Where Is The Commercial Recognition?

Just a short gripe after reviewing Inman's 100 Most Influential People in Real Estate report from September 17, 2007. Where is the commercial real estate recognition? The CCIM network is the pinnacle designation (a little self promotion, I know) of the commercial practitioner and I know that the national committees (along with the regional boards) spend a tremendous amount of time "getting the word out" about our differentiation in marketplace.

The problem is that the residential side is the 800 lb. gorilla in the room and it's "political action committee" (NAR) spend considerably more time (and money) hitting the Inman's of the world to promote the residential side (and its ancillary components) of the business.

Our network (CCIM) must meld into the discussion with these ancillary components, because if a company/community/blog/network that is less than 18 months old (page 28, Most notables, Active Rain with 49,000+ active members and 1,400+ online at any given time) can receive Inman's attention over the CCIM network, then something's missing in the discussion.

Speaking of Active Rain (which I'm a member), I received a call from an appraiser (prompting this brief quip) this morning wanting to get a hold of me for information on a truck terminal I sold two years ago. He sounded like he was less than 30 years old and new to the business, so where did he find me because I asked him - IN the Active Rain directory - his first stop to locate an agent (not NAR, or CCIM or even Coldwell Banker - where I was at the time) - he looked to Active Rain, this is a wake-up call to CCIM and the 800 lbs gorilla.

Autumn Winds of a Changing Market

As I mentioned on Aug 22, one of the greatest benefits of the CCIM network is the network of professionals we have in this industry, and their tireless assistance in providing expert market research for many of our posts. Last evening I received a detailed report on the effects of the "credit crunch" on the commercial markets and the implications of these changes as we move forward. Thanks again to Jim Nowak, CCIM from San Clemente, CA with Site Systems, Inc. for the information. I've asked Jim (as well as any other CCIM) to be a guest contributor to our forum.

Due to liquidity and valuation issues surrounding securitized debt backed by sub prime mortgages in the US home market, an increased perception of risk on the part of lenders has spread throughout the global financial system creating the current “Credit Crunch.”

Below are ten of the possible implications for the commercial real estate sector.

1. Sales volume will drop until a new price level is achieved and friction between sellers and buyers eases. Implication: Falling volume will result in less 1031 demand. Demand for 1031 properties will also soften as the gains on sales drop and more capital is reinvested into alternate asset classes.
2. A flight to quality is typically experienced during any period of market uncertainty. Implication: Top assets in top markets will see less of a price correction than class B & C assets in secondary and tertiary markets.
3. Properties and markets that command the attention of institutional and foreign buyers will continue to have the most competitive bidding. Markets with buyers that have relied most on CMBS conduit financing will see investor demand fall. Implication: Top assets in top markets will see less of a price correction than class B & C assets in secondary and tertiary markets.
4. Mega-deals and portfolio transactions have been primarily financed by Wall Street will be curtailed due to the credit crunch. Implication: Pricing premium enjoyed for portfolios and other major asset sales will diminish.
5. Portfolio Lenders are regaining market share from conduits. For these lenders, sponsorship matters and a track record and proven operating abilities are highly preferred. Implications: Sellers won’t see as many new, out-of-state bidders. It discourages new investors plus some portfolio lenders do not like TICs or other complicated ownership structures.
6. With the amount of busted deals and re-trading that has occurred lately, sellers are favoring buyers with a high confidence of closing. Implication: The highest bid may no longer win the deal. Sellers are favoring buyers with no financing contingencies and ones that can quickly make firm and non-refundable deposits. Institutions and other established, reputable buyers will be favored.
7. In the past, a 90- 95% leased building achieved prices close to that of fully leased buildings. Now buyers will have to put more equity at risk since their lender won’t give them credit for vacant space anymore. Implication: Prices for well leased properties will hold up well compared to those with current vacancy or heavy rollover exposure.
8. Just as construction costs were starting to stabilize and commercial development was gearing up, the credit markets have changed the economics again. Developers are facing higher financing costs and greater equity contributions even if they can get a loan. Implication: New development will remain constrained which is a positive for the space markets. Of all the uncertainties in the market, the fear of overbuilding is not one.
9. Demand for mezzanine debt has grown as LTVs of first mortgages have fallen. With a number of mezz lenders clipped by the credit crunch, mezzanine debt has been significantly re-priced with returns back in the mid to high teens. Implication: Yields on mezz debt are looking attractive compared to equity, and more private equity funds are contemplating filling this capital void.
10. As new mortgages are tough to get and terms are not as favorable, assumable debt will be sought by buyers. Implication: Properties with mortgages originated over the past few years that are also assumable will trade at a premium. Institutions may find opportunities in assuming moderate leverage with mortgage rates that are now relatively low.

