THE POWER OF 1031 EXCHANGES FOR THE COMMERCIAL BROKER -- Next week!

Thursday, May 2 -- 9:00 - 11:00 a.m.

Cost: $10 REALTORS® and SAR Members/$15 All Others 

Speaker: Bill Angove

Real estate investment has many tax advantages. Completing a 1031 tax-deferred exchange may be one of the best options to improve you or your clients' financial package.  1031 tax-deferred exchanges can be both a powerful wealth building tool and a way of adjusting investment portfolios to more accurately reflect lifestyle choices and circumstances.

Get the edge you derserve when it comes to understanding the power of wealth building tax deferral and tax exclusion strategies. Topics of this seminar include:

• 1031 Exchange Strategies
• How to Use Reverse Exchanges to Get Listings
• The Exchange Equation
• Identification Rule Strategies
• Exchange Entities issues
• Reverse Exchanges
• Use this registration form or call Brian at (916)437-1210 to register

LEGAL REMEDIES FOR DEFAULTS BETWEEN BUYERS AND SELLERS

Wednesday, June 6 -- 8:30 - 10:00 a.m.

Cost: $10 REALTORS® and SAR Members/ $15 All Others

Speaker: Bill Hunter, Equire

This program features buyer and seller disputes.  And as with all Bill Hunter seminars, bring your questions to the program and he will answer them!

Disputes between buyers and sellers can arise before or after close of escrow.  A third party may cloud the title with a lawsuit claiming ownership or asserting a lien.  The buyer may claim the seller failed to disclose material facts or actually committed fraud.  The seller may elect to terminate or rescind the sale agreement alleging a material default by the buyer.  When troubles like these erupt, what can happen?  With knowledge gained in this seminar, a party's broker will be better prepared to help solve the problem. Topics include: 

• What contract provisions assist in resolving buyer/seller disputes?
• When is mediation useful?  Is arbitration better than litigation? 
• How does a recorded lis pendens adversely affect title to real property?
• When will a judge expunge a lis pendens?
• What is required to win a buyer's lawsuit for specific performance? 
• How effective are seller remedies against a defaulting buyer? 
• How does an escrow holder extract itself from buyer/seller disputes? 
• What is the law about "non-refundable" and/or "good faith" deposits? 
• How can a "liquidated damages" clause be used effectively? 
• When is the remedy of rescission used?  What are the consequences? 
• How and when is the remedy of reformation used? 
• When and how are a prevailing party's attorneys' fees recoverable?
• Contact Brian DeLisi at (916)437-1210 to register or use this form

REGIONAL EVENTS

by Victor Calanog

Apartment fundamentals are performing at robust levels, with vacancies cratering to levels unseen in more than a decade. With few other real estate sectors offering such promising returns, developers are planning to open hundreds of thousands of new rental units in the next few years. Will the growth in new supply arrest improvements in occupancy and rents?

First quarter figures for 2012 are no less impressive than the arc of recovery that apartment properties have followed over the last two years. National vacancies dropped to 4.9%, the lowest level since late 2001. This is only the third time in more than 30 years of Reis history that national apartment vacancies have dipped below 5%.

More than 36,000 units leased up from January to March. Effective rent growth tends to spike as landlords perceive that tight market conditions allow for greater pricing power, and it is typically at levels below 5 percent that a pullback in concessions accelerates. Sure enough, effective rents grew by 0.9% in the first quarter, the fastest pace of increase since end-2007. (NREIOnline) Apartment Construction 
 

The Ins And Outs Of The Ground Lease -- 9 minutes

The advantages and considerations of ground leases over fee simple ownership are explored, as well as seniority, management, financing and tenant issues. A solid summation of ground lease structures and purposes is covered. Click here

SAR COMMERCIAL SPONSOR: 

TWO MEN AND A TRUCK® GIVES BACK BY AIDING MOMS & SEEK DONATIONS

by Michael Shaw 

A geotechnical contractor has purchased 5.6 acres in a south Placer County industrial park in a deal that some say signals a shortage of ready-to-lease industrial space.

