There is potential good news for Lessors, Landlords and affected CRE property owners with respect to the extraordinary revisions of a joint undertaking by Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IFRS).
Specifically, there has been significant concern -- and I have covered it extensively in these pages -- that lease accounting would be updated in the name of improved transparency.
The good news is this: There has been significant public comment on the draft published in August 2010. The potential impact for CRE has been huge, for landlords and tenants, property managers and commercial brokerages. More succinctly, because real estate leases comprise a high percentate of all operating leases, that impact could be significant.
A tip of the hat to my colleague Barbi Reuter at PICOR/Cushman & Wakefield, FASB now has agreed to reconsider its proposed guidance. Lease figure accounting under the original proposal was to be moved from the operating statement to the balance sheet. Now, final guidance is coming in 2012 due to the volume of public input.
More importantly, FASB published the following on their public website: The two bodies "have tentatively decided that a lessor's lease of investment property would not be within the scope of the receivable and residual approach. Insteads, for such leases the lesor should continue to recognize the underlying asset and recognize lease income over the lease term."
The International Council of Shopping Centers (ICSC), which has been lobbying heavily on this subject, summarized it as follows: "The Boards' decision to exclude all lessors of all investment properties from the receivable and residual approach gives many real estate lessors the opportunity to continue to use operating lease accounting rules. Given their decision that lessors should apply operating lease accounting to leases of investment properties, the Boards will likely receive requests to reconsider previous decisions on lessee accounting, such as requiring a single income statement recognition model for all leases, including leases of real estate."
Stay tuned. This will continue to be hot news for CRE investors, tenants and practitioners.
Again, h/t to Barbi Reuter at PICOR in Arizona.
Thursday, November 3, 2011
Wednesday, November 2, 2011
Not Your Average Condo
Readers of CoC have long heard (read?) me rail about your domicile not being an investment.
Specifically, I subscribe to the Robert Kiyosaki philosophy -- the house in which you live is not an investment unless you are charging your children rent for their rooms. A house may be the biggest purchase you will ever make, or your largest asset, but it is NOT nor should it ever be construed as an investment.
But there is a condo complex in southwest Ohio/eastern Indiana that . . . well . . . might be viewed as an investment. I'm not sure even today. But its worth writing about mostly because I need to cover a topic that is lighter. Lots of bad economic news from around the world: The Greek people may vote on whether to accept a bailout, if not vote outright on whether to remain part of the Eurozone; Belgium's largest bank has failed -- a bank that is the primary lender to U.S. municipal governments; and a ballot issue here in Ohio is being misrepresented so badly by its opponents that if it is passed, I am convinced that a number of companies that want to move business operations here will opt to go elsewhere.
So I am writing about "The Condo At The End of The World." Intrigued???
Apparently there are a number of these condominium living spaces, originally designed to withstand a detonation. Figured it out? Yep. These are cold-war bunkers -- old missile silos -- now converted to living space. And they dot the landscape across the U.S.
The author of the piece I have linked to above also notes that there are a number of elite, weathy survival types who are betting that problems are coming to this country -- perhaps similar to the riots they have had in Greece, Italy and France -- and that they better well have a place to hole up.
Which has created a fascinating cottage industry within the real estate world -- the resale and conversion of old missile silos into useable living space.
A fascinating read. Now back to the economics of commercial/investment real estate . . . Hmmm. But its a sunny day out. Frankly, I'd rather not. Snow is coming in the next week perhaps.
For now I'll enjoy the sun . . .
Specifically, I subscribe to the Robert Kiyosaki philosophy -- the house in which you live is not an investment unless you are charging your children rent for their rooms. A house may be the biggest purchase you will ever make, or your largest asset, but it is NOT nor should it ever be construed as an investment.
But there is a condo complex in southwest Ohio/eastern Indiana that . . . well . . . might be viewed as an investment. I'm not sure even today. But its worth writing about mostly because I need to cover a topic that is lighter. Lots of bad economic news from around the world: The Greek people may vote on whether to accept a bailout, if not vote outright on whether to remain part of the Eurozone; Belgium's largest bank has failed -- a bank that is the primary lender to U.S. municipal governments; and a ballot issue here in Ohio is being misrepresented so badly by its opponents that if it is passed, I am convinced that a number of companies that want to move business operations here will opt to go elsewhere.
So I am writing about "The Condo At The End of The World." Intrigued???
Apparently there are a number of these condominium living spaces, originally designed to withstand a detonation. Figured it out? Yep. These are cold-war bunkers -- old missile silos -- now converted to living space. And they dot the landscape across the U.S.
