligations to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor are rent abatements permissible. The concept is to make the rent absolutely net under all circumstances, equivalent to the obligations of a bond: hence the “hell-or-high water” moniker. An example of this type of lease would be a leaseback arrangement in which a retailer leases back the building it formerly owned and continues to run the store. Bondable leases are typically used in so-called “credit tenant lease” deals, where the main driver of value is not so much the real estate, but the uninterrupted cash flow from the usually investment-grade rated “credit” tenant.[citation needed] [edit] EconomicsTypically, triple net leases (NNN) are ‘equity investments’, rather than ‘cash flow investments’. For example, the investor will finance a significant portion of the purchase price on a property and pay the resulting mortgage with the lessee’s monthly owed rent. There is usually a small amount left over as monthly profit for the investor (positive cash flow), but the greater investment payoff comes from the tax shields afforded to the investor through the use of leverage or gearing. The resulting property is then sold after a period of equity-building, usually five years – the typical commercial mortgage term.

References^ Principles and Practices of New Jersey Real Estate 6th Ed by Frank W. Kovats, DREI. ^ Hipp, Jonathan W. (2008-11-28). “What You Need to Know to Invest in Single-tenant, Net-leased Properties”. Calkain Companies, Inc.. http://calkain.com/exchange-toolbox/industry_expert_articles/netlease101.php. ^ http://www.prweb.com/releases/triple_net_leases/triple_net_houses/prweb3753374.htm Retrieved from “http://en.wikipedia.org/wiki/Net_lease”

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Office Property Sales Rise Amid Encouraging Economic News

Tuesday, March 1st, 2011

Link to full article

Dec 23, 2010 11:54 AM, By Denise Kalette, NREI Managing Editor

Office properties, which have languished over the course of the economic slowdown amid dismal unemployment figures, are showing some buoyancy. Office property sales jumped 122% in the year-to-date through the third quarter over the same period last year, according to a new report by the Mortgage Bankers Association (MBA).

The total sales volume of commercial properties rose 82% in the same period over 2009 levels, according to the report. However, that transaction volume of $60 billion still falls well below the level of earlier years.

Apartment sales leapt 97% in 2010 through the third quarter, while industrial property sales rose 59% and retail property sales, 48%, according to the MBA.

Yet the overall volume of sales falls far below the level of pre-recession sales, the MBA emphasized in the hefty, 103-page report.

 Recorded prices per square foot increased, while cap rates declined. The highest cap rates, for industrial properties, fell to 8.4% from 8.6% a year earlier. Meanwhile, retail cap rates fell to 7.8% from 8.1%, and cap rates for office properties fell to 7.3% from 8.2% percent a year earlier. The lowest cap rates, for apartments, fell to 6.7% from 7.1% a year earlier, the report notes.

 The pace of commercial mortgage originations, including multifamily, picked up during the third quarter quarter. Third quarter 2010 originations were 32% higher than during the same period in 2009, and 15% higher than during the second quarter of 2010.

 On a year-over-year percentage basis, originations for inclusion
in commercial mortgage-backed securities (CMBS) grew a stunning 940% and originations for life companies grew 154%. Originations for banks fell 49% compared to the third quarter of 2009 and originations for Fannie Mae and Freddie Mac fell 16% year-over-year.

Life company mortgage commitments reached $9.5 billion in the third quarter, just $2 billion less than the 2007 third-quarter level, according to MBA.

Commercial and multifamily mortgage debt outstanding declined by $42 billion during the quarter, driven by a drop in loans held by banks, down by $30 billion, and in CMBS, which recorded a reduction of $12 billion.

 The latest fiscal data is providing encouraging signs of somewhat stronger growth in real economic activity, the MBA says. “The most heartening developments have been in consumer spending, which rose at a 2.8% annual rate in the third quarter and appears to be on track to equal that gain in the current quarter.”

The sales level of durable goods has been stronger than the total, suggesting a more confident consumer, according to the report. During the second and third quarters, consumer purchases of durable goods, adjusted for inflation, rose at an annual rate of 7%.

