19November2008
Posted by ryan under: Market Trends.
I was privileged to have the opportunity yesterday to hear Liz Ann Sonders who is the Senior Vice President and Chief Investment Strategist at Charles Schwab. Here are a few nuggets from what she said that I found interesting.
- The dollar has strengthened rapidly over the course of the last month or so. Historically there is some substance to the idea that there is a reverse correlation between the strength of the stock market and the strength of the dollar. There is also a relationship between the strength of the dollar and the strength of commodities. When the commodities market crashed, the dollar strengthened.
- When you look at the real estate market, it is interesting to note “real” mortgage rates. Over the course of the “boom”, properties were increasing at perhaps 17% a year over a 5 year period. Meanwhile mortgage rates were 6%. That is an effective rate of +11%. Right now properties are going down by 10% and when you add a mortgage rate of 6% to that is -16%. Why would a bank loan on that property?
- The real issue with real estate is the levels of inventory. Once inventory depletes, things will stabilize and lending will resume.
- About 30-40% of Hedge funds have cashed out and closed up shop.
- With regard to the automakers, they are currently set up to produce 16 million cars a year. There is only demand for 11 million. This is not going to be resolved with a 25 billion dollar bailout. There are serious issues here.
Encouraging signs:
- The US financial institutions have done more to de-leverage themselves over the past 14 weeks than Japan did over 14 years with their similar financial collapse.
- Americans are moving aggressively towards a more frugal approach to finances. Personal debt is going down. There has been a 4% drop in private debt as a percentage of GDP in recent months. This is a good sign
- Liz Ann Sonders believes that Hank Paulson and Ben Bernake are doing the right thing. Their recent change of approach seems wise.
- Liz Ann Sonders expressed shock at the revelation that Greenspan wasn’t aware of how deeply imbedded greed was in Wall Street. As she says, “I think fear and greed drive everything.”
- Liz Ann Sonders thinks we are beyond the 50 yard marker in terms of the financial systems deleveraging.
- The economy will turn around when the confidence returns. This will change the housing inventory and will see cash infusions into the financial sectors. Liz Ann Sonders believes that the US is in a much better position than most of the world. There will be a world-wise recession that will last a total of about 16 months - we are already partly through this time. She thinks the upswing will start in June / July of 2009.
17November2008
Posted by ryan under: Market Trends.
I just read an article that I think will be helpful for consumers and professionals alike. It is honest, concise and informative. Basically, it appears that this article is a summary of the extensive report created by Price-WaterhouseCoopers called “Emerging Trends in Real Estate 2009″
Here is the link: http://www.compropguide.com/specialreport_08.html
17November2008
Posted by ryan under: Uncategorized.
Having traveled and lived in other parts of the world, I find it important to keep updated on activities happening around the globe. This can be difficult to do if you only read or listen to American media outlets. Not only is it a “noble” idea to keep abreast of the rest of the world, it makes good business sense. Our planet is more interconnected than it has ever been. The price of corn in Kenya can affect the luxury flower market in Europe. The price of oil on the commodity market at the NY stock exchange affects the governing strength of Iran and Russia. The weather in Indiana can impact the sales of Ebay. We are all connected. It makes sense to be aware. Here are some websites that help me stay connected:
http://news.bbc.co.uk/
http://www.economist.com/
http://www.nation.co.ke/
http://www.jpost.com/
What do you read?
12November2008
Posted by ryan under: Market Trends.
Although San Francisco has one of the strongest local economies in the nation, it too is feeling the pain of the terrible economic season we are experiencing. News broke yesterday about layoffs at Current Media, Wired.com and Six Apart. Current Media laid off 30 people (but its not clear if they were all in the San Francisco office - which seems doubtful). For more information, see: http://sanfrancisco.bizjournals.com
11November2008
Posted by ryan under: Community Highlight.
Every once in a while I discover a jewel in our community that I feel the need to highlight. Today it is an organization that I stumbled across a few months back called, “The World Affairs Council of Northern California.” This organization brings in fantastic speakers (200 times a year) for lectures and Q&A sessions. I have heard the ambassador from Afghanistan, the lead Iranian investigative journalist (a dissident who now lives in NY), and many other fantastic speakers in the last couple of months since I joined. The subject matter they cover is extremely broad, from politics to world events to philanthropy to economic development to religion and culture. The people who attend these events come from a broad cross section of society. The orgnanization offers a year long membership that costs $95 which if you make it to even 5 or 6 of their 200 lectures offered each yearyou have made it worth your money. Their website is www.itsyourworld.org
5November2008
Posted by ryan under: Values.
