Pushing Dirt

It’s coming to commercial real estate! Residential agents have been living in the world of short sales for some time. Now I’m involved in negotiating a few of them. In a short sale, the proposed purchase price falls short of the loan balance. That puts me in the middle of a negotiation among buyer, seller, and lender, trying to arrange a meeting of the minds all around.

I’m seeing slowly-increasing-willingness on the part of lenders to start discounting notes to get them off of their books. This will accelerate through 2009. This will also make for more opportunity plays for investors that want to buy these notes at a sizable discount with an eye toward hopefully foreclosing on the property or being paid off at par for a nice profit.

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National Real Estate Investor cites a LaSalle study which sees four key opportunity plays for investors in 2009:

1. Cheap REIT shares
2. Cheap units in limited partnership interests
3. Pools of non-performing or partially performing loans, and
4. Defaulted land deals or development deals needing to be recapitalized.

I’d add to the list just about any sort of REO property with significant vacancy, most retail product (retail is significantly out of favor right now), and CMBS debt.

You can check out the article here.

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CMBS stands for commercial mortgage backed securities. Simply put, in the go go days leading up to the 2008 market nosedive, wall street originated debt (called conduit debt) and securitized it….meaning they created pools of mortgages and then sliced the sliced the cash flow thrown off the mortgages into different tranches — from AAA for the lowest risk, the first to be repaid in case of default — on down to the “B piece” at the bottom of the cash flow waterfall, with the highest risk that you’ll lose everything.

Those who have the wherewithal to make investments in the AAA CMBS securities today (accredited investors) are finding now with AAA CMBS debt they can earn double digit returns with return of principal even if a good chunk of the collateral in the pool defaults. An individual investor can invest in mutual funds that buy this kind of debt.

Hard to rationalize buying the actual sticks and bricks at a single digit cap rate considering this, huh?

REO - short for real estate owned, or property that has already been foreclosed on and is now owned by the lender, is the “low hanging fruit” of the distressed property world.  Once an asset has been taken back by a lender, it will likely undergo at least some minimal renovation work, listed with a real estate agent at (in theory) a market price and marketed widely.

As a broker, if you want to list these properties, it pays to develop relationships with these lenders before they come to own a property. The same goes for an investor wanting to buy a distressed property on an off-market basis before its widely marketed.

How do you find these opportunities? My advice is to monitor the bankruptcy and foreclosure notices in the newspaper.  When you see a property that you would like to list or buy advertised, you need to work back to the lender.  Lenders record their liens on properties and these lien filings (aka UCC lien filings) are a matter of public record. In Maryland for instance, the actual recorded loan documents are all searchable on the web for free. In some jurisdictions you or a service you employ will have to do the research at the courthouse.

By beginning the dialog with the lender from the first minute the asset is distressed, you will have the inside track to getting the property listed or buying it. If your first contact with the property is after the lender owns it, you’ll face much more competition and much less chance of success. It’s a lot easier to develop a relationship with a lender around a particular circumstance like a troubled loan. Just working through the phone book cold calling lenders is an exercise in futility.

When you call the lender, you’re looking for the individual that deals with “troubled loans” for the asset.

Keep in mind that there could be an opportunity at this point to purchase or broker the distressed note at a discount. Probe for that opportunity with the lender. The discount needs to be substantial as the lien holder may have to fight a protracted battle through the bankruptcy court to gain control of the asset…or the borrower may pay the note holder back at par value. In either case the discount ensure you of a reasonable return on your equity investment. Returns today on investments like this need to be well into the range of double digits (obviously varying with the quality of the asset, cash flow in place if any, risk involved, etc.).

If the lender is a large one you’ll see responsibility for dealing with the troubled loan move from one person to the next, again and again, as the asset approaches forclosure. It takes diligence and a lot of patience to track these opportunities.

Along the way, make yourself a resource to the lender, providing whatever market information and referrals that you can. Be polite, patient and persistent, and you may end up with an amazing deal or a very lucrative listing assignment with a seller that is actually (for once) motivated to sell!

