Have you ever considered owning a Walmart or a Sam’s Club or a Home Depot? Maybe you already own such a “big box” retail store- in which case you know first hand the Quality, Quantity and Durability of the cash flow payments. For the rest of us, such a big box retail acquisition is out of reach because of the acquisition price. Or is it? What if you could own just a piece of such a large retail store?

Today I attended a presentation on just such a strategy. It was hosted by Rich Arzaga, CFP, CCIM of Cornerstone Wealth Management and sponsored by RINA Accountancy Corporation Walnut Creek office. Rich had three Real Estate Investment Trust presenters discuss their business strategies in Retail, Industrial and Multifamily investing. These are non traded and non public investment offerings and are not available to the general public. There are risks like any other real estate investment, but then again you already know that.

During the presentations, it became obvious to me as an investor that the strategy all three presenters implement are attainable and achievable because there are fewer players at their level. For example, how many individuals can acquire a $7 million dollar asset without financing? I know a few, but that’s my business! Individually, I could not do so. Additionally, these investment funds are investing in multiple properties of the same type. The Retail presenter shared that their existing fund has invested $5 Billion dollars in 680 different properties… all big box retail with LONG leases with NATIONAL CREDIT TENANTS. That means they don’t worry about whether or not their tenant can make the lease payments because that risk is minimized. Also, the leases are written for a period of ten years or more and increases in the lease are agreed upon up front. If that wasn’t enough, the tenants are responsible for the maintenance of the building they occupy. So the owners of the buildings, these investment funds, have zero responsibility at the property level. Their responsibility is the distribution of cash earnings and future all cash acquisitions of more big box retail.

The second presenter was an Industrial expert and his story dovetailed the Retail story. As you can imagine, your local Home Depot, Kohl’s, Walmart, Costco, etc. cannot keep all of its inventory under one roof-thus the need for warehousing. Similarly, the Industrial story is supportive of the Retail story with the types of tenants who store goods in their warehouses. All National credit tenants with long term leases where the tenant is responsible for building maintenance… starting to see the trend?

The last presenter was an opportunity fund in multifamily. This fund seeks out distressed apartments all over the country finding opportunities to renovate, rehab and add value back into their investment. Unlike the previous two presenters, apartment dwellers are not long term lease signers. As such, this REIT uses this advantage to fix up a distressed asset, rent it to capacity and turn around and sell the asset. There was mention of double digit returns, but that’s all I will say.

Email or call with your comments or questions. I am happy to make introductions if you would like to learn more about these opportunities. You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete

The Federal Reserve took an unexpected stance by stating that they do not expect to raise rates until at least 2014, far later than previous projections had estimated. In fact, according to RBC Wealth Management’s weekly insight, there was a report released later in the day that showed nearly two-thirds of the FOMC members advocate raising rates prior to the end of 2014. While the inconsistencies have caused confusion for industry professionals, one thing is clear—the messages coming from Washington are inconsistent.

Judging from what is going on in the market and the precarious balance of perfoming to non performing loans, I confidently predicted last summer that interest rates would remain low for some time.

Email or call with your comments. I am always interested in an intelligent discussion around the state of our economy and how we may position ourselves for the future.

You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete

Today I attended a “Lunch and Learn” hosted by Jim and Bonnie Bell of Bell Investment Advisors in Oakland. The presentation was packed full of supporting reasons for the idea that our economy of yesteryear has passed and will not return for some time. Marivic Hammond of Bell Investments did a fabulous job presenting her points on the “new normal of investing”. While most of the presentation focused on the stock market, equities and bonds, there was a discussion about interest rates and it matched what I have learned in the past and posted to this blog. It was very interesting to see how the Bell Team has positioned itself for the current cycle.

Three take aways that Marivic left with me are as follows:

1. Lower Interest rates for an extended time period
2. Higher Unemployment overall
3. More Government regulations

Email or call with your comments. I am always interested in an intelligent discussion around the state of our economy and how we may position ourselves for the future.

You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete

Commercial MasterMinds does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Commercial MasterMinds excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from.

Commercial MasterMinds does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Commercial MasterMinds excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from.

The following is a report shared to all members of the California Apartment Association. It was written by Joe Lawton of Castle Management and reflects the sentiment of the apartment industry.