 The increase in fourth-quarter purchases of durable goods by consumers is expected to exceed the second and third quarter pace “by a comfortable margin,” the MBA reports.

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Commercial Lending Bounces Back In 2010

Thursday, February 10th, 2011

With CMBS and Life Company Financing Picking Up Speed, MBA’s Commercial Loan Index Reaches Highest Level Since Third-Quarter 2008

February 9, 2011
Powered by improving conditions in the real estate and capital markets, CRE loan originations rose by 36% in 2010 over the previous year, according to preliminary data released at this week’s Mortgage Bankers Association (MBA) real estate finance convention in San Diego. In a separate report, the MBA also found that loan maturities continue to roll at a manageable level, with just 11% of the $1.4 trillion in outstanding commercial debt expected to mature this year, shrinking to 9% in 2012.

“All the fundamentals are ripe for a very positive, solid comeback, especially in the multifamily sector,” Faron Thompson, who attended the conference as the newest addition to Jones Lang LaSalle’s real estate investment finance team, tells CoStar.

Mortgage bankers originated $110 billion of commercial and multifamily mortgages during 2010, with a strong fourth quarter powering an increase of 36% from 2009, according to preliminary estimates based on the MBA Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, released at the conference this week.

The results show that loan production by life insurance companies sprang back to life in 2010. Life companies were the leading source of lending, with origination volumes 155% higher than 2009 levels. Government-sponsored enterprises Fannie Mae, Freddie Mac and FHA/Ginnie Mae also saw strong volumes, with increases for FHA/Ginnie Mae offsetting declines in production for Fannie Mae/Freddie Mac. Total originations for commercial mortgage-based securities (CMBS) conduits increased more than 10-fold in 2010 while originations for commercial banks saw a year-over-year decline.

CB Richard Ellis Group Inc. posted an increase of 233% in its commercial mortgage brokerage business, driven by loan originations and strong GSE activity as well as improvements on the parts of traditional and conduit lenders, said CFO Gil Borok during the Los Angeles-based company’s fourth-quarter conference call.

Originations jumped 63% in the fourth quarter over the previous three months and 88% over fourth-quarter 2009, pushing totals above 2009 levels, said Jamie Woodwell, MBA’s vice president of commercial real estate research. The late rally was driven by increases in originations for office properties, which rose 170% over the same period a year earlier; and hotels, which rose 169%. Loans for industrial properties, retail and multifamily rose 98%, 94% and 81%, respectively. Health-care lending was flat at 4%.

Origination volumes typically grow over the course of the year and changes between the third and fourth quarters are likely driven at least in part by seasonal factors. However, among investor types, CMBS saw an increase in loan volume of 298% compared to the third quarter, by far the largest quarterly jump. The next-largest increase, originations of commercial bank portfolios, rose a more seasonal 102%.

The stirring of the CMBS market after a three-year slumber reflects the improving picture for commercial real estate fundamentals. In addition to the ten-fold increase for all of 2010, CMBS conduits rose 60-fold increase compared to last year’s fourth quarter. Life companies’ volume rose 170% in the fourth quarter over a year ago.

“Life companies and FHA led the increase in dollar volumes, but a large percentage increase in originations for CMBS is likely the most symbolic change from last year,” Woodwell said.

The MBA’s Commercial/Multifamily Mortgage Bankers Originations Index, which averages 100 on a quarterly basis since 2001, started first-quarter 2010 at 45 and rose to 114 in the fourth quarter. That’s the highest since third-quarter 2008′s 116 and roughly parallel to 2002-2003 levels, according to an MBA chart.

Compared to the third quarter, fourth-quarter originations for hotel properties saw a 333% increase while health care properties ended the year strongly with a 204% increase.

Loan Maturities Hold Steady

Only 11% or $155 billion of the $1.4 trillion balance of outstanding commercial/multifamily mortgages held by non-bank investors through Dec. 31, 2010, will mature in 2011, and 9%, $125 billion, will come due in 2012, according to the Mortgage Bankers Association’s 2010 survey of loan maturity volumes. The survey found that maturities vary considerably by the type of investor holding the loan.

