CRE Investing

/CRE Investing
  • Sell your property

Timing is Everything – When is the Right and Wrong Time to Sell Your Property?

January 5th, 2017|

The question all good investors must ask is, “When is the right time to sell my rental properties?”  All markets, including commercial real estate, go through cycles.  Riding a market when it’s on a strong upswing is truly a euphoric feeling.

Where are we on the Real Estate Market Cycle?

But where will the real estate market go from here?  Shown below is a chart that shows the four phases of the real estate market cycle.  I believe in 2016 the Pacific Northwest commercial real estate market moved from Phase II – Expansion to the beginning of Phase III – Hypersupply.  Why?  Because we are seeing for the very first time vacancy rates beginning to rise.  Secondly, it’s all about rent growth.  It’s still positive but rent increases are substantially less than they were a year ago.   This puts us firmly in Phase III where rent growth is still positive but declining.

rents-in-4-phases-of-re-market-cycle

4 Questions Before You Decide

So is it time to divest of your real estate?  Before making that decision, here are four questions to ask yourself: (more…)

  • Commercial Real Estate Investing

2 Important Truths About Commercial Real Estate Investing

November 12th, 2016|

Truth #1 about commercial real estate investing

A wise man once said, “The season of failure is the best time for sowing the seeds of success.”  So how does this truth relate to commercial real estate investing?  When the real estate market is in its season of failure (think 2008-2009) is when you sow your seeds of success. Those who buy when everyone else is selling usually end up the big winners.  This is true of all types of investing but it’s especially true with commercial real estate.  We all know that those who bought CRE at the bottom of the market during the tough years from 2010-2012 made out like bandits.  As the saying goes, “You make your money when you buy, not when you sell.”

Truth #2 about commercial real estate investing

But the corollary of this truth is unfortunately also true.  It’s during the prosperous times that investors sow their own seeds of failure.  How you ask?  By acting like the good times will last forever they make foolish investment decisions.  They forget the tough times and the hard lessons that were learned.  They say during the bleak times, “Never again will I (fill in the blank)” only to have selective amnesia when the market turns around.

Potential seeds of failure

So as I was saying, it’s during the prosperous times (like now) that investors sow their seeds of failure.  Here are a few examples: (more…)

7 Traps on the Purchase & Sale Agreement You Need to Negotiate Away

October 14th, 2016|

Have you ever wondered when signing a boiler plate purchase and sale agreement what paragraphs on the PSA have the potential to come back and haunt you before the sale is complete?

I recently attended a Commercial Association of Brokers sponsored seminar on this subject.  The speaker was Daniel Drazan a real estate attorney for Dunn Carney Allen Higgins & Tongue, LLP.  Dan serves on the Board of Directors of the Commercial Association of Brokers. He also chairs the CAB Legal Forms Committee so he is well qualified to speak on this subject.

Here are four potential issues that buyers should do their best to negotiate away before they sign the purchase & sale agreement. (more…)

9 Hidden Costs Managing Apartments That Can Cost You Big Time!

September 27th, 2016|

There are several categories of operating expenses necessary to maintain and manage apartments.  We all know these expenses: property taxes, insurance, utility charges, maintenance and turnover costs, on-site and off-site management costs, etc.  But less well known are potential hidden costs of maintaining and managing an apartment that in large part can determine the profitability of your investment.  They are, in no particular order: (more…)

Have you fallen in love with your property? Take the 4 question test.

August 31st, 2016|

Over the many years I’ve been in the commercial real estate business I’ve come across all sorts of investors.  Occasionally, I encounter someone who has fallen in love with their commercial property.  You know the type.  Their approach to their property is based more on feelings than sound investment decisions.

Want to find out if you’ve fallen in love with your property?  Answer these four questions.  Do I do these things?  (more…)

4 Lessons Learned from Investing In My Loser Property

July 23rd, 2016|

I want to let you in on a little secret: Not every commercial real estate property I invest in turns out to be a “home run.”  Now that I got that confession off my chest, maybe some of you can relate.  In the summer of 2007, which turned out to be the absolute peak of the last real estate cycle, I, along with a like-minded group of investors, purchased a 32 unit apartment located in a small town.

