Late Cycle Behavior of NNN Investors

Contributing Author: Sean O’Shea

Here we find ourselves almost nine and one-half years from the impact of the Great Recession of 2008-09. While the market conditions that led up to the public acknowledgement of the financial crisis, were years in the making, many observers could have foreseen the Storm Warnings.  I remember having my NNN Advisory Team in tow at the annual ICSC Regional event in San Diego in the spring of 2008.  As we wandered through the various vendors’ booths and exhibits, we passed the Lehman Brothers booth.  Displayed were the usual swag items that populate these kinds of industry events.  Sitting on a display table, I spied a pile of very well designed and finely detailed ‘Baseball-type caps’ with LEHMAN BROTHERS, emblazoned on the crown of the caps.  I suggested to my Team, that they may wish to grab one of them, as a souvenir of a “Soon-to be Bygone Era,’”; since these guys at legendary Lehman are going down, based on the structure of interest only loans and other deals that we had tracked in the prior few go-go years.  They all looked at me, as if, I was ‘nuts’; but, nonetheless, each grabbed their souvenir hats.  Now, a keepsake of lending period that contributed, mightily, to the Financial Crisis as it unfolded. Continue reading Late Cycle Behavior of NNN Investors

NNN 1031 Case Studies

Contributing Author: Sean O’Shea

Most investors have experienced a run up in real estate values; and with a prospective sale of a real estate asset pending, in consultation with their accounting professionals, they begin to explore how to defer substantial capital gains in the most efficient manner. Utilizing and executing a successful IRC 1031 Exchange Provisions is the principal vehicle that was retained in the recent Tax Act.

The IRC 1031 Compliance timelines require an “Identification” of your trade replacement property within 45 days of their completed sale of the relinquished property; and, then, an additional 135 days to complete the purchase of the new property that tax deferral transaction.    Easy…Right!

Well, not so fast.

The challenge, in part, is to define your client-specific investment objectives: Continue reading NNN 1031 Case Studies

Are Sellers of Multi-family Investments Ready to Be Realistic on Their Value Expectations?

Contributing Author: Jay Verro, CCIM

It’s no secret that the Multi-family investment sector has been a strong, solid, stable performer in most marketplaces for more than a decade and it does not appear it will change in the years to come. However, most sellers have yet to adjust their mindset towards proper valuations as interest rates rise. Over the past year, the 10-year Treasury, which has been as low as 2.02%, is now hovering in the 3% +/- range. When you couple this with a lender’s upward trending interest rates, the lender’s underwritten NOI compared to a seller’s provided income and expenses, there is a disconnect between bank valuations and seller’s expectations. Recently, these factors have had a negative effect on underwriting and ultimately on the perceived asset value.

I’ve seen this in smaller properties, as well as properties that are operated with a seller’s staff that are shared over multiple sites. It is quite common for the allocation of salaries to be reported artificially low on the property being sold, which is a significant piece of the underwriting process. Continue reading Are Sellers of Multi-family Investments Ready to Be Realistic on Their Value Expectations?

ISS Conference (Inside Self Storage)

Contributing Author: Nick Miner, CCIM

Recently, I attended the ISS conference in Vegas. This was my first time at this event to learn a little about the self-storage product type. The overall layout of the conference and education sessions were well thought out. It allowed me to pick a track of education and achieve a better understanding of the product type and how it operates.

The first educational session I attended focused on the financing of the product. Where it is today and where it has been. Some of my key takeaways from this session were:

-SS operations are always focused on revenue management
-SS historically has the lowest default rate on CMBS loans of any product type
-In January 2018, the default rate of CMBS loans was .04%
-Underwriting SS is based upon historic NOI (usually the trailing 12 months)
-They are seeing a plateau of occupancy (upper 80s low 90s)
-Since 2016, they have seen almost $10B of new construction
-2016-$2.5B
-2017-$4B
-2018-$4B is expected
-SS is micro market specific (usually uses 3.5 mile demographic analysis)
-Average SS uses 7 SF per individual for gap analysis
-They are starting to see interest-only (I/O) loans for the term of the loan (CMBS)
-Rates are hovering around 180 bps over the 10 Year
-Banks are getting more creative in in their financing terms for property acquisitions
-Life Companies are starting to focus on SS as a property to fund loans on Continue reading ISS Conference (Inside Self Storage)

Yield Curves, Interest Rates, Volatility Indexes, and the Impact on Net Lease Sector

Contributing Author: Sean O’Shea

There is a lot of discussion in a range of national publications, right now, to acknowledge that we may be in a new era for Investors.  The 10-Year Treasury Rates have moved past 3.0% for the first time since 2013.  The yield curve of 2 Year and 10 Year has rarely been this close.

So, we ask, “What are the implications for the net lease niche?”