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No, it’s not that REO! (wow, could a band look any cheesier?)

Buying REO (i.e. Real Estate Owned by a bank) does not always guarantee a great deal. In fact, a distressed private seller looking to salvage a little equity might be a more motivated seller than a bank that has already expended the time money and energy to take a property through the foreclosure process and now owns it “free and clear” of any debt. That said, some banks are motivated to move this real estate off their books, and often the property has not undergone cosmetic work that would otherwise make it more marketable.

There’s no reason to pay for or subscribe to a foreclosure service. It just takes more digging. Here’s a sampling of links to lender web sites where REO is listed. I’ve listed commercial and residential property here and I’ve included links to the bulk of the Federal Government REO lists and surplus property sites.

These lenders are nationwide and some may not own property in the area where you are looking. This will take some patient searching.

This list is a work in progress. Check back periodically for updates.

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Archon Group - Commercial
Bank of America - Residential and Commercial
BB&T - Commercial and residential
Capmark - commercial
Chase - residential
Citibank - residential
Compass Bank - residential
Countrywide - residential
CW Capital - Commercial
Department of Veterans Affairs - residential
Downey Savings Bank - residential
Fannie Mae - residential
Federal Deposit Insurance Commission (FDIC) - residential and commercial
First National Bank of Alaska - residential and commercial
Freddie Mac - residential
GMAC - residential
Greenpoint Mortgage - residential
GRP Financial Services - residential
Home Loan and Investment Bank - residential
Homesales.gov - residential
HSBC - residential
HSBC Commercial - commercial
IndyMac - residential and commercial
Kennedy Funding - primarily commercial
Kentucky Housing Corporation - residential
Keystone Asset Management - residential
Lenders REO - residential
M&T - residential
Midland - commercial
National Bank of Arizona - residential and commercial
National City Mortgage - residential
New South Federal Savings Bank - residential
NewBridge Bank - commercial
NRT REO Experts - Residential
Ocwen - commercial and residential
People’s United Bank - residential and commercial in Connecticut
Private Financial Services - residential
PNC Realty Services - commercial and residential
REOTrans - residential
Regions Bank - residential
Security National - residential
Suntrust - residential
Taylor Bean - residential
Trimont - commercial
TRIO - residential (requires free registration)
US Bank - residential
US Department of Agriculture - residential and commercial
US Department of Housing and Urban Development (HUD) - residential
US Department of the Treasury - residential and commercial; includes links to GSA, IRS, Marshall’s Service, SBA and other Federal Real Estate for Sale
Virginia Housing Development Authority - residential
Wachovia - Residential
Wells Fargo - Residential
Zions Bank - residential and commercial

60,000 sf office multi-tenanted office building for sale in annapols.

98% leased. Great “recession proof” investment opportunity.

Leave word below or call 301-455-8840 for more details.

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37,000 square foot warehouse for sale or lease; can be divided down to 5,000 sf units.

In Kenilworth Industrial Park just off or Route 50, two blocks to DC border in Maryland.

Gated fenced highly secure project.

Ideal for food uses being pushed out of DC or any warehouse use needing easy access to MD, VA and downtown via Routes 50 and 295.

Email for a flyer and more details on this offering. To receive details on other opportunities like this one, enter your email address in the field to the right!

Attractive 50,000 sf warehouse for sale or lease near BWI Airport.

Majority of space is fully air conditioned.

One smaller tenant in place.

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Email or Call Chris Kubler at 301-455-8840 for more details or a tour.

NAI KLNB is please to offer a brand new freestanding CVS leased for 25 years in the affluent Washington DC suburb of Manassas, Virginia.

CVS Caremark  (NYSE:CVS, S&PBBB+) is the largest provider of prescriptions and related health care services in the nation. The Company fills or manages more than 1 billion prescriptions annuallyand operates 6,300 CVS/pharmacy stores. The Company enjoys annual revenue of approximately $80 billion.