- from Real Capital Analytics September Report (Phone: 866-REAL DATA)

So Where Are We In The Housing Bubble?

So I'm reading Diana Olick's blog on CNBC about the housing bubble and she's voicing her frustration with the repeated "on camera" question: Have we hit bottom yet?

To which she replies, it depends on the market (and since I'm in the thick of it here just north of Stockton, CA, I have to agree) with most notibly California and a majority of the West Coast having seen the largest percentage drop around the country over the last month. Great, nothing I haven't heard.. honest reporting.. time to move on.. BUT wait, she puts a link to the Zillow blog at the bottom of the page for some regional stats.

Now if you click on the image, it will take you to the Zillow "Zindex" site that has the interactive data for 66 MSA's from around the country. Each vertical bar represents a city's year over year housing appreciation (red) or depreciation (blue) - the green bar represents the "Zindex" for the full MSA in that market. Interesting visual format.

You can slide the mouse over each bar in the MSA to get a closer look at each community's housing price change year over year. What is startling confirms what my neighbors and friends are saying is happening in our market (Stockton/Sacramento/Central Valley) and the "grand exitos" from Northern California into Oregon and Washington over the past year. Each one of these markets is red on the site and most are up substantially. They did not include the Boise, ID market, but my hunch is that it would trend higher as well. From the visual data, it is easy to see where we are at regionally and nationally.

Two other interesting credit market notes in the news today:

1. Noting that the UK is not faring much better with the credit crunch, it was reported that BarclayCard has reduced its spending limits on 500k credit card holders today. Effectively they have closed off any credit that marginal cardholders might need if they show difficulty handling existing levels of personal debt. I'm sure that this is one trend that might make it's way to the States, just in time for Holiday shopping.
2. Eric Englund (credit professional for the past 23 years) provides an editorial in Financial Sense on the credit "crisis" and how we got to this point (very interesting read). But, I was most interested in the statistics of just how high domestic household debt has risen in twenty years:

Regrettably, when the Federal Reserve targeted housing to reflate the U.S. economy with enormous doses of money and credit, America’s creeping credit socialism was given fertile ground to grow into a monstrous housing bubble. Mortgage lenders irresponsibly said "yes" to just about any borrower while Alan Greenspan cheered them on. It is no wonder why I have seen the most debt-laden, maladjusted personal financial statements in my entire career. In fact, the Federal Reserve’s data support my observations as domestic household debt has increased from approximately $2.5 trillion in 1986, to $7.7 trillion in 2001, to $12.9 trillion in 2006 (with 76% of the 2006 figure being mortgage debt). The toxic combination of mind-numbing inflation and credit socialism has crippled household finances from coast to coast. Therefore, do not believe the talking heads who claim that the mortgage mess is limited to the subprime stratum. As the housing bubble continues to implode, the financial fallout will result in nothing short of an international economic disaster. The Federal Reserve’s September 18, 2007 one-half percent cut in the fed funds rate will not do anything to head off America’s looming household-insolvency crisis.

"Qui Tam" Suits - Interesting discussion

Interesting topic from the Housing Bubble Blog in one of the comments from Thomas:

On this topic, anyone who likes to read absurdly long posts can check out the following, which I recently submitted as a prospective column to a SoCal newspaper:

Yo ho, yo ho, a pirate’s life for me.

As financial markets reel from the biggest credit contraction in at least a decade, the world is getting a good look at just how buccaneering a business the mortgage industry got to be during the late boom. Amid the general fingerpointing, a basic truth is emerging: The real estate market can handle stated-income loans, or teaser-rate mortgages — but not both.

Stated-income loans, in which the borrower’s income isn’t verified, aren’t called “liar’s loans” for nothing. Until recently, though, financial reality placed a limit on how shameless cheaters could get. Since mortgages generally had to be fully serviced from the beginning, if a borrower’s ability to make the payments was overstated, he tended to default quickly. However, when stated-income loans are married to low initial “teaser” rates, a monster is born. Because only a minimal payment must be made at first, deceptions are masked, and the dishonest borrower can coast along for a year or so before his inability to fully service the loan comes into play. In that time, the originator of the mortgage can sell the loan into investment markets, offloading much of the default risk. The borrower, for his part, expects his property to appreciate rapidly, allowing him to refinance or sell at a profit before the payment adjusts beyond his ability to pay. Everybody’s happy — until appreciation stops. Then things get ugly.

