CRE Report 04.16.12
May 10, 2012 at 12:18 pm | Posted in Radio Show Reports | Leave a commentTags: capital, Cash, expenses, income, Internal rate of return, Investing, IRR, Return on investment, Returns, ROI
Commercial real estate investment returns
Bob – Walt let’s talk about Commercial Real Estate Investments returns today. How do you size up a commercial real estate investment, to make sure it’s analyzed correctly?
Walt – There are two significant elements you need to consider in determining a successful commercial real estate investment, and they are cash flow and return on investment.
It’s all about cash. Cash flow is King, at least for some people. When going into a commercial investment it’s critical to analyze all the expenses including, vacancy loss and the cost of vacancy’s impact on the investment, creating a replacement reserve to plan to replace major items in the
Photo Credit: http://jdfletcherassociates.com/blog/?p=371
future, on going maintenance items, advertising, tenant repairs and one of my favorites, lease commissions. It is critical to analyze all the costs associated with the property because every dollar that goes on the expense line is a dollar that disappears from the profit line. So you can create cash flow by raising rents, closely monitoring expenses and or by putting more cash in to the deal.
Bob – Where does the property appreciation show up in that investment analysis?
Walt – Well it really doesn’t in that scenario. And interestingly, it doesn’t come into play in one of the most popular method of investment measurement, which is the capitalization rate or cap rate, which basically analyzes the investment based on one year of net operating income and also
assigns a risk factor to the asset to determine the value.
Another popular and more comprehensive analysis requires looking at the internal rate of return of the property or IRR, which takes into account the purchase price, the current financing on the investment, all income and expenses, property depreciation, and a sale price at the end of a determined time frame usually five years.
Said again, the IRR calculates the dollars in the investment and creates a return calculating the purchase price, annual cash flows and eventual sales price. We can analyze the return on the cash flow or the appreciation or a combination of both.
Bob – Walt, that sounds like a very detailed approach to analyze a commercial real estate investment, can this be done on any type of income property, regardless of the value of the property?
Walt – It can and it is a great way to analyze commercial investment real estate. Owners of commercial investment real estate want to know what their property is worth, and the IRR is an excellent way to value all aspects of the property and based on those numbers the Internal Rate of Return is going to provide an excellent analysis of the property’s return to the investor.
Bob – Walt how can people reach you to talk about commercial real estate?
Walt – Thanks Bob, Walt Arnold, 256-1255, website, waltarnold.com also follow me on Twitter or become a fan on Facebook. If you have a question about your real estate property values, give me a call for a free property evaluation. Thanks Bob, have a great week.
Getting Your Property Financed – Being Capital Market Savvy in a Down Economy
April 18, 2011 at 3:05 pm | Posted in Whitepapers | Leave a commentTags: capital, economy, finance, financing, Markets, Rates, REO
Get Your Property Financed
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For more of my whitepapers and articles check out my bio on CRE-Advice.com
Whitepaper: Getting Your Property Financed
August 12, 2010 at 9:30 am | Posted in Whitepapers | 2 CommentsTags: acquisitions, asset, banks, capital, commercial, CRE, demand, economy, equity, financing, investment, investments, investors, liquidity, listings, market, opportunities, property, property values, real estate, recession, walt arnold, white paper
I rarely have a conversation these days where the topic of financing doesn’t arise as a serious concern for my clients. When the economy is robust, and the capital markets are frothy, financing a commercial real estate transaction is a relatively simple matter. However during today’s recessionary times, the commercial capital markets are severely constrained. Not only is the supply of capital tight, but the demand may be near all time highs as well. Depending on which industry source you quote there is between $150 and $200 billion dollars of CMBS debt maturing in 2009 alone. This figure doesn’t include maturing loans from insurance companies, banks and other lenders, which means that many borrowers will be forced to secure financing in a market that presently offers little liquidity.
Given the current lack of liquidity and financing options described above, only the savviest of sponsors with solid projects will be receiving attention from lenders and investors. In the text that follows I’ll provide you with an overview of the information you need to possess in order to speak fluent finance and to increase the odds of getting your project financed.
The first thing to keep in mind is that financing serves multiple purposes beyond rate and term considerations. The proper financing strategy can allow you to increase project velocity, improve operating efficiency, conserve internal capital, increase leverage, and lower the overall cost of capital. Good sponsors focus on developing an integrated capital formation strategy
Continue Reading Whitepaper: Getting Your Property Financed…
Albuquerque Commercial Real Estate Report 6.28.10: Bank Failures
July 13, 2010 at 7:25 am | Posted in Radio Show Reports | Leave a commentTags: albuquerque, bank failure, banks, capital, cash reserves, commercial, CRE, development loans, econo, First American Bank of Artesia, for sale, High Desert Bank, leased space, non-performing, properties, real estate, recession, regulators, sperry van ness, split commissions, walt arnold
>>> Click here to listen to the Commercial Real Estate Report for 6-28-10 <<<
Bob Clark, News Radio 770 KKOB: Walt, you wanted to start with a comment on the closure of High Desert Bank last Friday.