The author of the piece I have linked to above also notes that there are a number of elite, weathy survival types who are betting that problems are coming to this country -- perhaps similar to the riots they have had in Greece, Italy and France -- and that they better well have a place to hole up.
Which has created a fascinating cottage industry within the real estate world -- the resale and conversion of old missile silos into useable living space.
A fascinating read. Now back to the economics of commercial/investment real estate . . . Hmmm. But its a sunny day out. Frankly, I'd rather not. Snow is coming in the next week perhaps.
For now I'll enjoy the sun . . .
Monday, October 31, 2011
In Honor Of Halloween: The Creepiest Houses For Sale In The U.S.
Take a tour with me through the spookiest, creepiest old houses for sale in America.
PERFECT for a Halloween adventure!!!
PERFECT for a Halloween adventure!!!
Saturday, October 22, 2011
If Interest Rates Go Lower
Up and down. Rollercoaster or see-saw?
About every two or three weeks we see a huge stock market sell off. Then the market -- as it historically always has done -- slowly creeps back upward.
Worries over the strenth of the entire European Union. The strength and viability of hte Euro. Greece may default on its loan obligations -- on purpose -- which has Portugal and Ireland panicking Headlines on many news services late this afternoon say roughly the same thing: Investors in the stock market are dumping everything.
George Soros (not someone I put a lot of stock in -- he is not about "progress," he is about his own self interests at the expense of many American liberties, but thats a subject for another day) has said we are entering a second recession. Guess why he's saying that? Might be true, but my thinking is he wants to drive markets lower. If I had to bet, he is buying stocks right now. You know, buy low now-sell it later when it rebounds after the market realizes they are articificially depressed. His defense will be that he was asked what he thought. He can't control how people respond to his words. But I'd bet anything he's hopeful people panic based on media reports of his remarks, and he quietly buys up stronger, more valuable stocks that are being hammered irrationally by emotional sellers.
At the same time, Robert Zoellick, president of the World Bank, says the world is "in a danger zone." Mutual assured destruction of the Cold War has been replaced by economic reliance on each other. Nations needing others to succeed financially, thereby no need for war. But what happens when mounting debt creeps so high that nations decide to welch on their obligations?
Much of the sell off last week and today, IMHO, is emotional. Asia panics, Europe reacts, and like lemmings American investors follow everyone else over the cliff. Smart investors are carefully looking at buy opportunities. If they didn't get in today, depending on what happens tomorrow, Friday, there will likely be some folks getting in a rock bottom prices courtesy of those who are bailing.
With that said, Moodys Investors Service reoprted recently that U.S. commercial real estate prices advanced 5 percent, marking a third straight month in July as deals for smaller properties. The Moody's/REAL Commercial Property Price Index gres 5 percent from June. It is up 1.2 percent from a year ago, and nearly 13 percent from its post-peak low in April.
Still, realistically, this rebound may slow depending on the economy. President Obama sent mixed signals, as did Federal Reserve Chairman Ben Bernanke, when he both noted that the Fed's actions will likely further reduce interest rates. But then he said we are in a second recession, sparking the latest panic. Moody's report noted that the gain is more likely a continuation of "the bottoming process" than a harbinger of recovery. "Slow job growth will crimp expectations for the absorption of vacant space and for rent increases, which in near turn will constrain near-term price increases."
Still a buyers market for commercial/investment real estate. Depending on the property type, of course. Multifamily is still strong, but it is getting more difficult to find commercial lenders willing to back a lot of different acquisitions. Cash buyers -- whether they are private investors REITs, pensions, or insurance companies -- are quietly swooping up better quality properties of all kinds.
Now, back to whether interest rates will drop futrher. There are some things to think about; even if interest rates go lower, two thirds of the market would have to sit out any opportunity. Why? Look at it this way --
-- the lower third couldn't qualify anyway due to credit problems, too little income, etc..
-- the upper third don't need it; this group is paying cash for property these days (in fact sales of luxury homes $5M and higher are up 20 percent year to date over 2010)
-- the middle third previously had to go with alternate financing, and that has pretty much dried up now.
So lower interest rates might not really do to much to stimulate real estate sales. So then who IS buying commercial/investment real estate today? Wealthier investors getting out of the stock market are converting funds to self-directed IRAs and picking up investment properties. I have two such clients I am working with now in this category, with a third who is making the move and wants to start looking for available properties within two weeks.
Today's continued stock market drop prompted the latter investor place a call a few days ago, telling me he is ready to pull the trigger. That, combined with rumors that interest rates may be lowered as a gasping means to jump start borrowing for any number of types of acquisitions. with plenty of money are being begged to use even more money. and even they are feeling the squeeze to some extent.
But everyone else is just standing there.