Studies and anecdotal evidence suggest that this kind of activity was widespread during the past boom. Fraud ranged from simple exaggeration of income, either by the borrower or an unscrupulous mortgage broker, to sophisticated collusions between borrowers, brokers, agents, appraisers, and sellers to secretly kick excessive cash back to the buyer upon closing. The result is innumerable loans obtained on false premises, where the expiration of teaser-rate periods is exposing the disparity between what borrowers stated as their income and reality. Real economic destruction looms, as a result of this vast misallocation of credit resources.

Mortgage fraud is a federal crime, punishable by imprisonment. Unfortunately, law enforcement resources are limited, and the authorities can’t investigate a fraction of the offenders. General civil remedies may also be inadequate, since the parties most directly injured may have incentives to avert their eyes from fraud in loans sold to investors, lest contractual duties to buy back tainted loans or mark down their value be triggered.

Interestingly, the government sometimes enlists the help of private citizens to combat some kinds of fraud. The federal False Claims Act provides a procedure for private citizens to bring so-called “qui tam” suits (in which the citizen sues on behalf of the government) against perpetrators of fraud in government contracting. If they prevail, they share in the government’s recovery.

Many states, including California, have enacted similar laws. Intriguingly, California law also allows “qui tam” suits against perpetrators of insurance fraud. Thus, “qui tam” suits are not always limited to cases in which the government is a direct victim. They have also been authorized when private frauds have such a damaging effect on the general economy that the government is willing to essentially “deputize” citizens — and provide them with healthy financial incentives — to assist with enforcement that the government cannot handle alone.

In the golden age of piracy, governments often resorted to issuing Letters of Marque and Reprisal, authorizing privately-owned vessels to cruise as “privateers” against hostile shipping. The recent golden age of mortgage buccaneers calls out for a new birth of privateering. The federal and state governments ought to seriously consider authorizing qui tam suits against participants in mortgage fraud. Downsized employees of mortgage boiler-rooms, honest brokers, Realtors, and appraisers who lost business to corrupt competitors, and sharp-eyed amateur analysts would make excellent qui tam plaintiffs. Turn these citizen privateers loose upon the mortgage pirates, and watch how fast the bad actors shape up.

Commercial CAP Rates on the Rise

For all of the talk that Commercial Brokers spoke about bifurcated markets (residential on the decline and commercial strong and steady), there is evidence that commercial pricing among all assets classes is starting to drop. Institutional investors aren't staying away because of the "credit crunch", they are staying away because they fear prices will drop another 10-15% by year end (echoing what Sam Zell was discussing in the last post about a "confidence crunch" vs. a "credit crunch").

A recent article from RetailTraffic reiterates these sentiments from the 4Q of 2007 with rising CAP rates on all commercial asset classes due to the tightened credit and underwriting guidelines for commercial deals. This translates to lower pricing models and higher CAP rates moving forward:

In July, investors closed the smallest number of commercial real estate deals since August 2006, at 930 transactions valued at more than $5 million, Real Capital Analytics researchers told Bloomberg.com.

Stephannie Mower, executive vice president with PM Realty Group, a Houston-based real estate services firm, reports that this July the firm experienced a 14 percent drop in sales activity across all asset classes, the worst performance in five years.

She says many of her institutional clients are purposefully staying away from acquisitions right now, not because they don't have the cash, but because they figure that prices will soon begin to drop on even the best quality assets. Across the board, they expect to see a discount of 15 percent before year's end.

Troubles in the debt markets are crippling leveraged buyers. Conduit lenders especially have stumbled, unable to sell loans they originated at terms they used six months ago into a secondary market suddenly squeamish about risk. From 2006 to August 2007, spreads to 10-year Treasuries on AA-rated fixed-rate CMBS loans, for example, more than doubled, jumping 122 basis points in all to 211 basis points from 89 basis points in 2006, according to RBS Greenwich Capital. Meanwhile, spreads on A-rated loans rose 162 basis points, to 261 basis points, and spreads on BBB-rated loans rose 262 basis points, to 396 basis points.