The apartment business has not seen a great deal of good news since 2008. However, apartment rents are on the rise in the Bay Area. It was reported in recent articles in the Contra Costa Times and San Jose Mercury News that there have been decreases in vacancies and increases in apartment rents. At Castle Management Company, we have seen these increasing rents over the last 18 months, especially in the class A and B apartment buildings. In class C buildings, we have seen vacancy rates also improve and expect higher rents to follow.

Income property investors have seen this trend as well, and we are observing more interest in purchasing apartments. In addition, developers are pursuing approval to build 1,200 units near the Walnut Creek BART station, and possibly build 300 more rental units in Lafayette and another 100 rental units in San Ramon.

This is great news for all of us in the apartment industry. However, with this great news we need to be aware of the reaction from other factions in our state who are not our friends. The California Apartment Association has reported discussions of rent control in Richmond, San Diego and Los Angeles. Furthermore, the State of California has a massive budget problem; we expect to see a state ballot measure in 2012 to dismantle the Proposition 13 property tax protection.

Email or call with your comments. I am always interested in an intelligent discussion around the state of our economy and how we may position ourselves for the future.

You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete

Industry experts admit transaction volume is slowing in the south bay. Forecast is for the slow pace of properties changing hands to continue for at least the next two years. Inventory is low and what is on the market is recycled over and over and of little interest to buyers. Smaller apartment properties are moving faster than larger properties- most are not even hitting the open market!  Rent increases have slowed due to the concerns of a slowing economy… even in the south bay. Will we see the same in the East Bay?

Lenders’ are willing to lend with plenty of money available, BUT, the deal has to make sense. No lender is lending on 3% cap rates (Laugh out Loud!) Loan to values and Debt Coverage Ratios are tightening and of course those magical pro forma numbers are not included.

A representative from Chase bank reported that Chase Bank has decided not to foreclose on troubled properties. Instead they are selling pools of notes. Other banks are following suit. The biggest risk for a note buyer- property owner goes into bankruptcy before the note goes to the Trustee Sale.

Email or call with your comments. I am always interested in an intelligent discussion around the state of our economy and how we may position ourselves for the future.

You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete

2011 has proven to be a strong market for apartment rental owners,  especially in the shadows of a renters market that stems from a large number of foreclosed homes.  A recent article by the San Francisco Business Times is worth reviewing…

California pulls out of national foreclosure talks

San Francisco Business Times

Date: Monday, October 3, 2011, 7:19am PDT

California pulled out of a probe that once included all 50 state attorneys general into foreclosure practices of the nation’s largest banks, with California’s attorney general saying the banks were not offering enough relief to the state’s homeowners.

Kamala Harris sent a letter to Iowa Attorney General Tom Miller, who has led the joint federal-states effort to look into allegedly improper foreclosures by banks and mortgage servicers, announcing she was withdrawing on California’s behalf.

In an interview with the Los Angeles Times, Harris also said banks were demanding too much immunity from legal claims surrounding foreclosures.

Harris said California would now pursue an independent investigation. Observers said the move was a damaging blow to the nationwide effort, particularly as attorneys general of other large urban states are also voicing unhappiness with the progress of the talks. New York had earlier pulled out of the initiative.

Read More and see the comments via the following link:

http://www.bizjournals.com/sanfrancisco/news/2011/09/30/california-pulls-out-foreclosures.html

Due to inconsistent installation requirements mandated by local governments and a multitude of questions raised by property owners concerning California’s new carbon monoxide alarm law, the state Housing and Community Development Department has issued emergency regulations to bring clarify to the law.

There are a number of exceptions in the regulations concerning the installation requirements, which owners will find helpful.  At the same time, the regulations clarify that the July 1, 2011, installation date for single family homes only applies to detached homes, not to condominiums.  Here’s a look at some of the clarifications made through the regulations.

• All single-family detached homes (owner or tenant occupied) must be equipped with an alarm on or before July 1, 2011.
• All other residential units must be equipped with an alarm on or before January 1, 2013.
• As outlined below and with specific exceptions, a carbon monoxide alarm may be battery powered, a plug-in device with battery backup, or hard-wired into the dwelling unit with a battery backup.

“Fossil fuel” is defined as coal, kerosene, oil, wood, fuel gases, and other petroleum or hydrocarbon products, which emit carbon monoxide as a byproduct of combustion.

An open parking garage as defined in the California Building Code or an enclosed parking garage ventilated in accordance with the California Mechanical Code shall not be deemed to be an attached garage.