“The long-term nature of commercial real estate means that relatively fewer — not more — commercial and multifamily mortgages have been maturing during the throes of the credit crunch and recession compared to other credit types,” said Woodwell. “For most investor groups, commercial mortgage maturities are relatively spread out, with some increases starting in 2015 as the loans originated in 2005, 2006 and 2007 come due.”

MBA’s 2010 survey collected information directly from servicers on the maturity years of more than $1.4 trillion in outstanding non-bank commercial/multifamily mortgages. Only small shares of the commercial and multifamily mortgage debt held by life insurance companies, Fannie Mae, Freddie Mac or FHA, or in fixed-rate CMBS will come due in 2011 or 2012. Greater shares of mortgages held in short-term and floating-rate CMBS and by credit companies, warehouse facilities and other investors will mature in 2011 and 2012.

According to the survey, $155 billion, or 11%, of the total $1.4 trillion balance of outstanding mortgages held by non-bank investors, will mature in 2011 followed by $125 billion, or 9%, in 2012. The maturities vary significantly by investor group. Just 3% of the outstanding balance of multifamily mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in 2011. Life insurance companies will see 7% mature in 2011.

Among loans held in CMBS, 12% will come due in 2011, including 8% the $521 billion of loans in fixed-rate conduit CMBS and 22% of the $190 billion of loans in floating rate and large-borrower CMBS. On the high end of the spectrum, 30% of commercial mortgages held by credit companies and other investors will mature in 2011.

Wells Fargo, PNC Lead CRE Mortgage Servicers

Wells Fargo led the MBA’s year-end ranking of commercial and multifamily mortgage servicers with $451.1 billion in U.S. master and primary servicing, followed by PNC Real Estate/Midland Loan Services with $337.4 billion, Berkadia Commercial Mortgage with $194.9 billion, Bank of America Merrill Lynch with $126.6 billion, and KeyBank Real Estate Capital with $118.9 billion.

Wells Fargo, PNC/Midland, Berkadia, Bank of America Merrill Lynch and KeyBank are the largest master and primary servicers of commercial/multifamily loans in U.S. CMBS, CDO and other ABS; PNC/Midland, GEMSA Loan Services, Prudential Asset Resources, Northwestern Mutual, and Northmarq Capital are the largest servicers for life companies; PNC/Midland, Wells Fargo, Berkadia, Deutsche Bank Commercial Real Estate and Prudential Asset Resources are the largest Fannie Mae/Freddie Mac servicers.

PNC/Midland ranks as the top master and primary servicer of commercial bank and savings institution loans; GEMSA the top credit company, pension funds, REITs, and investment funds servicer; PNC/Midland the top FHA and Ginnie Mae servicer; Wells Fargo the top for mortgages in warehouse facilities; and Berkadia the top for other investor type loans.

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Prospects for Multifamily Sector Improve Greatly

Wednesday, February 2nd, 2011

Dec 6, 2010 9:26 AM, David J. Lynn, Ph.D., Contributing Columnist

Link to full article

A sharp increase in transaction activity for multifamily properties over the past year is indicative of strong investor interest in the sector, buoyed by improving fundamentals and demographic trends, which should support an increase in rental demand over the next few years.

The multifamily sector is showing signs of a firmly rooted recovery. According to Reis, net absorption in the third quarter surged by 94,000 units, dropping the national vacancy rate from 7.8% to 7.1%, one of the largest quarterly drops on record. Nearly 22,000 new apartment units were delivered to the market.

Rents increased for the second quarter in a row. Asking and effective rents increased by 0.5% and 0.6% respectively in the third quarter over the previous quarter, roughly matching the gains in the second quarter.

Strong demographics

A robust cohort of 70 million potential renters born between 1982 and 1995, the so-called echo boomers, is expected to lead the demand for apartment units over the next few years. It is estimated that population of renters ages 20 to 34 will expand by approximately 3.2 million between 2010 and 2012 [Exhibit 1].

