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The Investor’s Marketing Forum (IMF) met this past Tuesday in Orinda. Our moderator Dave Carney facilitated an engaging conversation about the financial state of the commercial real estate economy. Jeff Shaddy of Pacific Capital spoke to share insights as to the amount of debt coming due in the next several years. Commercial Real Estate loans will need to be refinanced because most if not all commercial loans are amortized over 25 or 30 years BUT, the term is usually no longer than 10 years. That means a balloon payment at the end of the term. Shorter terms usually provide lower interest rates and so at the time of acquisition, lower rates were more attractive to investors. Now those loans are coming due and with the extinction of the commercial mortgage backed securities (CMBS) market there is literally no place to refinance! Jeff indicated that 2010 will have more loans coming due than 2009. In fact, each year going forward will have more commercial debt coming due than the previous year until we peak in 2014.

What are lenders doing if there is no vehicle to refinance? The phrase ”Kick the can down the road” and “Extend and pretend” is becoming the short term solution for banks.

In a recent article from CNN Money.com a similar message was conveyed. As for property vacancies, the article “The commercial real estate dilemma” by David Ellis predicts that property vacancies will continue to rise in 2010 and that property values could approximate half their value from the 2007 peak. Click to read the full article.

Now more than ever it is critical to have expert analysis of your property valuation. If you are considering acquisitions, help yourself and your family’s financial well being by seeking the advice of a professional. Should you be holding out for “your price” on a commercial real estate asset, be certain your holding expenses do not exceed returns on new opportunities. In our IMF meeting, it was discussed that in our lifetime we will not see such a dramatic correction in property values.

If you or someone you know is looking to sell or buy apartments or commercial real estate or just one commercial property OR if there is a consideration to learn more about group investments in commercial real estate please contact me. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds.

Continued Success, Pete

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A recent article in National Real Estate Investor described the rate of bank failures at an alarming pace. In fact the research firm Foresight Analytics reports that loan defaults are at an all time 18 year high.

As was recently echoed by Brian Pretti of Mechanics Bank, the worst part is that these loan defaults restrict the banks from doing their business, that is make new loans. Banks are reluctant to accept write offs, even though the default rate is steadily climbing.

The folks at Foresight Analytics predict that defaults will peak in 2011 with a slow return to fundamental lending. Unfortunately, the banks are so overwhelmed with defaulting loans, there are few resources to establish new loans. Read the full story.

If you or someone you know is looking to sell or buy apartments or commercial real estate or just one commercial property OR if there is a consideration to learn more about group investments in commercial real estate please contact me. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds.

Continued Success, Pete

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ANNOUNCING my first meetup for commercial real estate investors! I formed a meetup group on meetup.com called Commercial Real Estate Analysis and Group Investors.

My goal is to share basic commercial real estate principals as they apply to buying commercial property, specifically buying apartments. A brief real estate analysis of other property types will be discussed as a case study. This meeting is intended for experienced and new real estate investors. Additionally, the concept of a group investment will be discussed. Bring your tough questions (I’ll bring my CCIM books) and your investment ideas and I look forward to an engaging discussion on commercial real estate. If you can’t attend a local meeting, watch for future webinars!

If you or someone you know is looking to sell or buy apartments or commercial real estate or just one commercial property OR if there is a consideration to learn more about group investments in commercial real estate please contact me. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

Lastly, I am NEVER too busy for your Commercial referral and I am happy to pay a 25% referral fee. To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds.

Continued Success, Pete

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As owners of commercial real estate, East Bay commercial real estate specifically, you are no doubt aware of market rents and vacancy levels. Recently the trend has been a mild deterioration in rents coupled with a mild deterioration in vacancy. During the last Rental Housing Association of Northern Alameda County (RHANAC) brokers’ meeting, hosted by Executive Director Steve Edrington and sponsored by Teresa Moss of Chicago Deferred Exchange Company, industry experts shared their view of the market place and confirmed the above statement. Most vacancies and the biggest rental losses are on the studios and one bedroom apartments. Brokers shared what owners confirmed, that many units are occupied by more than the minimal amount of persons. People are doubling up with family or roommates in an effort to save living expenses.

Look for the Alameda county Apartment Rent Survey during the RHANAC trade show on March 13, 2010. This is an all day event from 9am to 5pm at the Greek Orthodox Church located on 4700 Lincoln Avenue in Oakland.

Carolyn Said, a San Francisco Chronicle staff writer wrote a news story about rents and occupancy. In it she reiterates what my blogs have shared in the past- economic uncertainty. Read Carolyn’s story at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/21/BUE21BKUVE.DTL

If you or someone you know is looking to sell or buy apartments or commercial real estate or just one commercial property OR if there is a consideration to learn more about group investments in commercial real estate please contact me. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds.

Continued Success, Pete

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Commercial Real Estate forecasts are always interesting to me, especially when presented by someone not selling a product or service. At the East Bay CREW meeting, 2010 President Tillie Ross of Old Republic Title introduced her guest speaker, Brian Pretti, CFA, CFP and senior Vice President of Mechanics Bank. The following is a summary of my notes and the handout provided by Brian.