A fine 1031 exchange or alternative the stock market in this ugly time.

Email for details.

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Langley

NAI KLNB is pleased to offer this 50,000 square foot office warehouse building on 2.13 acres.

Building has two occupants: seller (who will vacate or lease back) and Fortune 500 tenant.

Great cheap building for warehouse user, investor, or office conversion.

Email or call Chris Kubler at 443-574-1415 for more details or a tour.

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NAI KLNB is pleased to offer for lease 6500 to 8500 sf of office/warehouse space available in attractive business complex in capitol heights.

attractive entrances and office in front; warehouse with loading in back.

Email or call Alan Coppola at 443-574-1404 for more information or a tour.

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NAI KLNB is pleased to offer attractive I-2 zoned space in Beltsville, Maryland that features retail exposure!

Suites are available from 3200 square feet and up. 18′ clear ceilings.

Great for users with a an industrial/warehouse use but that requiring retail exposure.

Email or call Alan Coppola at 443-574-1404 for more details.

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KLNB is pleased to offer for sale this 46,800 square foot office/warehouse/production facility.

Currently used as a granite and marble fabrication and distribution facility, it features two overhead cranes (5 ton and 1 ton).

There is land for additional parking or expansion. The roof was replaced in 200. Lots of power, 7 docks and a drive in and 5,400 square feet of office finish.

Great access to DC and the Beltway via Route 50.

Email Chris Kubler for more information.

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A REIT local to Washington DC to check out: dynamite yield and frankly our area is fairly insulated from the national distress:First Potomac Realty Trust (NYSE:FPO): throwing off 7.4% today. I bet I touted this one before, didn’t I?

Owner can sell warehouse space from 3,000 square feet up to 35,000 square feet.

Attractive, modern, tilt up construction at spectacular pricing. Make us an offer!

Rear loaded building with ample doors. Room for trailer storage!

Call Chris Kubler at 301-455-8840 for details.

Attractive one story office building for lease in lovely business park in Upper Marlboro.

Near the intersection of Central Avenue and Route 301.

Call Chris Kubler at 301-455-8840 for more details.

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Small bay warehouse currently leased month-to-month to three automotive tenants.

13,500 square foot building sits on a full acre so lots of parking.

Perfect to continue as an owner-occupied automotive building…or adaptive re-use to church, etc.

Call Chris Kubler at 301-455-8840 for more details.

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This 42,155 square foot warehouse includes excess land that could support parking, outside storage, or an additional 17,000 of warehouse space.

Please email or call Chris Kubler at 301-455-8840 for more details.

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Facing the prospect of an empty building, our owner client has instructed us to find an investor buyer that can close on this rear loaded 36,500 sf warehouse in 2008.

The seller says he wants to see any and all offers. building features ample dock-high and drive in loading.

Please email or call Chris Kubler at 301-455-8840 for more information, a tour, or further pricing guidance.

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NAI KLNB, in its capacity as exclusive agent, is pleased to offer for sale the fee simple interest in an exceptionally well-located office/warehouse building in downtown Washington, DC. 2052 West Virginia Avenue (the “Project”), is a two story building ideally suited for redevelopment or for an owner-occupant.The building contains approximately 36,000 rentable square feet on two levels, with both levels on grade and with ample loading. The Project fronts West Virginia Avenue and is just off of New York Avenue. A hot new nightclub is opening adjacent to the property.

2052 West Virginia Avenue is also contiguous to the 15.5 acre Patriot Yards (formerly a Hecht Company distribution center). Patriot Yards is slated for redevelopment with the most likely scenario involving a mix of retail and office uses.

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NAI KLNB, in its capacity as exclusive agent, is pleased to offer for sale the fee simple interest in an exceptionally well-located office building in Calverton, Maryland. 3901 Calverton Boulevard (the “Project”), is a class A building that totals 122,645 square feet and is 100 percent leased on a triple net basis to Verizon Communications Inc. (NYSE:VZ) through the end of 2008.The offering represents an exciting opportunity for a new owner to create significant value, benefiting from the remaining cash flow from the lease with Verizon while marketing the building for sale (to one ore more users) or for lease (backfilling the building with new tenants at today’s market rent of approximately $14.00 NNN).