Bernard J. Haddigan, senior vice president and managing director of the national retail group with brokerage firm Marcus & Millichap Real Estate Investment Services says CMBS lenders also no longer play fast and loose with their underwriting. They won't grant investors interest only mortgages, nor are they willing to hike up the loan amount to cover for small property defects, such as a vacant space, in a core asset. In the past year, the acceptable loan to value ratio dropped to 60 percent, whereas in 2006, investors still closed deals at 95 percent loan to value.

"Now the lenders are really looking at their coverage," Haddigan says.

With all the troubles in the debt market, however, investors are demanding higher returns, Farahnik says. So if last year an acceptable ROI for a given deal was in the mid-teens, this year, that number moved to the high teens.

That kind of attitude drives the market right now, according to French. Though buyers are putting out lower bids on class A assets--this summer, some offered bids of 8 percent and higher--and though the period between the listing and the closing nearly doubled to 150 days compared to 2006, people still think that retail properties are a good investment.

Going forward, however, that equilibrium might not last. In the past few years, the private investors and 1031 exchange buyers drove cap rates down by taking on a lot of leverage, according to Mower. Now that the credit crunch has limited their ability to borrow, institutional funds will once again rule the day.

For additional information on swap spreads go to this article from Kenny Pratt @ SimpleRE for some great insight.

The "Grave Dancer" Speaks

In a recent Forbes article, real estate investor turned newspaper owner, Sam Zell, discusses the "confidence crunch" that the country is currently involved in with Peter Linneman from the Wharton School:

"We're not really in a 'credit crunch.' I think we're in a 'confidence crunch,'" said Zell, funder of the Samuel Zell and Robert Lurie Real Estate Center at Wharton. "I would argue the excess liquidity that existed eight weeks ago still exists today. It has a different risk premium on it, but the actual amount of liquidity has not changed."

Zell said the slump should come as no surprise: "Over the last three years, people were flippant. They bought anything they wanted and were proud that they didn't do due diligence. I think they have all been chagrined and are scared out of their minds."

Linneman noted that Zell is known by the nickname "the grave dancer." According to Zell, the term grew out of the headline of an article he wrote, describing his strategy of profiting from distressed real estate after the inevitable bursting of bubbles of investment enthusiasm. Zell said the article shows how he "was dancing on the skeletons of other people's mistakes."

Zell, however, also pointed out that the last sentence of the article reads: "He who dances closest to the graves, always has to be careful he doesn't fall in."

Real Estate correspondent, Diana Olick, from CNBC discusses the recent poll that 26% of US Homeowners fell that the value of their home has declined over the past year:

So why do 74% of American’s not get it? Look, I know I’m always whining on TV that all real estate is local, and we should be careful with these big national figures, because there are always exceptions in certain local markets. Seattle and Portland for example, are doing quite well, but even their price growth is slowing. When I look at the 20 largest cities in America, only five of them are in the positive year-over-year.

With all the trouble in the credit markets, continued adjustable-rate mortgage resets, and rising foreclosures, not to mention continued sky-high inventories, what exactly makes ¾ of Americans think they’re going to make big bucks on their homes this year??

Reuters reports that former Fed Chief Alan Greenspan spoke about the current US housing problems and feels that prices are due to fall further:

"So far, prices have dropped only slightly. But it was enough to cause alarm around the world," he said. "Prices are going to fall much lower yet."

"However, it is too early to answer the question about a recession. We simply don't know yet. It depends on how flexibly the economy can react," he said.

Greenspan said deregulation and the introduction of market economies in the former Communist bloc after the Berlin Wall fell in 1989 had caused a global boom and a worldwide reduction of interest rates, which both helped fuel the property bubble.

"There is no doubt about the fact that low interest rates for long-term government bonds have caused the real estate bubble in the United States," he said.

"The Federal Reserve began a series of interest rate increases in 2004. We were hoping to bring the speculative excesses in the real estate sector under control. We failed. We tried it again in 2005. Failure," he said.

"Nobody could do anything about it, neither us nor the European Central Bank. We were powerless," he said.

Do Your Tenants Take Advantage of Federal Contract Opportunities?

If you're an investor in this market and see your tenants having cash-flow issues in their businesses, then you're always on the look-out for small business seminars and conferences that help your tenants create more revenue and ultimately help your ability to collect rents.

Below is an email that we received for the Northern California GovLink Conference and the FTC's push to help small business secure federal contracts in their businesses. The site has many useful links and helps small business understand the growth opportunities with federal contracts. The conference has many federal decision makers available for "question and answer" sessions with small business owners.