I confess that I am one of the observers who can remember how ‘the music stopped’ in 2008-2009, when Lehman Brothers, Bear Stearns, AIG and other august financial institutions stopped trusting each other and the overnight lending mechanisms of the Repo Market which had come to a halt. Scary times that required the triage of QE by the Federal Reserve and forced mergers of a number of banks and financial institutions to attempt to salvage our economy. As seasoned Net Lease Advisors we not only witnessed this, but were in the middle of it. Continue reading Yield Curves, Interest Rates, Volatility Indexes, and the Impact on Net Lease Sector

Selling a Challenging Commercial Property

Contributing Author: Jay Verro, CCIM

In early April of 2017, I was invited to do a Listing Presentation for a 22 acre parcel of Light Industrial zoned land in Saratoga County, the fastest growing County of New York State. Sounds like a listing that most commercial brokers would jump all over, right? Let’s take a closer look at the marketing challenges that accompanied the property:

  • There are 2 parcels of land that lie within 2 different Townships.
  • A County Sewer Easement bisects both parcels in the most developable portion of the property and there are no current lateral connections that serve the existing structures on the parcels.
  • An electric transmission line crosses the western portion of the property with an approximately 60’ wide easement.
  • The property is terrain challenged and to physically get to the top of the property where there are the majority of the developable land requires an access easement from the neighbor to the south, who is also trying to sell.
  • A Class C protected trout stream winds through the property, which creates the need for a 100’ setback in addition to the additional wetlands that are on the parcels.
  • The permitting and approval process would require coordination among no less than 6 State, Town and County Agencies as well as Utility companies.
  • Without the significant expense of adding a bridge to traverse the stream, the result was approximately 2 acres of developable land out of the 22 total acres.

Continue reading Selling a Challenging Commercial Property

The 1031 Net Lease Broker Conundrum

Contributing Author: Sean O’Shea

As a Net Lease Investment Advisor and Buyer’s Broker, we face a number of practical challenges in the recent and current Net Lease Market.

Challenge #1:  Accessing net lease ‘product’ or properties that match a Buyer’s stated criteria.  Reproducing the cash flow of their existing asset is a point of departure, only. Then, we need to establish “What is a risk-adjusted return?”  OK, you say, you want a limited risk new investment.  No problem; but since the Great Recession with most compressed cap rates in memory (Higher prices), we have to sort through the “Net Lease Wheat from the Net Lease Chaff”. Continue reading The 1031 Net Lease Broker Conundrum

Take a Closer Look at Your Commercial Property Assessment

Contributing Author: Jay Verro, CCIM

After a long winter in our region, most folks are eager for nicer weather. Take advantage of the nicer weather by taking a trip to your local Town or City Assessor’s Office. While mundane sounding, the effort could be well worth it when you get your property tax bill.

There isn’t a fixed percentage at which a property must be assessed at in New York State. Many communities rely on the state to provide something called an “Equalization Rate”.  Each community determines its “Total Assessed Value” (AV) while the state determines the municipality’s “Total Market Value” (MV).

TOTAL  AV ÷ TOTAL  MV = EQUALIZATION RATE (ER) Continue reading Take a Closer Look at Your Commercial Property Assessment

University of Michigan Student Housing Research Report 2017-18

Contributing Author: Sean Lyons

An in-depth analysis of the private student housing market at Clemson University conducted by Triad Real Estate Partners. Triad Real Estate Partners concentrates in private student housing and multi-family real estate brokerage. Triad Real Estate Partners’ research team compiles in-depth market research reports on leading Universities in the United States.

Total Enrollment: Up 2.87%

For the second consecutive fall, total enrollment at the University of Michigan’s flagship campus in Ann Arbor grew by more than a thousand, registering 1,284 more students than fall 2016, for a new University record of 46,002.  Undergraduate student enrollment increased 2.89%, slightly out pacing the 2.83% growth of graduate and professional students. Continue reading University of Michigan Student Housing Research Report 2017-18

Seattle, Washington goes to the Côte d’Azur / Seattle goes to MIPIM 2018

Contributing Author: Chad Gleason, CCIM

It is not often that the State of Washington attends international real estate conferences, but with the incredible growth of the Greater Seattle Area and growing interest from international investors, Washington State made its debut at MIPIM 2018.  MIPIM (Le Marché International des Professionnels de l’immobilier)is an international property, real estate development and investment event hosted annually in Cannes, France. From the official press release from MIPIM, there were over 26,000 real estate professionals, many city and political leaders, with well over 4,500 investors from over 100 countries, who came together for the 4-day event at the Palais des Festival, Cannes. They came to see, share and network with what the world has to offer in real estate investment and development. Continue reading Seattle, Washington goes to the Côte d’Azur / Seattle goes to MIPIM 2018

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