Magnus Pacific, a rapidly expanding Roseville-based firm that builds levees and performs environmental remediation, searched for two years to find a single location that could house and service its equipment as well as provide top-class office space for its executives.

But despite a buyer's market for commercial real estate, there were no options that could satisfy the company's requirements nearby. So Magnus elected to purchase land in a new industrial park and build a headquarters, the company said this week. Construction is scheduled for this summer, once plans are approved by Placer County, said Bruce Diettert, Chief Financial Officer and a Cofounder.

The price for distressed industrial property is well below replacement cost, but options can still be limited for those seeking space, said Todd Sanfilippo, an Industrial Broker with CBRE Group in Roseville. "Given the economic challenges of the last several years, there has been little to no industrial development in the area and certainly no speculative development," Sanfilippo said. "The existing inventory in south Placer is not meeting the needs of a growing number of active companies." (Sacramento Business Journal) Industrial Space

by Susan Piperato

The seniors housing occupancy rate continued its gradual recovery in the first quarter of 2012, reports the National Investment Center for the Seniors Housing & Care Industry. However, construction activity and year-over-year rent growth slowed, according to NIC MAP, a data analysis service.

Overall, the average occupancy rate for seniors housing properties in the first quarter of 2012 was 88.4 percent, an increase of 0.2% from the prior quarter and a 0.8% increase from a year earlier. The seniors housing average occupancy rate has risen consistently during the past eight consecutive quarters and is currently 1.3% above its cyclical low of 87.1% in the first quarter of 2010. 
 
Annual rent growth for seniors housing slowed to 1.2%, from 1.6% in the fourth quarter of 2011, remaining unchanged from the pace in the first quarter of 2011. This slowdown has been caused by a number of factors, according to Michael Hargrave, Vice President, NIC MAP. "Asset values such as housing, investment and incomes have seen declines and/or slower growth rates which has, in turn, resulted in a challenging pricing environment for seniors housing operators and is likely the main reason why we are seeing below inflationary level annual rent growth," says Hargrave. (NREIOnline) Seniors Occupancy Continues

Heritage Community Credit Union  has launched a business lending program, joining a growing movement by credit unions to expand beyond consumer markets.

The only Sacramento-area credit union making business loans a decade ago was Vision One Credit Union, a business cooperative for vision care professionals. Now, with the addition of Heritage, five of 13 locally based credit unions are in the market. Heritage will offer business credit cards, commercial real estate loans and loans for commercial vehicles and equipment. Though it is a small lender, the move means growing competition locally to serve small businesses.

"It will only help to have more lenders available because there are not too many lenders now making loans," said Jimmy Park, Owner of MeMe Marketplace, a nursery, barbecue and outdoor furniture store in Rancho Cordova. He has been considering an expansion for more than two years but hasn't been able to get conventional financing. Having another lender in his neighborhood, he figures, might improve his chances (Sacramento Business Journal) Community Credit Unions Loans

MADE IN THE USA AGAIN: WHAT ONSHORING MEANS FOR

COMMERCIAL REAL ESTATE 

by David Bodamer

Since mid-2010, Master Lock, a manufacturer of padlocks and other security products, has brought 100 jobs back to Milwaukee that had previously been off-shored. Obama used the factory to discuss his Blueprint for an America Built to Last, which seeks to incentivize further creation of manufacturing jobs within the U.S. while removing deductions for shipping jobs overseas.

Other, larger examples dot the industrial landscape including Ford, General Electric, Coleman, Whirlpool, Cochrane Furniture, Carlisle Tire and Wheel Company and Otis Elevator, who have relocated some jobs back to the U.S. or opted to upgrade U.S. plants rather than resort to off-shore operations.

In some cases, corporations are literally reopening factories they previously closed. In others, firms surveying the landscape have opted to open plants in states within the U.S. with the lowest labor costs and unionization rates.

"We don't think this is a fad," says K.C. Conway, Executive Managing Director of Market Analytics with Colliers International. "We are seeing this as a very long-term sustainable trend." The effects can be seen in the numbers. Onshoring has contributed to a steady rise in manufacturing jobs within the U.S. since early 2010. Employment in the sector is expanding at an annual pace of roughly 2 percent. (NREIOnline) What Onshoring Means
 

by Jennifer Duell Popovec

Another trophy office building has gone into receivership, indicating that lenders are eager to take back high-quality assets as owners continue to struggle with properties that are burdened with too much debt.