Space is limited, register now for the GovLink Conference 2007 - Linking you to Federal Opportunities on October 23-24, 2007. This highly-packed, two-day conference provides the opportunity to hear from high level government representatives, to network with federal agencies, prime contractors and small businesses, and to attend noteworthy pre-conference break-out sessions. Register today, seating is limited. To register, go to www.TheFTC.org/govlinkconference.

WELCOMING COMMENTS:
· Congressman Dan Lungren, California, 3rd District (Invited)
· Assemblyman Roger Niello, California, 5th Assembly District

FEATURED SPEAKERS:
· Ted Glum, Director, Defense Microelectronics Activity (DMEA)
· Dennis G. Haines, Vice President, F-22 Sustainment, Lockheed Martin Aeronautics Company
· Renee Wesley-Case, Director, Air Force Outreach Program Office
· Daniel F. Sturdivant II, Assistant to the Director for Outreach, Department of Homeland Security
· Thomas H. May, Small Business Manager, NASA's Jet Propulsion Laboratory (JPL)
· Colonel Thomas C. Chapman, District Engineer, Sacramento, U.S. Army Corps of Engineers

SPEAKERS / PRESENTATIONS:

Federal Purchasing Panel:
· Terrence Nelson, Department of Veterans Affairs
· Pam Smith-Cressel, General Services Administration
· Joe Ochab, Management and Program Analyst, Environmental Protection Agency
· Jim O'Neal, District Director, U.S. Small Business Administration

Contracting Panel Department of Defense and NASA:
· Kellie Valdez, Director of Contracting, Defense Microelectronics Activity
· Cora Armstrong, Flight Chief, Base Support and Acquisition Flight, Travis Air Force Base
· Lucy Hitsman, Contracting Officer, Beale Air Force Base
· Diane "Dee" Perry, Small Business Program Manager, Vandenberg Air Force Base
· Thomas H. May, Manager, Business Opportunities Office, NASA's Jet Propulsion Laboratory (JPL)
· New Speaker: Linda Ryan, Small & Disadvantaged Business Utilization, Naval Facilities Engineering Command (NAVFAC)

Contracting Opportunities with Prime Contractors
· Jan R. Gilmore, Purchasing Agent and Small Business Administrator, General Dynamics Advanced Information Systems
· Gwen Johnson, Small Business Liaison Officer, Electronic Data Systems (EDS)
· Don Fournier, Procurement Contracts Manager, URS Corporation
· Bob Seidy, Mentor Protege Manager, Socio-Economic Business Programs, Northrop Grumman Space Technology

PRE-CONFERENCE BREAKOUT SESSIONS:
· Tour the Defense Microelectronics Activity (DMEA) laboratory - See first hand a high-tech, applied engineering federal laboratory (Limited to first 40 registrants. U.S. Citizenship Required)
· Pricing Your Product, presented by Betsy Gilette, Director, Market Research and Planning, Technology Ventures Corporation, Albuquerque, New Mexico
· Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) Opportunities, presented by Rick Shindell, President, Zyn Systems, Sequim, Washington
· Project Management for the Small Business Contractor, presented by Bill Teeple, Senior Counselor/Instructor, The Federal Technology Center
· Responding to RFPs (Request for Proposal), presented by Perry Sloan, Counselor/Instructor, The Federal Technology Center
· Government Subcontracting - Learn about subcontracting administration and marketing to prime contractors, presented by Carol Bowyer, Senior Counselor/Instructor, The Federal Technology Center
· Prepare for a Government Audit Roundtable Discussion, presented by Bob Zielke, CPA, Carter & Zielke Certified Public Accountants

CONFERENCE SCHEDULE:
October 23, 2007
Pre-Conference Breakout Sessions: 1:00 pm to 4:30 pm
Kick-Off Reception: 5:00 pm to 7:00 pm

October 24, 2007
Main Conference Day: 7:30 am to 4:30 pm

LOCATION:
Lions Gate Hotel Garden Pavilion
5640 Dudley Boulevard
McClellan, CA 95652 (Sacramento Area)

WHY YOU SHOULD ATTEND:
· Learn about federal and prime contractor business opportunities
· Grow your business through networking with key government and prime contractor decision makers
· Expand your knowledge and expertise through the training sessions on contracting with the federal government and prime contractors
· Tour Defense Microelectronics Activity (DMEA), a high-tech applied engineering federal lab

FLYER DOWNLOAD:
To download the PDF conference flyer, go to www.theftc.org/govlinkconference/govlink_conference_01.pdf.