Less than 1 percent of investors are in CDs. Those still in the market, which is increasingly volatile, are looking at projections that we are going to have another significant "correction." Wealthy are in a good position now to pull out and wait until it is advantageous to get back in.
Rates are going to be 4 percnet on a 30 year fixed. Financing is HALF of what it was five years ago, so now -- if you are development minded -- you can pay a lot more for a project now than you would have in 2005.
And in all this, the cap rate compression we are seeing with rates this low are unbelievable. It just defies explanation.
New chapters on all these sagas to be written in world financial and CRE markets on Monday ....
About every two or three weeks we see a huge stock market sell off. Then the market -- as it historically always has done -- slowly creeps back upward.
Worries over the strenth of the entire European Union. The strength and viability of hte Euro. Greece may default on its loan obligations -- on purpose -- which has Portugal and Ireland panicking Headlines on many news services late this afternoon say roughly the same thing: Investors in the stock market are dumping everything.
George Soros (not someone I put a lot of stock in -- he is not about "progress," he is about his own self interests at the expense of many American liberties, but thats a subject for another day) has said we are entering a second recession. Guess why he's saying that? Might be true, but my thinking is he wants to drive markets lower. If I had to bet, he is buying stocks right now. You know, buy low now-sell it later when it rebounds after the market realizes they are articificially depressed. His defense will be that he was asked what he thought. He can't control how people respond to his words. But I'd bet anything he's hopeful people panic based on media reports of his remarks, and he quietly buys up stronger, more valuable stocks that are being hammered irrationally by emotional sellers.
At the same time, Robert Zoellick, president of the World Bank, says the world is "in a danger zone." Mutual assured destruction of the Cold War has been replaced by economic reliance on each other. Nations needing others to succeed financially, thereby no need for war. But what happens when mounting debt creeps so high that nations decide to welch on their obligations?
Much of the sell off last week and today, IMHO, is emotional. Asia panics, Europe reacts, and like lemmings American investors follow everyone else over the cliff. Smart investors are carefully looking at buy opportunities. If they didn't get in today, depending on what happens tomorrow, Friday, there will likely be some folks getting in a rock bottom prices courtesy of those who are bailing.
With that said, Moodys Investors Service reoprted recently that U.S. commercial real estate prices advanced 5 percent, marking a third straight month in July as deals for smaller properties. The Moody's/REAL Commercial Property Price Index gres 5 percent from June. It is up 1.2 percent from a year ago, and nearly 13 percent from its post-peak low in April.
Still, realistically, this rebound may slow depending on the economy. President Obama sent mixed signals, as did Federal Reserve Chairman Ben Bernanke, when he both noted that the Fed's actions will likely further reduce interest rates. But then he said we are in a second recession, sparking the latest panic. Moody's report noted that the gain is more likely a continuation of "the bottoming process" than a harbinger of recovery. "Slow job growth will crimp expectations for the absorption of vacant space and for rent increases, which in near turn will constrain near-term price increases."
Still a buyers market for commercial/investment real estate. Depending on the property type, of course. Multifamily is still strong, but it is getting more difficult to find commercial lenders willing to back a lot of different acquisitions. Cash buyers -- whether they are private investors REITs, pensions, or insurance companies -- are quietly swooping up better quality properties of all kinds.
Now, back to whether interest rates will drop futrher. There are some things to think about; even if interest rates go lower, two thirds of the market would have to sit out any opportunity. Why? Look at it this way --
-- the lower third couldn't qualify anyway due to credit problems, too little income, etc..
-- the upper third don't need it; this group is paying cash for property these days (in fact sales of luxury homes $5M and higher are up 20 percent year to date over 2010)
-- the middle third previously had to go with alternate financing, and that has pretty much dried up now.
So lower interest rates might not really do to much to stimulate real estate sales. So then who IS buying commercial/investment real estate today? Wealthier investors getting out of the stock market are converting funds to self-directed IRAs and picking up investment properties. I have two such clients I am working with now in this category, with a third who is making the move and wants to start looking for available properties within two weeks.
Today's continued stock market drop prompted the latter investor place a call a few days ago, telling me he is ready to pull the trigger. That, combined with rumors that interest rates may be lowered as a gasping means to jump start borrowing for any number of types of acquisitions. with plenty of money are being begged to use even more money. and even they are feeling the squeeze to some extent.
But everyone else is just standing there.
Less than 1 percent of investors are in CDs. Those still in the market, which is increasingly volatile, are looking at projections that we are going to have another significant "correction." Wealthy are in a good position now to pull out and wait until it is advantageous to get back in.