We can also lease from 15,000 sf up to 123,000 sf of fully renovated office space at this strategic location.

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We have from 9000 sf to 28,800 sf of showroom space for sale for lease at this building along the Capital Beltway in the Maryland suburbs of Washington DC.

Space includes FREE large sign visible from Beltway.

Email Chris Kubler or call 301-455-8840 for more information or a tour.

The entire building is also for sale. Condo units could be made available too.

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NAI KLNB, in its capacity as exclusive agent, is pleased to offer for sale the fee simple interest in an exceptional retail building in Laurel, Maryland. Pheasant Run Shopping Center (the “Project”), fronts Route 197 just east of the Baltimore Washington Parkway and is ideally suited for an investor looking to create value or an owner interested in occupying a portion of the building.This strip center, built in 1988, contains approximately 19,504 rentable square feet including the main building (which totals 16,901 rentable square feet) plus a freestanding 2,603 rentable square foot laundromat.

The offering also includes 2.8 acres of excess land that is zoned C-S-C and could potentially support a variety of uses including retail, office, or hotel.

For a complete offering memorandum please email Chris Kubler or call 301-455-8840.

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NAI KLNB, in its capacity as exclusive agent, is pleased to offer for sale the fee simple interest in the Catonsville Car Wash (the “Car Wash”), a modern, attractive, strategically-located and highly-trafficked full- and self-service, 24-hour car wash located at 5225 Baltimore National Pike in Baltimore, Maryland.

The offering includes 1.19 acres of land improved by a six bay car wash which is a well-established and extremely profitable business that has been in operation since 2000. The Car Wash comprises four self-service bays, two automatic bays as well as five vacuums, three shampoo machines and five vending machines. Email Chris Kubler or call 443-574-1415 for a complete offering memorandum.

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They never appreciate in value. Never never never. Research research research. buyer beware.

1. Find a tenant that needs space. Find a building to buy. Contract to buy the building, write the lease. Finance based on the credit of the tenant and the cash flow.

2. Buy Veterans Administration homes which can be bought by investors with 5% to 10% down.

3. Get a real estate license. Find a niche with little competition (car washes? Mobile home parks? small multi-family buildings? little strip centers) and excel.

4. Think big. Find a bigger opportunity. Joint venture partners will contribute 95% of the equity required if the deal is a good one and give you much of the upside. It takes as much work to do a big deal as a small one. You do have to bring some expertise to the table to pull this off.

5. Be contrarian. Now that everyone is down on real estate, start thinking about buying it.

6. Look for sale leasebacks: an owner and occupant of a building who wants out but will continue to occupy the building and rent from you.

I touted First Potomac Realty Trust yesterday (NYSE:FPO). If you bought bought FPO yesterday you made about 7% in one day and locked in a yield just shy of 9%. What a roller coaster today!

There is a lot of hype swirling around foreclosures…gurus who imply there is easy money to be made by buying foreclosures.

The most conservative play is to bid on REO (”real estate owned” by the bank) try to get a discount, spruce up and sell. Banks have gotten smarter about their REO and now almost always use agents to market the property widely (where they used to quietly sell the properties to investors they were tight with).

Or you can buy at foreclosure auction which means rolling the dice even more - buying a house without ever seeing inside it.

Whatever method, the truth is you will have to kiss a lot of frogs and weed through lots of market priced houses to find a a great deal. I did well with my first foray into this approach years ago, buying a condo in Washington DC owned by the US Department of Housing and Urban Development (HUD). They post their homes on their website; they contract with a real estate agent that is supposed to list the homes on the multiple list as well. The agent dropped the ball and failed to post my condo; I found it on the web and was probably the only bidder. HUD home bidding is initially open only to owner-occupants so what’s left for investors is somewhat picked-over. If you’re prepared to live in an investment house for a year you might find something interesting.