REGISTRATION:
$100 per person (Includes pre-conference breakout sessions, kick-off reception, hors d'oeuvres, continental breakfast and lunch.) To register go to www.TheFTC.org/govlinkconference. For questions call 916.334.9388 or 866.382.7822 toll-free.

Sincerely,

Norma Screeton
Marketing Assistant
The Federal Technology Center
4600 Roseville Road, Suite 100
North Highlands, CA 95660
916.334.9388
866.382.7822 toll-free

Did You See The Front Page of The Paper? Yeah.. Which one?

Ever wanted to see the front page of today's paper? Which one you ask? ALL of them. Newseum has a page that is constantly updated with an image of today's front page from literally every newspaper on the planet (556 from 9/17/07).

Tiger Woods was on the cover of today's Manila Standard Today. But my favorite is the pictorial for the Global Warming at the bottom left.

Or, there is OJ's mug shot on literally 200+ newspapers from his ordeal in Vegas. Good Luck buddy.

Or, there is the Monterey County Herald (Calif.) that shows the celebration of locals from Mexico's independence from Spain.

Wall Street Looking for Local Partners in Troubled Regions

Wall Street opportunists have been gearing up for local land grabs as builders and developers look to exit subprime-ravaged states. Most of these players are not experts in these local markets, so they're partnering with local developers/builders that know the markets, hoping to enter these markets at bargain prices with a 5 to 10 year hold anticipation.

Their plan is obvious in the wake of the real estate meltdown: buy these hard assets and wait until the markets bounce back. "The Rockefeller Group is actively researching Florida properties that may become available for purchase," a spokesman for the New York-based investment and real estate firm told Fortune. "There are definitely opportunities for homebuilders to sell some of the land they acquired when the residential market was very strong."

The explanation for this hot money pouring into land has to do with the fact that firms and funds have been raising capital for real estate purchases for the past decade, putting it to work whenever opportunity strikes. Land just happens to be a value play at this moment.

"Anywhere from two years to 18 months ago, the smart people saw prices, costs, and construction going through the roof. They knew they couldn't just finance builders," says Tom Shapiro, who runs real estate private equity firm GoldenTree InSite Partners. He adds that typical real estate funds, which invest in more than just land, have serious war chests to put to work.

Last year Apollo raised a $700 million Real Estate Opportunities fund that it has used to buy land in Arizona. And last month the Carlyle Group closed a $3 billion fund earmarked for U.S. real estate investments.

Then there are the specialists: Cypress Creek Capital Florida Land Investors, whose sole purpose is to bank land, plans to buy $200 million to $400 million worth over the next few years. The fund has looked at more than 300 deals and made several offers, says executive vice president Steven Beauchamp. He thinks it will be possible to buy at a discount as low as 40 cents on the dollar compared with what the current owner paid.

In Florida representatives for Goldman Sachs and Michael Dell's MSD Capital have also been looking at land investments since early this year, according to Jack McCabe of McCabe Research & Consulting, a residential research firm based near Boca Raton. "The home and condo builders bought big tracts at prices based on the height of the market," he says. "They can't sleep at night now because they're going down like the Titanic, so eventually a loss on a sale doesn't seem so bad."

Fortress and Carl Icahn are playing here too. In July, Fortress acquired Florida East Coast Industries, whose assets include a railway and a real estate development group that controls more than 4,000 acres of undeveloped land. Since January, Icahn has been agitating for control of Florida condo builder WCI, whose coastal land holdings some analysts say are worth as much as the book value of the company. Icahn won board seats in August.

World Banks to announce $30B hit

The Sunday Times in the UK says that the world investment banks are set to announce that their previous quarters' numbers will show a hit of $30B from their exposure in commercial paper, SIV's and subprime. Essentially it means that some investment banks have made no money over the last quarter and that the bank numbers will be as important as the decision of the Fed on interest rates. Also, there is a feeling that the Bank of England should also reduce rates even though they have decided against such a move this past week.

The world’s investment banks are to reveal a $30 billion (£14.9 billion) hit from bad debts as they unveil results that give the first real insight into the impact of the debt crisis.

City analysts predict the banks will have to write down as much as 10% of the $300 billion of leveraged loans currently agreed but not yet syndicated when they report third-quarter results to the market.

Banks are also expected to announce further hefty provisions to cover their exposure to commercial paper, including the so-called conduits and SIVs, a type of highly leveraged investment fund. In some cases profits for the third quarter could have been almost wiped out by a combination of exposure to bad debts and complicated commercial paper.

