Peter Pays Paul

The economic recession has put Pittsburg’s plans to annex neighboring Bay Point on hold and has delayed development of Bay Point’s 50-acre business park. “Currently, Bay Point annexation is extremely low priority for us given the other more important economic issues we are all facing,” said Pittsburg City Manager Marc Grisham.

Economy stalls Pittsburg plans for biz park – San Francisco Business Times:.

Google Inc. has purchased four buildings in Mountain View totaling 240,000 square feet “very recently.”

Google buys four more Mountain View properties – San Francisco Business Times:.

AvalonBay the apartment REIT will be cutting back it’s development projects and staff according to SHARETHIS.addEntry({ title: "AvalonBay To Cut Back On Development, Staff – FOXBusiness.com", url: "http://blog.pmaclennan.com/2008/12/18/avalonbay-to-cut-back-on-development-staff-foxbusinesscom/" });

Almost no segment of New York City’s real estate industry was spared in the Madoff scandal, which may be history’s largest Ponzi scheme: commercial brokers large and small, little-known developers and prominent families like the Wilpons and Rechlers all lost money to Bernard L. Madoff, industry executives say.

Madoff Scandal Shaking Real Estate Industry – NYTimes.com.

Hotels were one of the few commercial asset classes that were overbuilt. As Americans transition from spenders to savers it is likely that vacation plans will be curtailed. Business travel as well may be affected as companies become cost conscience.

The news is already looking bleak:
Calculated Risk: Hotels: Occupancy Rates Keep Falling.

Hawaii Hotel Occupancy Falls 6.5%

Square Feet Commercial Real Estate Blog details some of the difficulties that commercial real estate owners may have if they want to refinance or sell with US Treasuries at such low returns.

Treasury Yields Create Defeasance and Yield Maintenance Nightmare | Square Feet Commercial Real Estate Blog.

I first learned about defeasance in October of 2007. (Not something we use every day.)

The idea behind it is that a mortgage investor wants a guaranteed yield or return for a specified amount of time. If they are repaid early on the mortgage, the yield is affected. In order to maintain the yield a clause is written into the loan that the borrower has to buy a basket of “safe” securities to replace the payments that investor would have received over the life of the loan.

Defeasance was mostly used on CMBS loans. This calculations are so complex that defeasance companies have sprung up to help borrowers accomplish this feat.

With US Treasury yields at low levels, investors have to purchase massive amounts of Treasuries in order to generate a yield to replace their interest payments.

This additional cost limits the ability of an owner to refinance or sell their property.

Office Depot Shuttering 126 Stores, 6 Distribution Centers, and Cutting 2009 Store Opening Plans – CoStar Group

Office Depot is shuttering 122 stores. This is more bad news for retail property owners.

Mortgage Troubles Are Moving Downtown

The NY Times is reporting on the likely increase in defaults of CMBS loans.

Many of these loans were made in a competitive lending market. Underwriters made aggressive forecasts for property income and expenses in order to justify higher loan amounts.

If the buildings miss these targets or lose tenants it may be difficult for them to make the monthly payments on this CMBS debt.

Distress Reliever

The New York Observer has an interview with the head of CB Richard Ellis’ distressed asset team, Spencer Levy. CB Richard Ellis is among the many players that have formed distressed asset teams or funds to take advantage of the incredible buying opportunity in the coming years.

Last week I spent 5 days 8 hours a day in the CCIM 101 course. It was quite an investment of time (and money).

It was worth every penny and minute.

The CCIM course is not for those that are mathematically challenged. (If you hate math, this course will be a challenge.) Much of the course is theoretical and analytical. It is also entirely practical.

The theory and analysis apply to real world situations.

What does CCIM 101 cover?

In the course we reviewed discounting and compounding cash flows, net present value, amortization, and a number of other financial calculations. You will become very familiar with your calculator during the week. (CCIM recommends the HP 10bII Financial Calculator and provides many of the keystrokes in the class text.)

The course briefly covers time value of money, appraisal, taxation, and provides two case studies to bring the calculations and theories to real world scenarios.

You will learn the difference between cap rates, cash on cash returns, internal rates of return (IRR), and capital accumulation and how to calculate each one.

Who should take CCIM 101?

I would recommend this course to commercial real estate professionals that want to provide an advisory service to their clients.

This course can add tremendous value to your clients. It will help you to competently evaluate competing investments and financing scenarios. Then you can advise your client on which is a best fit for their stated investment goals.

This is a great course for leasing agents, sales agents, commercial mortgage brokers, and real estate investors.

What did I take away?

I value CCIM 101 because it is not only, useful now as a hard money lender, but I can use it in my own real estate investments.

I will most likely use this in the short term for discounted note purchases. The discounting calculations will allow me to provide an adequate return on any notes that we buy as a result of the credit crisis.

The instructors were great. They came from different locals in North America and brought a breadth of backgrounds. They were able to convey the material with authority and wisdom that only comes from years of experience.

Calculated Risk has a great summary of what is transpiring in commercial real estate.

Calculated Risk: The CRE Bust: Quick Overview.

Anyone interested in the San Francisco East Bay office market should head over to Jeffrey Weil’s blog.

Jeffrey works for Colliers International in the Walnut Creek office. Read his bio here.

East Bay OfficeTimes.