Nimbleness (the ability to respond quickly)
This ought to be standard business practice for all real estate professionals. It is not. I have gotten calls back from brokers weeks after I left a message. I am still waiting for dozens of unanswered emails. The least a person can do is email to say, “I won’t be able to get back to you with the answer you are looking for for a couple of weeks.” I will rarely use an information form online when I want a question answered because I don’t want to wait for 3 business days to get an answer. I will usually pick up the phone and try to get the answer immediately. I’m assuming you are similar. My promise to my clients is that if you email me, I will be back in touch with you within one business day (usually only a couple of hours). If you leave me a phone message, the same goes for that as well. I want to operate my business with nimbleness because I think that being responsive with communication is central and basic to good business relationships.
Contact me with any questions at 415.268.2206 or email: rsjones@tricommercial.com
3November2008
Posted by ryan under: Uncategorized.
As a person who cares deeply about business ethics, sometimes real estate can be a challenging industry to be associated with. People have done a double take at me when they find out that I have spent my entire educational career studying theology, philosophy, and ethics. “How can you be a real estate broker and still keep your integrity?” people ask. It’s true that real estate professionals rate somewhere near used car salesman in terms of public trust. But is that the way it has to be? What if brokers were more known for talking people out of deals than for trying to coerce people into deals that would not be good for them? What if when a broker said, “I’ll call you on Wednesday,” he or she actually called on Wednesday? This doesn’t sound like a whole lot to ask if you are asking me. I have publicly stated that I want to build a business based on a foundation of integrity. The temptation to secure a little extra $$ from a commission is sometimes strong (especially when business is slow). However, it is a foolish business practice in the short and long term. People discover that they have been coerced or lied to. Will they ever refer me business if this is how I treated them? Of course not. Operating with integrity just plain makes sense. I can sleep well at night and my businees will prosper.
31October2008
Posted by ryan under: Space Suggestion.
If you are looking for a two-room (office + waiting area) suite, I have a great recommendation for you: a suite on the 5th floor at 500 Sutter Street (San Francisco). You would be close to Union Square in a building that has a lot of medical / professional type tenants. The building just spent 6-7 million on improving the common areas. The rent is reasonable (under $1000) and the energy is positive. Let me know if you are interested: rsjones@tricommercial.com
31October2008
Posted by ryan under: Market Trends.
With all of the recent bank failures (Lehman Brothers, WaMu, Merrill Lynch, Wachovia, etc.) and the dissolution of several major Bay Area law firms (Heller Ehrman LLP and Thelen LLP) along with the other economic woes there is going to be somewhere in the range of 1 million square feet of sublease space coming on the market over the next few months.
This may sound like a lot of space, and it is. But vacancy rates have come way down from where they were a few years back. Even with all of this sublease space, it will only bump up the effective vacancy rate by a percentage or two. A couple of percentage increase in vacancy rate will only affect price to a small degree. What is having a much more major impact on pricing is the lack of confidence in the economy and the “glass half empty” mindset prevailing in the market. I have watched as certain spaces have dropped their asking rates by as much as 25-30%. This is great news for tenants. However, many tenants are too cautious to jump into these great opportunities. It seems counterintuitive, but the next few months may be the best time to secure great space. Yes, the economic news will be bleak for the next 18 months, but if you wait for the news to change you have waited too long.
22October2008
Posted by ryan under: Uncategorized.
Swig Recaps One Beach St. with Angelo, Gordon
By Brian K. Miller
SAN FRANCISCO-The Swig Company LLC has sold a stake in One Beach Street to New York-based Angelo, Gordon & Co. As part of the transaction, the new partnership took out $18.25-million loan on the property. The financing, from Washington Mutual, closed on Sept. 25, the same day the bank was seized and sold to JP Morgan Chase.
Swig paid approximately $27 million, all cash, for the three-story 97,000-sf office building in the North Waterfront submarket back in April, a local industry source told GlobeSt.com at that time, and the new financing backs that up. Holliday Fenoglio Fowler, which sourced the loan, says the financing represents 65% of the value of the property. Swig declined to say what percentage of the building it sold to Angelo, Gordon but sources familiar with the deal tell GlobeSt.com it was a majority stake. Angelo, Gordon principal Tom Gordon did not return phone calls seeking comment. The loan broker, HFF’s Bruce Ganong, also did not respond to a request for comment.
The transaction represents the second joint venture between Swig and Angelo, Gordon. Last year, Swig sold Angelo Gordon an undisclosed stake in 115 Sansome Street, a historic 128,000-sf office building in the financial district that Swig acquired in 2006 for a little more than $30 million.
One Beach Street is a three-story 1920s-era building located across from Pier 39, a tourist attraction. One Beach Street, a warehouse converted for office use in the 1970s, is the former home of Otis Elevator’s West Coast manufacturing operation. The building has been seismically retrofitted and is 100% leased. Tenants include Alliant International University, which leases over half of the building, as well as S/B Architects (formerly Sandy & Babcock) and Skyy Spirits, which leases the top floor.