Yes, good morning Bob. There was another bank failure in Albuquerque on Friday, High Desert Bank was closed by state regulators and will open up on Monday as First American Bank of Artesia. Banks continue to struggle with regulators and the increased requirements for cash reserves and capital. As we go forward we will unfortunately see this probably play out again as the banking sector continues to struggle with non-performing commercial real estate and development loans that have put a strain on the health of banks.
Bob: What else do you have for us?
I wanted to talk today about how in this tough environment if someone is considering listing a property for sale or lease it is important to analyze the real estate company hired to get the property sold or leased. And in this economy you need a company that has the strength and resources to get it done.
Sperry Van Ness has the tools and the people to get properties sold and leased. We provide a comprehensive proposal and marketing plan to properly position the property in the market. Once listed the listing is immediately distributed to numerous listing portals such as Loopnet and Property Line. Through our 575 marketing approach we can target the most likely prospects for the property and contact them either directly or through our e-mail or direct mail marketing campaigns and provide detailed monthly reports of the progress.
Bob: Walt, aren’t these similar to what other companies can do when they list a property for sale or lease?
They might develop a marketing plan, make a flyer and put up a sign, but Sperry Van Ness goes the extra mile to serve our clients. We split all of our fees 50/50 with the selling broker and that doesn’t always happen in commercial real estate. We want to encourage and incentivize other real estate brokers to bring their buyers to the property. Continue Reading Albuquerque Commercial Real Estate Report 6.28.10: Bank Failures…
Albuquerque Commercial Real Estate Report 5.17.10: The latest on BGK Group & others
May 24, 2010 at 2:43 pm | Posted in Radio Show Reports | Leave a commentTags: acquisitions, albuquerque, asset, BGK Group, capital, commercial, CRE, for lease, investment, investors, leased space, liquidity, listings, market, New Mexico, office, opportunities, radio show, real estate, retail, tenant, transactions, walt arnold
>>> Click here to listen to the Commercial Real Estate Report for 5-17-10! <<<
Bob Clark, News Radio 770 KKOB: Walt there was some news last week about BGK Group, can you give us some details?
Sure good morning Bob. BGK Group, which is the largest holder of commercial real estate in New Mexico with over 2 million square feet, was purchased by New York’s Rosemont Real Estate. Rosemont acquired a 51% controlling interest and will rename the company Rosemont Realty LLC. The headquarters will remain in Santa Fe.
The deal gives BGK a needed cash and management infusion. The sale also helps with a succession issue as BGK leader, Eddie Gilbert is 88 years old.
The New Mexico holdings include 19 Albuquerque office buildings, 6 properties in Santa Fe and one in Hobbs. BGK is Rosemont’s first major acquisition.
Bob: Walt, what’s going on with La Bella Spa at ABQ Uptown, are they back in there space?
Yes, that’s an interesting deal and a sign of the times when a tenant vacates a property over a year ago; the space remained vacant until La Bella worked out a deal with the Landlord to go back into ½ of their original space. The balance of the space will be leased to another retail tenant. This is a creative approach to solving a problem by both the tenant and landlord to fill some vacant space. Both Hunt Development and La Bella are happy to be back in ABQ Uptown.
Bob: What else do you have for us today? Continue Reading Albuquerque Commercial Real Estate Report 5.17.10: The latest on BGK Group & others…
Albuquerque Commercial Real Estate Report 5.10.10: 3 Approaches to Valuing CRE
May 24, 2010 at 7:32 am | Posted in Radio Show Reports | Leave a commentTags: acquisitions, albuquerque, asset, broker's opinion of value, cap rate, capital, commercial, cost analysis, cost approach valuation, CRE, income approach valuation, investments, investors, leased space, market comparison, opportunities, price analysis, property values, radio show, real estate, sperry van ness, valuation, walt arnold
>>> Click here to listen to the Commercial Real Estate Report for 5-10-10 <<<
Bob Clark, News Radio 770 KKOB: Walt you wanted to discuss how commercial real estate is valued and the different approaches to valuing commercial real estate.
Good morning Bob. Residential properties are usually valued in one way and that is by comparison approach or analyzing comparable properties. The market comparison approach is also used in commercial real estate. The comparison approach is analyzing similar properties in similar areas and adjusting values for any differences both positive and negative versus the subject property.
The second approach is the cost approach. The value of the land is first figured separately from the improvements. An estimate is made to the replacement cost of all improvements, as if new, on the property and then deducting depreciation from the improvements. This requires an excellent knowledge of building costs. Again, the Cost approach is value of land plus costs of improvements as if new minus depreciation.
The third approach, the income approach, analyses the income and expenses of the investment and then assigns a capitalization rate or a cap rate to analyze the investment.