Is Barack Obama in your network?

Fifteen years ago it took real estate professionals (and their secretaries) considerable time to sift through mountains of business cards (stapled onto Rolodex index cards). We'd input them into the latest Lotus 123 or Lucid's budding MS DOS spreadsheet programs. We were evolving from a gigantic Rolodex paperweight to a DOT-matrix spreadsheet print-out that could be transported inside the briefcase to our next meeting, in case we needed to find a client's contact information.

Fast forward to an online world that has created the world's richest man along with social (Facebook) and business (LinkedIn) networking sites. For newbies to these sites, I want to warn those who want something for nothing, these sites don't grow by themselves. There is a commitment needed to produce results and the old phase from college still applies: "Garbage in, Garbage out".

But, I immediately gravitated to LinkedIn since the website had an Outlook toolbar download (see below) that included as an Add-in for my Outlook 2007 (Vista) program.

But, the feature that most real estate professionals aren't using is the "Grab" button in the toolbar (see below). Once you receive an email from a contact (hopefully with a signature attached at the bottom to promote their business), highlight the contact signature with the mouse, 'click' the Grab button in the toolbar, and Outlook will launch a VCard with the info already inputted into it for your review.

Once you're satisfied that the program 'read' the information correctly and inputted the information into the correct field, 'click' save and you're done. NOTE: The collected contacts will be created into a new 'collected contacts' directory in Outlook. Just move ('drag and drop') them to your main contacts directory to sync with your Smartphone.

The other feature that is useful is the "Info" button that is attached to incoming emails to let you know if the sender's email address is already registered with LinkedIn. If not, you can send an invite to join your network. Or, the sender may already be registered with LinkedIn, but not in your network, and you can send an invite to join your network.

For me, the most surprising part of the whole process (after you've spent the time growing your network - remember "garbage in, garbage out") is receiving emails from clients, customers, or your CCIM members around the country and noticing that they are already in your network.

Once you've setup a 1st tier of contacts and they do the same, you have access (although limited with a free account) to see how many people have joined your network beyond your immediate contacts. There are other features on the website, but I'll let you explore them for yourself. As you can see from the picture above, I reached the 1M mark (last month and still growing) with the help of some friends from high school who work for eBay and Starbucks.

I got the idea for this topic through a recent CNet article, Is Barack Obama in your network? I searched mine (one of the online features) and found (by surprise) that Barack was already in my network through a "friend of a friend". Who knew?

Need a Sunday morning top 10 list?

I guess it's the effects of a lazy Sunday morning (or perhaps the result of a Saturday night out), but I'm not finding much inspiration (or clarity to offer my origin comments) from the news feeds (and blogs) to comment about this morning. So, the intent here is to show all of the feeds that have some interest this morning (an eclectic group for sure):

1. Las Vegas speculators now rolling craps
2. Now the buyers have the hammer
3. I want my half
4. A sign of life in private equity
5. Help find Steve Fossett
6. Black Book launches new tool
7. I am the #2 make money online blog
8. Who is the youngest real estate blogger?
9. Speed up your wireless WAN connection
10. Sunglasses with hidden camera and attached PVR
    

1031 IRS Letter Ruling

In a private letter ruling by the IRS on Aug. 10, 2007 under the Sec. 1031, the code allowed for wholly-owned LLC's (under one Taxpayer), intending to qualify as like-kind exchanges under the IRC 1031, to exchange into separately created LLC's, provided both entities are assets owned by the Taxpayer and meet all of the requirements for a 1031 exchange.

FACTS:

LLC1 is a State A limited liability company, 100 percent owned by LLC2, a State A limited liability company, which itself is 100 percent owned by Taxpayer, a State A limited liability company. Taxpayer has two members and is treated as a partnership for Federal income tax purposes. LLC1 and LLC2 are both disregarded as entities separate from Taxpayer, their owner, under § 301.7701-3(b)(ii) of the Income Tax Regulations. LLC 1 owns an interest in hotel property in State B, which has been held for many years in its trade or business.

On Date 1, LLC1 entered into a contract that provides for the sale of the hotel property to an unrelated party. LLC1 will be entering into an exchange agreement with a qualified intermediary (QI) as defined in § 1.1031(k)-1(g)(4) 1 to accomplish an exchange intended to qualify as a likekind exchange under § 1031 of the Code. Consistent with § 1.1031(k)-1(g)(4)(v), all of LLC1's rights (but not its obligations) in the contract for the sale of the hotel property (Relinquished Property) will be assigned by LLC1 to the QI, with notice being given to the buyer.

