Real Estate - Liberty Realty Capital Group

Sears: Auto Centers Reveal Big Picture Problems For Company

January 6, 2016 by Randybaconin Real EstateLeave a Comment

Summary

Sears Auto Centers aren’t being sold to a 3rd party.

Seritage has the right to recapture 100% of the Sears Auto Centers.

The Sears Auto Center real estate doesn’t appear to be moving.

We decided to write an article on Sears Auto Centers because we believe it exemplifies one of the major flaws in the long thesis on Sears (NASDAQ:SHLD). Sears Auto Center represents a tiny portion of Sears’ overall revenue, but the flaw we will discuss permeates a large portion of the investment valuation for Sears. It also demonstrates when reasoning can go bad.

What is the flaw? We believe that many investors have artificially inflated the value of Sears by valuing the real estate of Sears independent of the underlying retail business. Because Sears continues to lose money the net asset valuation calculations used by investors fail to account for these ongoing losses, and thus their calculations might be artificially high. Also, some have suggested that combined with the real estate, that the businesses owned by Sears have hidden values in of themselves that can be monetized outside of Sears (for example, KCD brands). Hence, they get the value of the real estate plus the value assigned to the different operating businesses. We believe that this represents a form of double dipping. Either you value the operating businesses or you value the real estate with no operating businesses. And the experience with Sears Auto Centers offers one example of why this might be important.

The Market Cap Myth

First we wanted to take a brief moment to address one issue. We hope that this helps educate the average investor on how to think about property valuations, as it offers a cautionary tale. Also, we think it demonstrates how investors need to be skeptical in their reliance on other people’s work (including ours). In the Fairholme presentation on Sears, Fairholme offered the attached slide.

View entire article at Seeking Alpha.com

To discuss commercial mortgage financing needs contact Liberty Realty Capital.

Congress’ Budget Package Delivers Perks for Multifamily Investors

January 5, 2016 by Randybaconin Real EstateLeave a Comment

Congress gave a nice Christmas present to the apartment building industry in the omnibus budget package, passed just before the holidays.

The budget package includes a long list of good things for apartment investors. International investors finally got some relief from the punishing Foreign Investment in Real Property Act (FIRPTA). Affordable housing investors will benefit from the extension of provisions to the federal low-income housing tax credit (LIHTC). Congress also renewed bonus depreciation, small business expensing and the New Markets Tax Credit Program, in addition to tax benefits that reward energy-efficient buildings.

The bill passed through both houses of Congress December 18, and President Obama signed it the same day.

Foreign investors get relief

Many foreign investors in U.S. real estate will no longer have to pay the heavy penalties imposed by FIRPTA, which amounted to a 30 or 45 percent tax on many types of profits made by foreign investors in U.S. properties. In 2007, an IRS ruling allowed FIRPTA to tax profits of investments in REIT stocks. Typically, foreign investors don’t pay any taxes on their investments in the United States. They can buy stock in U.S. companies like Apple or Facebook, for example, without worrying Uncle Sam will tax their profits.

The changes to FIRPTA are “the most significant” since the law’s enactment in 1980, according to a statement from the Real Estate Roundtable, based in Washington, D.C. Foreign pension funds that invest in U.S. real estate no longer have to pay the tax. Also, foreign investors can now own a stake of up to 10 percent in a U.S. REIT without triggering FIRPTA. Before the change, the trigger was set at 5 percent. That will make a significant difference for private REITs, which are often small enough so that a foreign investor could own a significant share of the company.

Boosts for sustainable development, community development, affordable housing

Advocates for energy-efficient, green development welcome the extended tax deduction for energy-efficient commercial buildings. The budget package extends the deduction through 2016 and toughens the requirements buildings need to meet to get the deductions. The existing law ran through 2014 and gave a $1.80-per-sq.-ft. tax deduction to properties that beat by 50 percent the efficiency standards set out in the 2001 American Society of Heating, Refrigerating and Air-Conditioning Engineers Standard 90.1. In the extension, buildings will have to meet ASHRAE’s 2007 standard to get the deduction.

View the entire article here in National Real Estate Investor.

To discuss multifamily mortgage financing needs contact Liberty.

Banks’ Commercial Real Estate Lending Under Fire

January 4, 2016 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

US Regulators Call Out Lenders Over Low Standards

The three main US banking regulators, the Federal Reserve, FDIC and OCC, say they plan to clean up sketchy lending practices—which are running rampant, just like before the 2008 crisis. Real estate values have surged since 2010, and competing banks have dropped lending standards to get their piece of the loan action, Bloomberg reports. The OCC called out low-standard lending last week—Comptroller Thomas Curry says banks are chucking sound underwriting, risk management and loan-loss provisioning in their bid for cash and expansion.