Bob: Walt, we hear the term “cap rate” a lot in commercial real estate. I know there are several parts to the term Cap Rate, can you elaborate on it?
Sure, I’ll give the “Cliff Notes” version. Investment property is analyzed by looking at the total income of the property, Continue Reading Albuquerque Commercial Real Estate Report 5.10.10: 3 Approaches to Valuing CRE…
Albuquerque Commercial Real Estate Report 4.19.10: Finding The Bottom
April 26, 2010 at 6:36 am | Posted in Radio Show Reports | Leave a commentTags: acquisitions, albuquerque, asset, banks, capital, commercial, CRE, distressed assets, economy, industrial, investment, investments, investors, market, market bottom, New Mexico, office, opportunities, property, real estate, recession, retail, sperry van ness, strategy, walt arnold, white paper
>>> Click here to listen to the Commercial Real Estate Report for 4-19-10 <<<
Bob Clark, News Radio 770 KKOB: Walt, there have been some indicators that the economy is starting to turn. Have we seen the bottom of this commercial real estate market and more importantly are there opportunities in this market for investors?
The key for investors today is not some much finding the bottom of the market but its finding value. By the time most people figure out where the bottom is, they will probably miss it. There are opportunities, and for the astute investors it will require the ability to add value to the property. Adding value can be accomplished through operational improvements, repositioning, restructuring, recapitalization, re-tenanting or other proactive strategies or tactical value enhancements.
Bob: So Walt, what are some strategies people can use to help them find value in commercial real estate assets?
There are a few things someone can do to help insure success. First, to try to time the market is extremely difficult and waiting for the exact bottom to get in is a million to one shot. The second strategy is to realize that a declining market is where lasting wealth is created. The next opportunity in this market is to seek opportunities, don’t get too caught up on the product type — for example, office or retail — of the investment, and if you like return of the investment the rest of the details can be worked out.
Understand it is critical to seize the opportunity and that it is better to be the one who catches the fish rather than the one who tells about the big one that got away. Lastly, seek sound counsel. The brokers at Sperry Van Ness can provide sound, professional analytical advice to help our clients make the right decision. Continue Reading Albuquerque Commercial Real Estate Report 4.19.10: Finding The Bottom…
Latest Video: Commercial Real Estate in 2010
February 26, 2010 at 5:01 pm | Posted in Videos | Leave a commentTags: asset, capital, commercial, CRE, investment, investments, liquidity, market, market report, property, property management, sperry van ness, Videos, walt arnold
What will happen in 2010 in commercial real estate? And, how should you navigate these waters? Watch this video.
Understanding the Acquisitions Process
February 26, 2010 at 4:38 pm | Posted in Whitepapers | Leave a commentTags: acquisitions, albuquerque, asset, capital, commercial, CRE, investments, liquidity, market, property, real estate, white paper
Here’s my latest white paper that aims to dispel some common myths and explain some of the ingredients needed for a successful aquisition…
One of the most important parts of the commercial real estate lifecycle is the acquisition phase. I believe most reasonable people would admit that the best way to have a successful outcome to any real estate venture is to get off on the right foot to begin with. While it’s certainly possible to “rescue” a troubled project, the best way to safeguard against a troubled scenario is to minimize future risk through the implementation of a sound acquisition plan. In the text that follows, I’ll offer some thoughts about some of the most common acquisition mistakes and how to avoid them.
Put simply, bad acquisitions are not healthy for financial sustainability. I’ve had the displeasure of watching lenders, investors, tenants and owners all suffer through the devastation and turmoil created by a bad acquisition. Whether it was due to lack of planning, leasing the wrong space, lending or investing in the wrong asset class or in the wrong market, getting whipsawed by buying into changing market conditions, paying too much for a property, or missing a critical window of opportunity, a bad acquisition usually spells trouble down the road. The sad part about what I’ve just described is that in most cases, these bad acquisitions could have been easily avoided by filtering them through a well conceived acquisition model. click below to continue reading>>>
Whitepaper: “Leveraging Your Company’s Real Estate To Access Untapped Liquidity”
January 2, 2010 at 11:35 am | Posted in Whitepapers | Leave a commentTags: albuquerque, asset, capital, commercial, industrial, investment, liquidity, market, New Mexico, office, property, real estate, sperry van ness
Here’s a whitepaper from a few months back.
Today’s tight capital and credit markets are forcing many corporations and small businesses to become creative in their search for liquidity to free-up suddenly constrained balance sheets. In turning over every stone in the hunt for liquidity, many entities simply overlook the value of their corporate real estate assets. When an operating business, no matter how large or small, finds itself in need of low cost capital their real estate assets should be evaluated as a source of readily accessible quality capital. Most corporations of any size and scale have investments in the land, buildings and facilities necessary for the successful operation of their business. While making corporate investments into real estate assets may seem to be a reasonable strategy at first glance, they are rarely investment or capital driven decisions, but rather… click below to continue reading>>>
Walt Arnold, SIOR, CCIM
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