One of the key macro issues the private sector is experiencing net debt contraction, otherwise known as deleveraging. Consumers are paying off loans and starting to save. This is the first time in decades that people are not borrowing and is the main argument for why this recession/recovery is different than any post World War 2 economic cycle. Of course, we all know the government is borrowing and spending without fear- for now it is the best course of action. “The government MUST continue to borrow and spend until the private sector recovers/deleverages” says Brian. Another newsworthy item to watch will be politics. Politicians will need to provide a job stimulus to include a small business stimulus. Brian predicts politicians will turn against Wall Street if necessary, in an effort to jump start a stimulus.

OK, let’s say we get a stimulus- however Washington and Wall Street make it happen. What about interest rates? Interest Rates are still at the lowest point in a generation, yet there is little borrowing by consumers. This is probably because there is no economic confidence, high unemployment numbers don’t help and there is no pent up demand for goods and services. Brian pointed out that these factors along with the fact that this “reconciliation cycle” can take time indicates that this recovery will take years. In a nutshell, we over-borrowed and we are now paying down our debt. That’s good individually, but it is not an economic stimulating activity.

As China slows their purchase of US bonds, the Treasury department is printing dollars to buy back our own bonds. Brian calls this a “Balance Sheet Recession” and this takes time (years) to heal. Until the private sector picks up, the government cannot stop borrowing and spending. An unintended consequence of such actions is the degradation of the value of the dollar and of course commercial real estate in general. Another unintended consequence is the degradation of pension fund values. Pension funds own commercial real estate as a vehicle to pay their liabilities. What will happen when pension demands exceed available cash flows?

Another reason this recession/recovery is different than others; foreign countries own 55% of US debt. This makes the challenge global not just national. Additionally, the government has refused to allow an audit of itself! What else is hidden from public view?

Brian predicts we may see a government sponsored recovery by Q3 2010. All eyes should be on the private sector. To allow debt pay down, the government must keep Gross Domestic Product (GDP) positive - this has never been done before. Until the private sector is comfortable borrowing again, this “Balance Sheet Deleveraging” will continue to be a drag on the economy. In the short term, the critical issues for investors and businesses are the unintended consequences of government borrowing and spending.

Concluding thoughts:

The private sector credit contraction is very different and is not part of a typical economic cycle. Commercial Real Estate is ground zero. We have overbuilt and now have an oversupply. Energy costs are rising and as such, businesses that cut expenses will thrive. Older buildings become less valuable. Untold hidden commercial real estate problems discourage banks from lending. Brian points out that consumers “appear to be in the midst of profound behavioral change- they are not borrowing or spending”. Thus, US boomer and industrialized economy demographics are a critical consideration in business and investing decisions. This economic cycle demands new thinking because we have never seen this before. Thank you to Brian Pretti of Mechanic’s Bank for this presentation.

If you or someone you know is looking to sell or buy apartments or commercial real estate or just one commercial property OR if there is a consideration to learn more about group investments in commercial real estate please contact me. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds.

Continued Success, Pete

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Jobs, Jobs, Jobs- that’s how we will exit this recession/recovery! Unfortunately, the numbers from the East Bay Economic Development Alliance indicated a protracted stay in this recovery trench. The trend is headed in the wrong direction, thankfully, the total loss of jobs for the East Bay was only 400. Read the full report .

By my last rent survey, apartment rents are holding and vacancies are being held to a minimum, roughly 8%. I have not heard of anyone pushing rents. The commercial real estate market is very dependant on jobs. Jobs create Economic Confidence, something that is lacking in today’s economy. Economic Confidence gives consumers the faith that they will be able to pay for goods and services. The good news for apartment owners is that there are more apartment dwellers than home seekers. The question is will they pay the rent?

If you or someone you know is looking to buy apartment or commercial real estate or just one commercial property OR if there is a consideration to learn more about group investments in commercial real estate please contact me. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds.

Continued Success, Pete

Dave Singleton, Consultant, BaySierra Financial, Inc.

Bruce Smargiasso, Director of Assisted Housing, Contra Costa Housing Authority

Operating costs for Apartment owners will predictably rise in the coming years. A recent San Francisco Business Times article indicates that PG&E is seeking regulatory approval to increase rates by 6+% over the 2010 rates.

Seeking a more fluid rate system, PG&E has asked to charge customers based on changes in payroll, income or property taxes! This sounds a lot like a percentage lease- except this is your utility company that is seeking more of your hard earned revenues.

See the short article by Lindsay Riddell by clicking on PG&E Seeks 6.4% rate increase in 2011.

To learn more about my background, visit Consult Pete. To learn more about my company services, visit Commercial MasterMinds. I can be reached via email at Pete@CommercialMasterMinds.com or just call (925) 719-3569

Continued Success, Pete