Because of the Great Recession, record-high unemployment among workers under 35 years old has pushed many echo boomers to double up with friends or move back with their families. Household formation dropped to approximately 500,000 per year in 2008 and 2009, well below the long-term average of 1.2 million. This pent-up demand is returning to the market as the economy recovers.

Limited supply pipeline

Due to a combination of declining property values, falling rents and difficulty in obtaining financing, developers have been forced to scale back pipelines and postpone construction projects. As a result, apartment permits and construction starts have remained low over the past 18 months.

Industry experts project that approximately 99,000 new apartment units will be delivered in 2010, well below the long-term average of 146,000 units. However, as apartment capitalization rates compressed over the past six months, the development spread (development yield minus the cap rate) has once again become positive.

Combined with more readily available financing for the apartment sector relative to other property types, this cap-rate compression has led to increased interest in new development, especially in supply-constrained markets.

Favorable capital market conditions

Government-sponsored enterprises (GSEs) including Freddie Mac, Fannie Mae, and the U.S. Department of Housing and Urban Development (HUD), have dominated the multifamily financing market. They collectively financed over 80% of all multifamily financing in 2008 and 64% in 2009, according to Federal Housing Finance Agency.

Currently, the GSEs continue to provide attractive fixed-rate financing to the multifamily sector. Loan-to-values typically range from 70% to 80% for a term of seven to 10 years. Debt-service coverage ratios run from 1.25 to 1.35, and the interest rate ranges from 180 to 220 basis points over the 10-year Treasury yield. On average, apartment mortgages are approximately 120 to 150 basis points lower than those of other core property types.

Although GSEs remain the go-to sources for apartment financing, balance sheet lenders are becoming more aggressive and competitive to GSEs, particularly life insurers.

Housing crisis a lift for rentals

Consumer attitudes about homeownership have changed over the past few years. According to a recent survey conducted by Fannie Mae, although most Americans still prefer owning a home instead of renting, nearly 25% of renters say they will wait longer than they previously planned to buy a home.

Furthermore, nearly 80% of renters surveyed believe that renting has been a positive experience for them and their families. Indeed, the homeownership rate steadily declined from 69% in the third quarter of 2006 to 66.9% in the third quarter of 2010, translating into approximately 2.3 million potential new household renters [Exhibit 2].

In our opinion, homeownership could continue to trend toward its long-term average of 65% over the next 12 to 18 months. Rental properties should continue to benefit from this trend.

Market outlook

The apartment sector is benefiting from pent-up demand, declining homeownership, and a limited supply pipeline. Rental demand is highly correlated to job growth.

Year-to-date through October 2010, the U.S. economy has added a total 874,000 new jobs and the labor market is projected to recover by 2014, according to Moody’s Economy.com.

We expect the national average vacancy rate to decline through at least 2013 as demand substantially outpaces supply. After falling by 2.9% in 2009, we believe that effective rents will increase from 2011-2014.

Risk considerations

Despite several positive signs supporting the U.S. apartment fundamentals over the next few years, we have identified a few risk factors that pose potential threats to the recovery of the apartment sector.

• Rental demand is highly correlated with job growth. A potential double-dip recession with significant additional job losses would weaken apartment fundamentals and derail the recovery.

• A fragile economy would keep home prices down and interest rates low, pushing up housing affordability and keeping single-family homes and condos an attractive alternative to rental apartments.

• Markets such as Las Vegas, Phoenix, parts of California, and Florida that have been stung by the housing market downturn are expected to take longer to recover because of excess supply.

• The GSEs have been critical in providing attractive financing. Any significant restructuring in the near future could reduce the availability and increase the cost of debt financing.

• Rising interest rates would inevitably put upward pressure on cap rates. Some of today’s apartment acquisitions are underwritten with very low going-in cap rates and aggressive growth assumptions for net operating income.

