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Sears: Auto Centers Reveal Big Picture Problems For Company

by Randybaconin Real EstateLeave a Comment on Sears: Auto Centers Reveal Big Picture Problems For Company

Sears: Auto Centers Reveal Big Picture Problems For Company

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

by Randybaconin Real EstateLeave a Comment on Congress’ Budget Package Delivers Perks for Multifamily Investors

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

by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment on Banks’ Commercial Real Estate Lending Under Fire
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.

Read more at: https://www.bisnow.com/national/news/economy/us-regulators-go-after-lending-practices-53901?utm_source=CopyShare&utm_medium=Browser

CBD Office Buildings Experienced 10-Year Price Appreciation of More Than 100 Percent

by Randybaconin Real EstateLeave a Comment on CBD Office Buildings Experienced 10-Year Price Appreciation of More Than 100 Percent

The latest Commercial Property Prices Indices (CPPI) report produced by Moody’s and Real Capital Analytics (RCA) shows that prices in the commercial real estate universe have experienced double-digit appreciation over the past decade.

According to the report, the national all-property composite index has shown cumulative appreciation of 38.0 percent since October 2005, while the index for core commercial assets has gained by 34.9 percent. Significant price appreciation was evident in the index for apartment properties, as well, which increased by 45.9 percent since a decade ago.

The greatest level of price appreciation over the past 10 years, however, was posted by office buildings in Central Business Districts (CBDs), which posted a 103.2 percent increase over that time period. The index for retail properties, on the other hand, showed appreciation of only 8.6 percent during the past 10 years.

See entire article in National Real Estate investor.

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To discuss commercial mortgage financing needs contact Liberty Realty Capital Group.

How Hotels Can Transform Downtowns

by Randybaconin Real EstateLeave a Comment on How Hotels Can Transform Downtowns
Oxford Capital Group CEO: How Hotels Can Transform Downtowns
Hotel developments and redevelopments can be foundations for turning depressed submarkets into hip, attractive destinations for travelers, local residents and other developers seeking building opportunities. Oxford Capital CEO John Rutledge has contributed to this trend in the nation’s hottest markets and talked to us about projects that’ll spur redevelopment.
John says Oxford loves being a catalyst for transitioning areas and tries to be in early on these developing neighborhoods, repurposing classic buildings for modern uses. He primarily focuses on the top 20 MSAs, with a heavy focus on urban submarkets, but will enter select tourist markets if a deal feels right. One key to being a transformative hotel: creating mixed-use that’s been lacking nearby. John always implements a mixed-use component, whether it’s retail offerings or added residential. John and his team are big believers in building “social hotels” with nice communal spaces, food and beverage components, and a heavy emphasis on rooftop bars. He also feels Oxford’s downtown projects work mainly due to their flexibility.
John sees a similar situation at the Lexington in Boston, where Oxford is working on its 240-key Godfrey Hotel (shown). He believes the Godfrey can be a linchpin in redeveloping Boston’s Downtown Crossing. He says Boston is one of the country’s most coveted, and most supply-constrained, markets. RevPAR growth there is higher than inflation. John tells us the $60M project is a classic Oxford deal: multidimensional and multifaceted, taking advantage of tax credits and emptying out an office for repositioning.
Read more at: https://www.bisnow.com/chicago/news/hotel/oxford-capital-groups-john-rutledge-talks-hotel-strategy-53412?utm_source=CopyShare&utm_medium=Browser

 

To discuss commercial mortgage financing needs contact Liberty Realty Capital Group.
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Capital Spigot Is Wide Open

by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment on Capital Spigot Is Wide Open

Borrowers are reveling in a market where capital is both cheap and plentiful, and even an expected rise in interest rates is not likely to take the wind out of the sails of the current robust lending climate.

“We’re enjoying the benefits of a great market,” says Ernie Katai, executive vice president and head of production at Berkadia, a commercial real estate company. Although 2014 was a record year for the firm in financing, year-over-year volume surged another 70 percent in 2015. Part of that jump can be attributed to a single $5.1 billion portfolio transaction. But excluding that deal the firm’s numbers would still be up 40 percent for the year, notes Katai.

Based on overall market liquidity, that momentum is expected to carry over into 2016. Lenders are keeping an eye on international headlines, notably the recent terrorist attacks and continued threats in Europe. However, lenders and financial intermediaries remain optimistic about the coming year. “Short of something outside of our control happening, the market for 2016 looks poised for another strong year,” Katai says.

Read entire article in National Real Estate Investor online here http://nreionline.com/finance-investment/capital-spigot-wide-openhttp://nreionline.com/finance-investment/capital-spigot-wide-open

To discuss commercial mortgage financing needs contact Liberty Realty Capital.