Swig acquired the building from Alliant University, which immediately prior to the $27-million sale exercised a four-year-old purchase option to acquire the building for approximately $18 million from Gerson Bakar. The private, non-profit university leased back half the building at a rate that stays around $20 per sf per year through 2014 and then jumps into the $30 per sf range if the university exercises the first of three five-year renewal options. The renewal would include a tenant improvement allowance from Swig.
Brandywine, CIM Close $412M Oakland Portfolio Deal
By Brian K. Miller
SAN FRANCISCO-Brandywine Realty Trust said Wednesday it has completed the sale of its 1.7 million-sf, five-property office portfolio in Oakland to an affiliate of CIM Group, which says it will be moving its Bay Area office to Oakland next year from Downtown San Francisco. The sale was first announced in July. The buildings are located in the Lake Merritt and City Center districts. The purchase price was $412.5 million.
The five properties are One Kaiser Plaza (530,000 sf; 28 stories; known as Ordway), 1901 Harrison Street (272,000 sf; 16 stories), 1333 Broadway (238,000 sf; 10 stories; above BART station), 2101 Webster Street (475,000 sf; 20 stories) and 2100 Franklin Street (215,000 sf; nine stories; LEED-Gold). The first four properties have a combined occupancy of 89.3% while the fifth property is a $78.5-million ground-up development that was completed this time last year but remains vacant. An affiliate of Brandywine will manage and lease the five properties for an initial one-year period following the closing.
The purchase price included CIM’s assumption of existing mortgage loans on three of the leased properties totaling $95.3 million, and a $40-million, interest-free loan secured by the first mortgage on 2100 Franklin and 2101 Webster that comes due Aug. 2, 2010. In addition, CIM Group was granted a 15-year option to purchase a land parcel adjacent to One Kaiser Plaza slated for the 650,000-sf Two Kaiser Plaza office building, and has committed to lease to CIM 150 parking spaces on that same parcel for tenants of the building.
Brandywine says it will use the $269.4 million of cash proceeds from the sale to pay down revolving credit indebtedness and to provide cash balances for general corporate purposes. As a result, the company says that as of the end of this week it will have no funds drawn on its $620-million of existing, revolving credit facilities and approximately $145 million of cash on hand for future needs.
Brandywine continues to own three office properties in Northern California totaling 554,000 sf as well as two land parcels. It also has third party property management contracts in the market. Lazard Frères & Co. acted as financial advisor to Brandywine for the sale, and CB Richard Ellis assisted in the marketing efforts.
For CIM, the buildings further its Oakland investment program, which was launched in June 2007 with the $66-million acquisition of the 484-room Oakland City Center Marriott and the 162-room Courtyard Oakland Downtown. The two assets are located adjacent to each other three blocks from the heart of Downtown Oakland.
CIM Group principal John Given says the attributes that attracted CIM Group to downtown Oakland include the existing, diversified tenant base such as professional firms, healthcare, engineering and geotechnical services along with government and transportation. With regard to the relocation from 2 Embarcadero in San Francisco next year, the company isn’t providing any details. Presumably, it will be occupying space in one of its newly acquired office buildings.
The loans CIM will be assuming are secured by 1333 Broadway, One Kaiser Plaza and 1901 Harrison, according to SEC filings. The loan on 1333 Broadway totals $23.88 million and matures in May 2010; the effective interest rate is 5.54%. The One Kaiser Plaza loan totals $45.32 million and matures in August 2010; the effective interest rate is 5.29%.
Mission West Closes $115M Refinancing
By Brian K. Miller
SAN FRANCISCO-Mission West Properties Inc. said Wednesday it has closed on a $115-million financing from Hartford Insurance Co. secured by 1.6 million sf of properties in the Bay Area. The new 10-year loan has a 6.21% fixed annual interest rate and a 20-year amortization.
All but a few million of the proceeds will be used to pay off what is now a $111-million loan from Prudential Insurance that carries an interest rate of 6.56% and was to mature next week. The new loan appears to be secured by more and somewhat different square footage than the loan being paid off. Mission West CEO Carl Berg did not return a Wednesday phone call seeking comment.
As of October 1, 2008, the Company’s total debt amounted to approximately $362.2 million, giving it a 35% debt to asset ratio. Fixed rate mortgage debt, at an average weighted interest rate of 5.74%, represents 95% of the total debt. The weighted average loan term is approximately 11.1 years.
“We are very pleased with the terms of the refinancing which positions the Company well in light of current credit market conditions,” Berg said in a prepared statement. “We believe we will be in a perfect position to take advantage of any major acquisition opportunity that may occur due to the market distress.”