More interesting to me are homes owned by the Veterans Administration. Ocwen disposes of the homes and the VA offers very attractive investor financing - 0% down for vets and 5% down for everyone else, plus some fees. It’s hard to get so much leverage on investment property anywhere else, especially in this lending climate. check it out.

Despite talk of a market slowdown, there’s clearly still many more buyers of investment property than sellers out there — at least for commercial property.

I get at 5 to 10 calls a week from investors looking to buy.

When I find the “deal of the lifetime,” who do I call?

Obviously someone who has cultivated a relationship with me.

Also, someone who has clearly stated their investment criteria to me.

Investor who call and say, “I’ll look at anything that makes sense” or “show me everything you’ve got” don’t rise to the forefront of my mind when I’m quietly marketing an exciting investment opportunity.

The investor who spells out this criteria garners instant credibility and more attention for me. What do I mean? Tell me :

-the product type/s that interest you (e.g. office, industrial, retail, multifamily, flex, self storage, residential land)

-tolerance for risk and vacancy

-yield expectations

-minimum and maximum deal size

-what you own or have owned

Do your self a favor and think this through. You’ll see more deals from brokers and buy more buildings.

REIT stocks have been hammered of late, some deservedly so. One worth a look is First Potomac Realty Trust (NYSE:FPO). It’s a nice play on one of the strongest commercial real estate markets in the country, ie Washington DC. I’ve sold buildings to them and I am impressed with the principals. The commercial real estate market as a whole is WAY oversold. Things may have slowed down but around here at least market fundamentals are sound. FPO’s dividend has grown nicely and the yield is through the roof right now thanks to the punishment the market has given the stock.

If you just have a handful of your 45 days left to identify replacement property to complete a 1031 tax deferred exchange, are striking out and are going to face a major tax hit as a result, now is the time to consider tenant in common investments (commonly known as TICs).

When you buy a TIC, you get an “undivided” interest in (most cases) a big, sexy asset that you would otherwise not be able to afford.

The upside, you presumable own better real estate than you’d be buying with your six figure chunk of change, You also avoid any management hassles: the TIC organizer (called a “sponsor”) is going to take care of those hassles for you (and make a lot of fees going in, along the way, and going out).

The downside: The fees of course…and a serious lack of liquidity. There’s no one making a resale market for TIC interests (at least no one I know of). Perhaps there’s an opportunity there.

My line of work is primarily marketing industrial real estate in Maryland, Washington DC and Virginia, but never shy about a new challenge, I’m going to be marketing a portfolio of car washes soon. I met with the owner today and learned a lot about the industry. These can be incredibly lucrative investments with fewer management hassles than one might imagine.

Car washes today — in Maryland at least — are trading in the neighborhood of a 10% capitalization rate, or 5 to 6 times gross earnings. These are exciting returns, and significantly more attractive returns than can be found in other commercial product types of comparable age and condition.

Some rules of thumb: Expenses run about 1/3 of gross revenue. Where gross revenue for a self-service bay (i.e., you wash the car by hand) might run $1,500 per month, a first automatic tunnel will generate $12,000 per month gross. You can add more automatic tunnels, but each successive tunnel will generate roughly 1/2 the revenue of the last…so in this example, $6,000 per month for the second tunnel and $3,000 per month for the third.

Third parties will provide equipment maintenance on an hourly basis. The properties need a daily cleaning and someone to collect the quarters every other day. Not particularly management intensive, and no worries about losing a major tenant.

Also exciting is the fact that car washes can be financed with SBA financing - 90 percent leverage, where traditional commercial real estate in today’s market requires a 20% to 40% down payment.

Unfortunately not many of these car washes change hands, and they require personal involvement to collect the money or to find someone particularly trustworthy to collect the money — or risk a lot of quarters “spilling on the floor.”