If interest rates rise significantly over the next few years, asset values and projected investment returns could be negatively affected as a result.

David Lynn is a managing director, generalist portfolio manager and head of investment strategy for ING Clarion Partners in New York.

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5 States Where Housing Is Predicted to Recover the Quickest

Tuesday, January 25th, 2011

Taken from: Link to full article

By Steve Kerch Print Article Print Article

RISMEDIA, January 14, 2011—(MCT)—Housing will rebound moderately in 2011, economists at the International Building Show here are predicting, and should gain even more steam in 2012. But the recovery in home building and home sales will vary widely from one part of the country to another, with the states that had the most success during the boom times of the past decade being the last to come back from their historic bust, according to an analysis from the Portland Cement Association, a national trade group.

“The headwinds are still facing us in housing. They are less than they were, but they are still in place,” said Edward Sullivan, chief economist for the PCA, who examined data on mortgage delinquencies, unemployment rates and home-price declines to create a state-by-state recovery prediction.

The housing markets that still face the hardest going, led by Nevada, account for more than 50% of the U.S. housing market, Sullivan pointed out, while those that will recover the fastest make up only 20%. That means the better times in those states won’t do much to lift overall national housing numbers.

Here are the five states where housing is predicted to recover the quickest:

1. North Dakota. North Dakota has the lowest mortgage delinquency rate of any state, just 0.9%. It also has shown the best home price performance of any state, with values up 7.2% from the peak of everyone else’s boom in 2005 to what was a trough for everybody else in 2010.Only Texas, Vermont and South Dakota also reported gains over that time. The category the state did not lead was unemployment, which at 7.5% was just about double that of its southern neighbor South Dakota, which at 3.7% boasted the lowest rate.

2. South Dakota. In addition to its low unemployment number, South Dakota also sports the second-lowest mortgage delinquency rate at 1.5%. And the state also managed to steer clear of the home price cliff, with prices having risen 0.5% from 2005 to 2010.

3. Iowa. The Hawkeye State managed to keep its home prices nearly level over the worst five years in history for everyone else, with prices falling just 0.4%. Mortgage delinquencies are only 2.2% of outstanding loans in the state, and the unemployment rate of 6.8% is still well below the national average.

4. Nebraska. At 4.4%, Cornhuskers enjoy the second-lowest unemployment rate in the nation. Just 2.0% of outstanding mortgages are delinquent, and home prices fell only 3.5% from peak to trough, while the average for the country was a 20% drop.

5. Oklahoma. Home prices in the Sooner State fell just 2.3% from peak to trough and mortgage delinquencies are 2.9%. Unemployment is 6.9%.

If you see a pattern in those five states, you’re right.

“The central portion of the country generally will recover first,” Sullivan said. Add Kansas, Texas, Louisiana and Arkansas to that bunch.

Other states that fall into the early-recovery category include Vermont, Hawaii, Montana, Wyoming, New Mexico, Colorado and New Hampshire.

On the opposite end of the spectrum, here are the five states where the housing recovery is expected to be a lot longer in the making:

1. Nevada. The poster child for the housing boom was Las Vegas, but now it’s lights out on Glitter Gulch. The state has the highest mortgage delinquency rate in the country at 8.3%, the highest unemployment rate at 14.4% and has suffered the biggest peak-trough home price declines of any area, a 56.4% tumble.

2. Michigan. Not a state that enjoyed the boom, but one really feeling the bust. It has the second-highest unemployment rate in the nation at 13.1% and mortgage delinquencies hit 5.1% of outstanding loans. Home prices have also fallen hard, 31.7% from the peak.

3. California. The second-highest mortgage delinquency rate in the country at 6.0%, the third-worst unemployment rate at 12.4% and home price declines of 40.8% put the Golden State on a long path to health.

4. Florida. Tying California with a 6.0% mortgage delinquency rate but beating its cross-country rival with a home-price decline of 46.9%. An unemployment rate of 11.7% doesn’t help.