Exceptions:

Rental property owners who have individual dwelling units that do not contain a fuel-burning appliance or a garage attached directly to the unit, but that are located in a building with a fuel-burning appliance or a garage attached to the building, need not install a carbon monoxide alarm if:

• The unit is located more than one story above or below any story that contains a fuel-burning appliance or an attached garage; and
• The unit is not connected by duct work or ventilation shafts to any room containing a fuel-burning appliance or to an attached garage; and
• The building is equipped with a common area carbon monoxide alarm system that includes all enclosed common area spaces.

Carbon Monoxide Alarm Location

Carbon monoxide alarms must be installed and maintained in the following locations:

• Outside each separate sleeping area in the immediate vicinity of the bedrooms.
• On every level of a dwelling unit, including basements.

Type of Alarms and Power Supply

• Existing Dwelling Units – Carbon monoxide alarms in existing buildings may be solely battery operated or plug-in type with battery back-up in areas where no construction is taking place.
• Existing Dwelling Units Where Permit Required – When a permit is required for alterations, repairs, or additions with a total cost that exceeds $1,000, owners of existing dwellings units with a fossil fuel-burning heater or appliance, fireplace, or an attached garage shall install a carbon monoxide alarm that receives their primary power from the building wiring where such wiring is served from a commercial source and shall be equipped with a battery back-up.  Alarm wiring shall be directly connected to the permanent building wiring without a disconnecting switch other than as required for overcurrent protection.  The requirement shall apply only in the specific dwelling unit for which the permit was obtained.
• New Construction – New residential units with a fuel-burning appliances or an attached garage must be equipped with a carbon monoxide alarm.  The alarms must receive their primary power from the building wiring where such wiring is served from a commercial source and shall be equipped with a battery back-up.  Alarm wiring shall be directly connected to the permanent building wiring without a disconnecting switch other than as required for overcurrent protection.

Exceptions Power Source:

Where there is no commercial power supply, the carbon monoxide  alarm may be solely battery operated.  Alternatively, other power sources recognized for use by National Fire Protection Association (NFPA) 720 may be used.

In existing dwelling units, a carbon monoxide alarm is permitted to be solely battery operated or plug-in with a battery backup when the repairs and alterations (for which a permit is required and which exceed $1,000) do not result in the removal of wall and ceiling finishes.  The same exception applies when work is done to the exterior surfaces of dwellings, such as replacement of roofing or siding, or the addition or replacement of windows or doors or the addition of a porch or deck.  An exception is also provided when work is done to the plumbing or mechanical systems, electrical systems, which do not result in the removal of interior wall or ceiling finishes exposing the structure.

Interconnected Alarms – New Construction and Repairs to Existing Units

When more than one carbon monoxide alarm is required to be installed within the unit, the alarms shall be interconnected in a manner that activation of one alarm shall activate all the alarms in the individual unit.

Exceptions to Interconnected Alarms

• In existing units, interconnected alarms are not required where repairs do not result in the removal of wall and ceiling finishes and no previous method for interconnection existed.
  In existing units, interconnected alarms are not required where no construction is taking place.
• In existing units, interconnected carbon monoxide alarms are not required where repairs or alterations are limited to the exterior surfaced of dwellings, such as the replacement of roofing or siding, or the addition or replacement of windows or doors, or the addition of a porch or deck.
• In existing units, interconnected carbon monoxide alarms are not required when works is limited to the installation, alteration, or repair of plumbing or mechanical systems or the installation,  alteration, or repair or electrical systems, which do not result in the removal of interior wall or ceiling finishes exposing the structure.

Installation and Maintenance

The carbon monoxide alarm must be operable at the time the tenant takes possession. A tenant is responsible for notifying the owner or owner’s agent if the tenant becomes aware of an inoperable or deficient carbon monoxide alarm within his or her unit. The owner or owner’s agent must correct any reported deficiencies in the carbon monoxide alarm and will not be in violation of this section for a deficient or inoperable carbon monoxide detector when he or she has not received notice of the deficiency or inoperability.

For more information about carbon monoxide alarms, go to CAA’s Website at www.caanet.org.

Email or call with your comments. I am always interested in an intelligent discussion around the state of our economy and how we may position ourselves for the future.