Indicators of a Good Commercial Real Estate Investment

At the time it seemed to be a good investment:

  • Large unit sizes
  • One story buildings
  • Nice, quiet little town
  • The potential down the road to convert to condominiums

Hey, what could go wrong, I asked myself?  Well it turns out that plenty could go wrong, some of which could not have been predicted by even the most savvy of real estate investors.  Because of that I needed to extend mercy to myself instead of beating myself up over investing in this property, which I eventually did.  In 2015, with a sigh of relief, we sold this apartment.  For several weeks after the sale you could see me doing “back flips” celebrating the sale of this loser property.

A year has passed since we sold this property and from the vantage point of time I now realize that I learned some invaluable lessons: (more…)

  • Brexit with Flag

Brexit – How it Impacts U.S. Commercial Real Estate

July 9th, 2016|

In spite of everybody and their brother having written about the United Kingdom’s vote on June 23rd to leave the European Union I believe I can provide a bit of clarity for my readers with some well-chosen, pithy comments.  So here goes.

Make no mistake, Brexit will have enormous impact on the world economy and more importantly, from our point of view, on commercial real estate in the United States.  But before I explain how it will affect U.S. CRE, let’s review the impact it is already having on the world stage, in the short few weeks since the Brits voted to leave the European Union.

Four Major Impacts on World Economy

  1. The value of the Sterling pound in relation to the U.S. dollar has dropped precipitously, losing 14% of its value.
  2. U.S. Treasuries rates have plummeted. The 10 year treasury rate traded at 1.67% before the vote and as of July 8th, it closed at 1.36%.  This is the lowest rate on record!
  3. Bank stocks in the U.K., the E.U. and the U.S. have dropped about 36%, 25% and 8% respectively.
  4. The U.S. dollar in relation to a basket of other currencies continues to strengthen.

These are some of the unintended consequences of the Brexit vote.  It will take years to fully feel the impact of this historic decision resulting in a lot of uncertainty which the markets of the world absolutely hate.

Other possible Brexit related carnage: (more…)

How to Take Your CRE Investing to the Next Level

May 27th, 2016|

Traditional Approach to Valuing Commercial Real Estate

Bless your pea-pickin’ heart.  Years ago, that was the endearing quip Tennessee Ernie Ford liked to say to the people he met.  I’m not sure what the phrase meant then or what it means now but I’m reminded of the saying when I receive a marketing flyer for a new for-sale listing.  It’s full of pretty pictures of the property and nice sounding words of the neighborhood.  And the most intriguing thing about many marketing flyers are the projected rents and expenses are in no way connected to reality.  I can’t help but think to myself, “Bless their pea-pickin’ hearts.  They must think I’m stupid.”

(more…)

Investor Mutiny Ignores 5 Principles of CRE Investing

April 15th, 2016|

 

Caught Between a Rock and a Hard Spot

Have you ever been caught between two highly contentious factions with your personal vote determining who wins and who loses?  To make matters worse, whichever side doesn’t get your vote, considers you their enemy.  That happened to me recently.  It’s no fun being caught in the middle.  But I apologize, I’m starting in the middle of this true story.  Let me start this time from the beginning.  So here goes: (more…)

Cap Rates Too Low? Heck No! Find Out Why

April 1st, 2016|

 A Pessimistic Belief Eviscerated

Before you accuse me of “drinking the Kool-Aid,” i.e., having a point of view about cap rates that doesn’t hold up under critical examination, let me assure you that by the time you finish reading this blog post you will at the very least understand my point of view.  You might even be convinced I’m right!  So here goes:

I recently attended the Sperry Van Ness Economic Forum in Salem, Oregon.  One of the speakers was Jim Costello of Real Capital Analytics.  As the name implies, Real Capital Analytics is a data and analytics firm that focuses exclusively on the investment market for commercial real estate.

About half way through Mr. Costello’s presentation he showed us a chart that made me almost get out of my chair with excitement.  It was if a commonly held pessimistic belief was being eviscerated before my very eyes.  Ask almost anyone in commercial real estate these days about cap rates and you will hear concern about cap rates being too low, blah, blah, blah…  Am I right?  Of course I’m right.

The chart he showed that got me all excited is shown below: (more…)