Building owner MPG Office Trust Inc. surrendered Two California Plaza to receiver William Howell after negotiating with its special servicer for several months to try to keep the property. The 1.3-million-sq.-ft. property went into default in December 2010.
 
"In the case of Two California Plaza and many other trophy properties, lenders aren't negotiating because the best outcome for them is for the property to go into receivership and to sell to the highest bidder," notes John Guinee, Managing Director with Stifel, Nicolaus & Co.

Located in downtown Los Angeles at 350 S. Grand Ave., the 54-story tower was part of the Equity Office portfolio that MPG acquired from The Blackstone Group in 2007 for $579.6 million. (It's important to note that most of the Equity Office buildings that Blackstone sold in 2007 have ended up in distressed situations.) The debt on Two California Plaza was $470 million. The property recently appraised at $360 million, according to a source familiar with the asset. Most real estate professionals believe Two California Plaza is worth the amount of the mortgage note.

"Everyone in the business knew this property was heading down this path, and you can find a dozen or so around the country that are going to go the same way," says Dan Fasulo, managing director of Real Capital Analytics, adding that many trophy buildings bought during the top of the cycle are loaded up with more debt than they are able to sustain over the long term. "It's rare for one of these assets bought during that period to not have fallen into some kind of distress." (NREIOnline) Distressed Inventory 

by Jennifer Popovec

U.S. REITs are increasingly focused on capital recycling programs, selling off non-core properties and using the proceeds to improve the quality of their portfolios through redevelopment and acquisitions. In fact, REITs accounted for nearly a fifth of all acquisition activity in 2011-the highest percentage in more than five years, according to Real Capital Analytics.

 
"REIT management teams are taking a much more active role in managing their portfolios through acquisitions and dispositions," says Alexander Goldfarb, Managing Director of Sandler O'Neill + Partners LP.

While recycling programs are commonplace in the REIT industry, activity has increased substantially since the credit crisis. "One of the takeaway lessons from the credit crisis was that if you can sell assets that do not fit your purpose you should do so," Goldfarb says. "REITs realized that they tended to hold onto too many assets."

The credit crisis cemented the theory that higher quality assets tend to withstand difficult economic conditions better than lower quality assets. During crunches, lenders only provide capital for the best assets. As a result, "owners are not going to get full value for lower quality assets -- they're less valuable to lenders -- and they're probably going to be more impacted by an economic downturn," Goldfarb says. (NREIOnline) REIT Capital Recycling

by Joseph Ori

Many public companies have substantial sums invested in commercial real estate that it owns and uses in its business. The real estate can be a headquarters office building, industrial warehouse property, retail store site or restaurant building.

Dillard's and Sears, two department store operators, own many of their own stores. Cracker Barrel, Bob Evans Farms and Ruby Tuesday, three restaurant chains, also own a large number of their restaurant buildings and sites. Zynga, the online game maker that went public in December 2011, recently agreed to acquire their headquarters building in San Francisco's South of Market Neighborhood for $228 million. Google, a technology company, bought its 2.9 million square foot New York headquarters building in 2011 for $1.9 billion.

Commercial real estate is considered a capital intensive asset and includes four main property types including, office buildings, retail centers, industrial warehouses and apartment buildings. Each type of property (except apartments) is subject to a lease contract that typically has a base rent, additional rent for the property operating costs like real estate taxes and maintenance, a term of 3-10 years and options for renewal. The base rental rate varies depending on the location and age of the building, lease terms and credit of the tenant.

Does it make economic and investment sense for a public operating company to sink large amounts of capital in its own real estate? Should an operating company own or lease its real estate? From a return on capital perspective, the answer is no.