You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete

As of July 1, 2011, the Carbon Monoxide Poisoning Prevention Act (Senate Bill – SB 183) will require all single-family homes with an attached garage or a fossil fuel source to install carbon monoxide alarms within the home by July 1, 2011. Owners of multi-family leased or rental dwellings, such as apartment buildings, have until January 1, 2013 to comply with the law.
The California State Fire Marshal has created this frequently asked questions (FAQ) on carbon monoxide devices to provide the citizens of California with information on this important matter.
1. What is Senate Bill No. 183 (SB-183)?
SB-183 is also known as the “Carbon Monoxide Poisoning Prevention Act” This senate bill requires that a carbon monoxide (CO) device be installed in all dwelling units intended for human occupancy.
2. What is Carbon Monoxide?
Carbon Monoxide is a colorless, odorless gas that is produced from heaters, fireplaces, furnaces, and many types of appliances and cooking devices. It can also be produced by vehicles that are idling.
3. What is the effective date for installing a CO device?
For a single-family dwelling, the effective date is July 1, 2011. For all other dwelling units, the effective date is January 1, 2013.
4. Where can I find a list of all CSFM listed carbon monoxide devices?
Click on the link titled “List of Approved Devices”.

http://osfm.fire.ca.gov/strucfireengineer/strucfireengineer_bml.php

5. What is the definition of a dwelling unit?
A dwelling unit is defined as a single-family dwelling, duplex, lodging house, dormitory, hotel, motel, condominium, time-share project, or dwelling unit in a multiple-unit dwelling unit building.
6. Does a duplex qualify as a single family dwelling?
By definition, a duplex is not considered a single family dwelling.
7. Where should CO devices be installed in homes?
They should be installed outside each sleeping areas of the home including the basement. The manufacturer’s installation instruction should also be followed.
8. Are CO devices that are required by SB-183 to be installed in each room?
No. They are required by SB-183 to be installed outside of each sleeping area. For maximum protection against CO gas, it is recommended that a CO device be installed in each sleeping room.
9. At what height/location should a CO device be mounted?
According to the National Fire Protection Association (NFPA 720), the location for effective performance is not generally dependent on mounting height. The density of carbon monoxide is similar to that of air at room temperature, and carbon monoxide generally mixes readily with air. The manufacturer’s installation instruction should also be followed.
10. Can I replace my existing smoke detector with a carbon monoxide device?
No. By law, both smoke alarms/detectors and carbon monoxide devices are required to be installed in all dwellings. However, a combination smoke and carbon monoxide alarm/detector will satisfy both requirements.
11. How many types of CO devices are available?
There are three types. 1) Carbon Monoxide alarms (CSFM category # 5276), 2) Carbon Monoxide detectors (CSFM category # 5278), and 3) combination smoke/Carbon Monoxide alarm (CSFM category # 7256 or 7257).
12. What is the difference between a carbon monoxide alarm and a carbon monoxide detector?
A carbon monoxide alarm is a stand alone unit which is tested to Underwriters Laboratory (UL) Standard 2034 and has its own built-in power supply and audible device. These units are typically installed in your single family dwelling. A carbon monoxide detector is a system unit which is tested to UL Standard 2075 and is designed to be used with a fire alarm system and receives its power from the fire alarm panel.
13. Are CO devices required to be approved by the State Fire Marshal?
Yes. SB-183 prohibits the marketing, distribution, or sale of devices unless it is approved and listed by the State Fire Marshal.
14. If someone has a CO device that is not listed by the State Fire Marshal prior to the law, can they maintain it or does it have to be replaced?
The law requires that CO devices to be approved and listed by the State Fire Marshal prior to sale, marketing, or distribution. Existing CO devices installed prior to July 1, 2011 may continue to be utilized.
15. Where does one obtain a copy of a California State Fire Marshal (CSFM) listing of CO device?
Copies of CSFM listing of CO devices can be found on the State Fire Marshal website by logging on the following:

http://osfm.fire.ca.gov/strucfireengineer/pdf/bml/CSFM%20listed%20carbon%20monoxide%20devices.pdf

16. Where can I go to receive further information on Carbon Monoxide?
You may go the California Department of Forestry and Fire Protection (CAL-FIRE) web site at http://www.fire.ca.gov and click on Carbon Monoxide under “Hot Topics”.

Email or call with your comments. I am always interested in an intelligent discussion around the state of our economy and how we may position ourselves for the future.

You can reach me via email Pete@CommercialMasterMinds.com or (925) 719-3569. To learn more about my background and company services, visit Commercial MasterMinds

Continued Success, Pete