To discuss commercial mortgage financing needs contact Liberty Realty Capital.

Why New Apartment Projects Still Make Sense

December 30, 2015 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

It’s not too late to build. New apartment communities that open their doors in 2017 will probably still enjoy a strong U.S. apartment market—despite a slightly higher vacancy rate and slower rent growth.

“Even in 2017, apartments are going to look pretty strong,” says Michael Steinberg, senior associate of research and economics with New York City-based research firm Reis Inc.

Apartment developers have been very busy in 2015. They are likely to open even more new apartments in 2016. The number of apartments available will finally grow decisively faster than the number of people looking for apartments, pushing vacancy rates higher and rent growth down, experts says. But vacancy rates are now so low they are likely to remain historically low in 2017, even after creeping upward. What’s more, rents will likely keep growing, even if not as quickly as they did this year.

“We are coming off [a] historically very strong performance,” says Steinberg.

Construction boom

Developers will open more than 228,000 new apartments in 2016 and another 178,000 in 2017 in the top 54 apartment markets, according to research by CoStar Portfolio Strategy. In comparison, during construction booms of the past, like the one in 2001, developers barely finished more than 150,000 apartments.

Demand for new units should remain strong, but not quite strong enough to keep the vacancy rate at its historic low.

“You could work a good horse to death,” says Hans Nordby, managing director with CoStar. The average vacancy rate will rise to the mid-4-percent range by the end of 2017, CoStar researchers project.

You can view entire article in National Real Estate Investor here.

What’s Driving Deals in the Sale-Leaseback Market?

December 28, 2015 by Randybaconin Real EstateLeave a Comment

Corporations that own their properties have a good reason for cheer this holiday season: They are sitting on potentially vast sources of growth capital, depending on the quality of their real estate assets.

Activity on sale-leaseback deals has posted a steady upswing almost every year since 2010. Total deal volume for 2015 could reach $12 billion, matching the spectacular production that the market saw in 2013, according to a joint estimate from research firm Real Capital Analytics (RCA) and net lease specialist Stan Johnson Co.

The market took a brief breather from red-hot growth in 2014, when deal volume reached $10 billion, but that still surpassed the market’s previous production peak in 2007, when about $8 billion in sale-leaseback transactions were completed.

All of the conditions to support a healthy and active sale-leaseback market are firmly in place, including compressed cap rates, strong demand from institutional and high-net worth investors, and the drive, on the part of property owners, to convert a portion of their companies’ value into usable cash.

After churning out so much capital in 2015, will sale-leaseback dealmakers be able to post another healthy year in 2016? Market observers have a positive outlook as long as companies continue to use sale-leaseback proceeds to support growth.

The many engines driving sale-leaseback activity

In these times of ample liquidity, it is tempting to think that sale-leaseback deals are being done simply because the money is available. Companies can apply the funds in other, more productive ways, however. Firms can use the funds to expand their lines of business, invest in new equipment or even maximize returns after a merger or acquisition, according to the Stan Johnson Co.

The financial terms underpinning sale-leaseback deals also make them look attractive when compared with refinancing using traditional lending sources. Banks typically limit loan-to-value (LTV) on financing agreements to 80 percent, but sale-leasebacks allow a company to access the full amount of a property’s value. Also, underwriting standards have become tighter at banks and other traditional lending sources, according to Andrew Ackerman, managing director in the Atlanta office of Sands Investment Group, a company that specializes in the net lease market.

“A lot of our clients have said their banks are starting to become more stringent in their underwriting,” Ackerman says. “The banks are saying, ‘We think the [lending] market is getting a little overheated like it did in 2008, 2009 and 2010.’”

Read entire article in National Real Estate Investor.

Malls, Outlets Are Risky Business For Lenders

December 28, 2015 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

A report by Integral Realty Resources shows lenders are finding regional malls and outlet centers riskier compared to other retail shopping centers. The report puts outlet centers at the highest average interest rate spread across all LTVs, with grocery-anchored centers at the lowest on all deals except ones between 76% and 85% LTV. (People have to eat, after all.) The difference between grocery and outlet centers maxed out at 91 bps in deals between 61% and 75% LTV.

Report: Regional Malls, Outlets The Highest Retail Risk Class For Lenders

Read more at: https://www.bisnow.com/national/news/retail/report-regional-malls-outlets-the-highest-retail-risk-class-53882?utm_source=CopyShare&utm_medium=Browser