Rates are going to be 4 percnet on a 30 year fixed. Financing is HALF of what it was five years ago, so now -- if you are development minded -- you can pay a lot more for a project now than you would have in 2005.
And in all this, the cap rate compression we are seeing with rates this low are unbelievable. It just defies explanation.
New chapters on all these sagas to be written in world financial and CRE markets on Monday ....
Thursday, October 6, 2011
Worth Noting
"Your time is limited, so don't waste it living someone else's life."
"Don't let the noise of other's opinions drown out your own inner voice. Have the courage to follow your heart and intuition."
"Sometimes life is going to hit you in the head with a brick. Don't lose faith."
-- Steve Jobs
"Don't let the noise of other's opinions drown out your own inner voice. Have the courage to follow your heart and intuition."
"Sometimes life is going to hit you in the head with a brick. Don't lose faith."
-- Steve Jobs
Saturday, October 1, 2011
Stocks Suck
Not my words but headlines found on a handful of news sites today.
Which would be why, IMHO, we are seeing an uptick once more in investors who want to move money from the market, which just experienced a very depressing quarter, into CRE. Which creates more of the interesting dynamic of which I have written before. Only so much quality product, and more and more capital eager to purchase. In effect, private investors in some of the heaviest competition I've ever seen with public and private REITs, pension funds, insurance companies, and other institutional entities.
Which would be why, IMHO, we are seeing an uptick once more in investors who want to move money from the market, which just experienced a very depressing quarter, into CRE. Which creates more of the interesting dynamic of which I have written before. Only so much quality product, and more and more capital eager to purchase. In effect, private investors in some of the heaviest competition I've ever seen with public and private REITs, pension funds, insurance companies, and other institutional entities.
Friday, September 23, 2011
Markets Down Sharply, CRE Stats Up But For How Long? And Good News About Shopping Centers and Medical Tenants
Markets are off sharply this morning, with more than 700 points lost on the Down Jones average in the past two days, and European and Asian markets down significantly over fears of a default by Greece, general uncertainty, actions by the Federal Reserve that will push interest rates lower, and a statement by the Fed chair two days ago that we are likely entering another recession.
I'm not sure we ever left the first one.
Some good news. Medical groups are renting retail space in strip malls. Seems to be a trend in different parts of the U.S. According to Globe Street news, in Tampa the Florida Orthopaedic Institute has leased a former Borders bookstore. It will be converted to a clinic skedded to open in January, and will feature x-ray, MRI, clinical offices and facilities for physical and occupationsl therapy.
Retailers that would have shunned medical office in their centers -- even excluded them via mandates -- are welcoming the approach because shopping plaza restaurants and other retailers benefit from the the foot traffic coming to and from healthcare providers. Its all part of a trend of vacant office and retail sites working to reposition themselves as ideal homes for medical/dental space and related businesses.
Interestingly, healthcare has been one of the steadiest of commercial real estate sectors. No matter how badly someone is getting along financially, they still get sick and need to visit their own personal physicials or , worst case, visit emergency rooms. This healthcare sector, still, has been slowed by the economy.
And what is causing the slowdown? Hospital reports are the key: elective procedures have been down during the worst times of the recession. Plus, physkicians are less confident of their long-term status considering the implementation of the controversial healthcare iniatives coming out of the White House, and some worry whether they will continue to be employed by hospitals in the next six months to one year.
Still, acquisition and disposition of medical office buildings seems to be trending back up a bit. A
I'm not sure we ever left the first one.
Some good news. Medical groups are renting retail space in strip malls. Seems to be a trend in different parts of the U.S. According to Globe Street news, in Tampa the Florida Orthopaedic Institute has leased a former Borders bookstore. It will be converted to a clinic skedded to open in January, and will feature x-ray, MRI, clinical offices and facilities for physical and occupationsl therapy.
Retailers that would have shunned medical office in their centers -- even excluded them via mandates -- are welcoming the approach because shopping plaza restaurants and other retailers benefit from the the foot traffic coming to and from healthcare providers. Its all part of a trend of vacant office and retail sites working to reposition themselves as ideal homes for medical/dental space and related businesses.
Interestingly, healthcare has been one of the steadiest of commercial real estate sectors. No matter how badly someone is getting along financially, they still get sick and need to visit their own personal physicials or , worst case, visit emergency rooms. This healthcare sector, still, has been slowed by the economy.
And what is causing the slowdown? Hospital reports are the key: elective procedures have been down during the worst times of the recession. Plus, physkicians are less confident of their long-term status considering the implementation of the controversial healthcare iniatives coming out of the White House, and some worry whether they will continue to be employed by hospitals in the next six months to one year.
Still, acquisition and disposition of medical office buildings seems to be trending back up a bit. A
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