A public company should not tie up capital in commercial real estate whether it's used for office, industrial or retail purposes. Companies with large real estate holdings should sell the assets or do sale/leasebacks unless the assets are of strategic investment value. Some companies do need to own real estate for strategic and marketing purposes. Examples are a retailer buying a building on Fifth Ave. in New York or Rodeo Dr. in Beverly Hills, CA for a new, high profile store location to advertise its business or a company buying a suburban office building for a national headquarters.

In most other cases, the capital tied up in real estate should be reinvested into the company's core business where the rate of return is greater than in a real estate investment. The expected return from investing in an operating business is higher than a real estate investment. This is because of risk. Operating business investments are riskier due to the volatility of the business, EBITDA (earnings before interest, taxes, depreciation and amortization) or cash flow, profits and competition. Commercial real estate investment is less risk because properties are encumbered by leases, as stated above, which can deliver a more reliable and steady income stream and the ability of the lease income and asset to be leveraged. (Seeking Alpha) Operating Companies

 by Anita Likus and Al Yoon

 
The commercial mortgage-backed securities market in the U.S. has increasingly resembled a battlefield as delinquencies have mounted and lawsuits, foreclosures and other fights have mushroomed. In Europe, by comparison, some efforts to fix distressed commercial mortgage securities, or CMBS, look refreshingly civilized. 

Consider one of the largest distressed European CMBS deals that is nearing a resolution: a $785.4 million deal backed by about 200 office and warehouse buildings in the Netherlands. The borrower was an entity named Uni-Invest that bought the property in 2005 on behalf of group led by a Lehman Brothers fund.

When the loan matured in February 2010, Uni-Invest failed to repay lenders and went into default. That set the stage for the same kind of battle that has been playing out in the U.S., in which investors who purchased CMBS bonds with different levels of risk maneuver to limit their losses.
But the Uni-Invest deal is headed for a more-democratic resolution. The decision-making process is was set to culminate when two different restructuring proposals are set to be put to a bondholder vote.

Analysts who track the U.S. CMBS market say they can recall no such vote ever taking place. "It is a classic example of how a complex decision can be put to the investors to decide," said Darrell Wheeler, a Market Strategist at Amherst Securities Group, a mortgage-bond broker-dealer. "For someone in our profession to say, 'I don't know exactly what to do here and I have to check with bondholders,' you have to respect that."

If the bondholder vote is successful, analysts say it could set a precedent for future European deals that run into trouble. There are still 65 billion of CMBS due to mature before 2016, 56% of which are in continental Europe and 29% in the U.K., according to property-services company CBRE.

In the U.S., when borrowers have defaulted on loans that were packaged into CMBS, so-called special servicers have been appointed that have the power to decide whether to restructure the loan, foreclose, bring in a new partner or take some other type of action. These servers are supposed to take the interests of all bondholders into account. (Wall Street Journal) Europe's Gentler Debt 

By Esher Fund

Cash-strapped Chinese property companies may face a reckoning this year amid high debts and a government campaign to bring down housing prices. If that happens, a number of outside investors are waiting to step in.

Prompted in part by approaches from Chinese and Hong Kong property companies, French insurer AXA SA's real-estate arm is planning to make its first investment in China this year and hopes to invest $2.6 billion in the market over the next five years, mainly in major cities such as Beijing and Shanghai. Germany's SEB Asset Management AG says it hopes to repeat a $400 million investment in Chinese real estate despite the slowdown, with an eye on both residential and office projects in western cities such as Chongqing.

Other firms, including Hong Kong's ARA Asset Management and China-based Citic Capital, are also making plans to invest. "When the market was buoyant, we didn't get emails from developers soliciting for funds," said Frank Khoo, AXA Real Estate's Global Head of Asia. He added, "an opportunity to buy may come later this year."

Just a year ago, property developers were minting record profits as demand for homes boomed. But the Chinese government has mounted a campaign since 2010 to bring down housing prices to head off social unrest, with moves ranging from restrictions on second-home purchases to pushing banks to redirect lending away from developers and toward affordable-housing projects. Average home prices in 70 major Chinese cities fell in February for the fifth consecutive month on a month-on-month basis, according to calculations from data issued by the National Bureau of Statistics. Burdened from debt taken on during the boom times, many property developers have slowed activity. (Wall Street Journal) China