5. Rhode Island. Unemployment trips up Rhode Island, which ties for the fourth-highest rate in the country at 11.7%. Home prices declines were 25.6%, and 4.9% of mortgages are delinquent.

(c) 2011, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.

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Turn IRA’s into real estate investments

Friday, November 5th, 2010

Most companies that hold individual retirement accounts are not geared up to handle physical real estate for an investment. That is why when people ask investment advisors if you can buy real estate with the funds in their IRA they say no. This is not true. The investment advisors should state you can own real estate in your IRA, just not with us.

First and foremost: A retirement account (traditional IRA, Roth IRA, Simple IRA, SEP, Keogh, 401k, etc.) is not an investment. It is simply a special account that holds your investments. When most people invest in an IRA they believe they can only invest in mutual funds, stocks and bonds. The truth is that your IRA can invest in many other types of investments such as commodity futures, options and yes REAL ESTATE.

In a bit we will get to the ins and outs of real estate IRS’s.  But first some advice:  This article is designed to only be a launching pad for readers to begin their exploration of real estate IRAs. It can be somewhat complicated and everyone’s situation is unique so be sure to talk with your competent advisors before you take any action.

The first action you need to take after deciding to invest in real estate with your IRA is to set up a self directed retirement account with a company/custodian that specialized in real estate IRA’s. This is a relatively easy process and can be done by either establishing a new account or rolling over the assets of an existing account. You’ll want to be sure that there are no surrender charges for rolling over an existing account. Once you have set up your self directed IRA with a custodian that can handle real estate you may ask “now what?” There are specific rules as to what you can and cannot do with your real estate IRA. Keep in mind it is the self directed IRA that buys, owns and sells the propert,  not you personally. You do not withdraw the money from the IRA to buy the property the custodian buys the property in the name of your new self directed real estate IRA.

Some of the things you can do:

1. Your real estate IRA can buy and sell many types of real estate including: raw land, rental property, condos, fixer-uppers, commercial properties, lakeshore, etc.

2.The property can be rented but the rental income is to be paid into your IRA, not to you.

3.All of the expenses of renting and operating the property must flow in and out of your self directed real estate IRA.

4.It is possible to finance a property that is owned by your IRA but the financing must be in the form of a non-recourse loan. This can be tricky because most banks will not set up a non-recourse loan although I have talked to a few different banks and with a proper down payment they will work at setting up a loan for this type of investment.

Some things you cannot do:

1.Your real estate IRA cannot buy a property that you, your spouse, or certain family members already own. Likewise, your real estate IRA cannot sell a property it owns to you or your spouse.

2.You, your spouse or certain family members cannot have any personal use of the property owned by your real estate IRA.

3.Your IRA cannot lease the property to your business. Your business cannot use or occupy any part of the property.

So now the question that  needs to be answered is ”is a real estate IRA right for you?”  The answer is it depends on the type of real estate and your unique situation. You already know your real estate IRA cannot own property that is used by you, certain family members or your business. Therefore, primary residences, second homes and vacation homes are not candidates.

In addition, a rental property that produces tax shelter from depreciation deductions would probably not be a good fit because the tax shelter would go to waste in your retirement account.

Other types of real estate, such as raw land, fixer-uppers, and non-leveraged rental properties, are perfect candidates. The profit from these investments would be taxed if you owned the property personally. However, if your real estate IRA buys, owns and sells the property, the profit would compound in your IRA tax-deferred (or tax-free if it’s a Roth IRA) account.

Last, but not least…

Before your IRA buys any property, you’ve got to understand how real estate works. There’s a lot to it. Make a commitment to learn how to analyze a property before you buy it, including operating expenses and management considerations. Study the financial benefits such as cash flow, depreciation and appreciation. Learn how to determine cap rates, cash on cash and other rates of return, and so on. The more you know, the better your chance of success.

Remember that real estate IRAs are a specialty and not every retirement account administrator/custodian is geared up to handle them. Please consider this carefully before any action is taken.