Thereafter, LLC1 will assign all of its rights, title and interest, as well as all of its obligations in the exchange agreement to LLC2. In turn, LLC2 will assign all of its rights, title and interest as well as all of its obligations in the exchange agreement to Taxpayer. On or before the 45 th day from the transfer of the Relinquished property, Taxpayer will designate like-kind replacement property or properties (Replacement Property), and consistent with § 1.1031(k)-1(g)(4)(v), all of its rights (but not its obligations) in all contracts to acquire Replacement Property will be assigned to the QI, with notice being given to the seller. On or before the 180 th day from the transfer of the Relinquished Property, the Replacement Property (or properties) will be acquired by a newly created single member limited liability company (or companies), LLC3, which will be 100 percent owned by Taxpayer and disregarded as an entity separate from Taxpayer under § 301.7701-3(b)(ii). Under these facts, Taxpayer requests a ruling that the actions of LLC1 and LLC2 are attributable to Taxpayer and that the acquisition of the replacement property by LLC3 is treated as an acquisition by Taxpayer for purposes of § 1031.

LAW AND ANALYSIS:

Section 1031(a)(1) of the Code provides that no gain or loss will be recognized on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged solely for property of a like kind which is to be held either for productive use in a trade or business or for investment. Under § 1.1031(a)-1(b) of the regulations, real property is usually considered to be of like kind to other real property, whether or not any of the real property involved is improved. However, under § 1031(a)(3), any property received by the tax payer (the “replacement property”) will be treated as if it is not of a like kind to the property transferred (the “relinquished property”) if the replacement property (a) is not identified within 45 days of the taxpayer's transfer of the relinquished property, or (b) is received after the earlier of (i) 180 days after the taxpayer's transfer, or (ii) the due date of the taxpayer's return for the year in which the taxpayer's transfer occurred.

Section 301.7701-2(c)(2) of the regulations provides that, in general, a business entity that has a single owner and is not a corporation (as defined in § 301.7701-2(b)) is disregarded as an entity separate from its owner for federal tax purposes unless the entity elects to treat itself as an association for federal tax purposes. Based on Taxpayer's representations, because LLC1, LLC2 and LLC3 each will be disregarded as an entity separate from its owner for federal tax purposes, the assets of each wholly- owned LLC will be treated as assets of the Taxpayer.

CONCLUSION:

The actions of LLC1 and LLC2 are attributable to Taxpayer and the acquisition of replacement property by LLC3 is treated as an acquisition by Taxpayer for purposes of § 1031.

Could Commercial Real Estate drop 15%?

In today's Bloomberg report, commercial real estate is looking at slowing sales and price adjustments, since July sales were the lowest in almost a year:

Technology: New Jott email today

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Why California housing matters?

One of my news alerts had an interesting article from Steven Levy, senior economist based in Palo Alto. Levy's reasoning is deceptively simple, "there's a limit to what people can afford". But why should the rest of the nation be concerned with housing in California:

Even multiple cuts in the Federal Reserve's target federal-funds rate, he argues, won't necessarily help until prices become more rational. With 10.7 months of unsold inventory, not counting homes that would be on the market if sellers thought there would be buyers, he believes Californians can expect another few years of difficulty, depending on the speed of this housing correction.

Why should non-Californians care about the California housing market, especially when the S&P/Case-Shiller Home Price Index shows year-over-year increases in such cities as Charlotte, N.C., Portland, Ore., and Seattle? Because the Golden State accounts for 13% of the country's gross domestic product or the total value of all goods and services produced nearly double the No. 2 contributor, New York. That means that what happens in California, home to such growth industries as high-tech, biotech, venture capital and film, doesn't necessarily stay in California. The impact of slow economic growth, or even recession, in the state will ripple through the rest of the country.

Real Estate's Ph.D. in action

I found this article endorsing the CCIM designation this morning and as a CCIM it is welcome sight to see the benefits of our network in action:

Real estate broker Elizabeth Tilbury was still in the process of obtaining the professional designation CCIM when the effort started paying off.

A broker from California, who possessed the highly respected certification in real estate investment, telephoned Tilbury based on her status as a CCIM candidate. The broker's client was looking to buy an apartment complex of a particular size and value -- did Tilbury know of any matches in Portland? As a result of that inquiry, Tilbury, representing the seller, sold a 200-unit complex in Beaverton, earning a handsome commission...