Bill currently is a partner in a commodity brokerage firm called First Avenue Trading Co that he started in October 2001.  “I have been interested in real estate ever since my dad bought his first apartment building in the early 80′s. I helped take care of the lawn and snow removal.  I understand how fast markets can move, not only in Commodities but in real estate as well.  We have all seen rapid price movement in real estate when the housing bubble burst in 2008.  Buying and selling commercial property can be tricky at times.  Having all the facets of an experienced and strong firm like Legacy Real Estate on your side in addition to having a top tier property management team can take the stress out of investing in your first income producing property to selling your real estate portfolio when the time is right.”  Bill Currently owns income producing property in Moorhead, MN and Mitchell, Dell Rapids and Sioux Falls, SD.  Bill is a native of Sioux Falls and has a wife, Megan and two girls ages 2 and 4.  In his free time Bill enjoys spending time with his family; camping, golfing, skiing and biking.

Contact Bill:

605.254.7264

Email

The information contained has been supplied as general information. We do not provide legal or accounting advice, it is recommended that you consult and seek advice from a qualified local investment, accounting and/or legal counsel.

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How to Increase Cash Flow

Tuesday, October 19th, 2010

Sale-Leasebacks Get Clients Back on Track

Taken from Scotsman Guide August 2010

 By Sidney Domb, President, CEO and director United Trust Fund

Selling and the leasing back property may increase a business’s cash flow

 With banks searching for new ways to generate revenue and increase capital, many companies that own their own real estate are discovering the value of sale-leaseback transactions. These transactions are structured to unlock the equity a company has in its real estate and to convert that equity into cash. This involves selling the institution’s headquarters or branch offices and simultaneously leasing them back long-term. Many property-owners are recognizing the tax benefits and other advantages of these transactions. Commercial mortgage brokers can advise clients on the benefits and help them find sale-lease-back providers. In general, by selling and simultaneously leasing back its property, a company can lower its operating costs and use that money to increase its cash flow. Benefits of sale-leaseback transactions include the following: *Favorable impact on earnings. A sale-leaseback transaction converts non-current fixed assets such as real estate into current liquid assets – i.e., cash. It can generate a gain on the sale when properties’ market or appraised values are more than the depreciated book value. Property-owners often can improve their earnings by reinvesting the cash at a greater rate, retiring high-cost debt, funding mergers and acquisitions, expanding operations, or taking advantage of special investment opportunities.

*Regulatory compliance. The cash a business receives from a sale-leaseback transaction can help it improve its primary and total capital-to-assets ratios. The profit on a sale-leaseback transaction from depreciated value to current appraised value can increase a company’s net worth.

*Total facility control. Simultaneously with the sale, the company leases back the property for an initial lease term – typically, 15 years with five five-year options. In effect, this gives the company control of its real estate for at least 40 years. This would be identical to ownership for the property’s normal useful life.

 *Off-balance-sheet financing. By carefully structuring an operating lease, the transaction would not require capitalization under Financial Accounting Standards Board 13 criteria. In turn, this allows off-balance-sheet treatment, which in effect would have a more favorable impact on the company’s earnings and improve its financial ratios.

*Low cost of money. A sale-leaseback transaction can be a quick, economical way to raise capital, compared to the process of originating a new stock issue. Issuing new stock may result in an ownership dilution at unfavorable prices or with unwanted investors. The leaseback is a low-cost technique that avoids these consequences. As a rule, a sale-leaseback transaction should provide capital at an effective cost of 100 to 150 basis points less than that of long-term mortgage financing or the long-term conventional debt market. It should have not restricted covenants and no principal repayment after all lease payments.

 *Recapture of all costs. In a typical sale-leaseback transaction, the company would recapture all costs relating to the property’s current market value, including legal fees, surveys, architectural, engineering, title, and any other closing costs or property-related fees. This contrasts to conventional long-term mortgage financing, which is usually restricted to 75 percent of the current market value.

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Apartment occupancy up amid foreclosures

Monday, August 2nd, 2010
To view the story, click the link or paste it into your browser.http://usat.me?39451974

 

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