Archive for the ‘Joint Ventures’ Category

It’s no big deal

Tuesday, September 13th, 2011

I was listening to the news the other day and heard the reporter exclaim that the stock market had dropped another 7 percent in August and cost investors over one trillion dollars.  He went on to report on other news without skipping a beat, like it was no big deal.  One trillion dollars, that comes out to $3,333 for every man, women and child in this country.  Maybe to some people one trillion dollars isn’t a big deal.  Take the US government and our political leaders, for instance, who just approved a federal budget deficit of 1.2 trillion dollars like it was no big deal.  Oh sure, there was political posturing to make it look like it was a big deal but that was all a show to save their political career in the next election cycle.

To put a little perspective on what a trillion dollars is let’s look at the guy on the street working his minimum wage job.  He would have to work 66,312,997 years without spending a penny to earn one trillion dollars.  What’s that you say, he could invest the money and with interest from investments he’d be able to accomplish it much sooner.  Oh, that is true unless he was unlucky enough to have his money invested in the stock market when it lost 7 percent in August.  Just think, if our imaginary guy could have live long enough to earn that trillion dollars and invested it into the stock he certainly would have died of a broken heart when he lost it all in the stock market.

Don’t get me wrong, I believe that over time investments in the stock market can produce profits.  However, I don’t believe that it is wise to place all your investment dollars into one investment vehicle.  Even the talking heads on television speak about diversification, but they talk about diversifying into stocks, bonds and paper and don’t mention other types of investments.  What other investments are out there?  My favorite investment is real estate.  Okay I have to disclose, just like the talking heads make their living form those people who invest in the stock market I make my living from those people who invest in real estate.

But real estate is a different type of investment from those traded in the stock market.  While you can invest in a REIT, a publicly traded company that invests in real estate, you can also invest in a single property with or without partners.  Beginning real estate investors are those people who choose to purchase a home rather than pay rent.  More advanced real estate investors purchase duplexes, apartments, office, retail or industrial buildings.  The beauty about the more advanced real estate investments over the beginning home purchase is that with the home purchase you as the investor are working each day to earn the money necessary to pay off the loan on the property where with the more advance real estate purchase your renter is working every day to help you pay off your loan.  Just think, rain or shine, day after day, week after week, month after month, and year after year whether you are working or not your renter is so that you can pay your loan.

There is the argument that the same thing is occurring when you are invested in the stock market and while that is true, try to go out and place your hands on one thing that you own when invested in a stock.  Let’s say you own shares of Coca Cola, can you walk up to any one item used in the bottling or delivery of that product and say that it is yours.  No, not really because your investment is in the earning potential of that company and not its physical assets.  With real estate you
can drive by that shopping center you have an ownership interest in and actually say that X percent of that center is mine and while today I’m getting rent from the tenants one day my investment group will sell it and I will get my share of the sells proceeds.  Most certainly the price the property is sold for will be much higher than the day it was purchase.  Try doing that with your investments in the stock market.  No big deal you say.  I say, think about the trillion dollars.

Posted in Brokerage, Commercial Real Estate, Joint Ventures, Property Acquisition, Property Development, Property Maintenance, Property Management, Real Estate Consulting | No Comments »

You must kiss a lot of frogs to find a prince!

Monday, March 14th, 2011

In the Brothers Grimm fairy tail The Frog Prince, as a small child I remember the sentence which has been quoted by people often over the years relating that you must kiss a lot of frogs to find a prince.  While these individuals who quoted the line were referring more to someone dating a large number of people prior to finding someone they wanted to spend the rest of their life with, there’s also context within the sentence which can be applied to other facets of life.

 Being in the real estate business I see many different areas where either a customer or a real estate agent must kiss a lot of frogs before finding a prince.  With customers, this is especially true, as they will look at property after property trying to find the perfect building which meets their needs before making a decision on a particular property to submit an offer.  Once an offer is accepted the customer must than look at a large number of lenders trying to find that one lender who offers an attractive financial package with both a favorable down payment amount and loan percentage before making the decision to commit.

 At Katchen Company, my real estate firm, I and my staff find ourselves kissing hundreds of frogs every day.  Being a boutique real estate firm offering the full spectrum of real estate services we engage in a multitude of tasks requiring us to make contact with or review a significant number of opportunities prior to making a presentation or decision.  One example relates to the paragraph above where the customer requires a large number of properties to view before making a decision.  A broker will have to research, in some cases, hundreds of properties before narrowing it down to a manageable few that meets a customer’s parameters prior to a showing appointment.

 Within our office, our operations people will have to research as many as a hundred vendors prior interviewing twenty to thirty and than narrowing the field down to three or four who will make it onto Katchen Company’s approved vendor list.  Further, when pricing out capital expenditures on properties we managed these three or four vendors will all have to submit proposals prior to a decision being made on who will receive the contract.

 Leasing and sales have similar numbers.  In leasing and sales, if a broker receives one hundred calls requesting information on a vacancy they will receive ten requests to show the space and from those showings one person will submit an offer.  Keep in mind that the offer might not be accepted by the owner so this process can continue for some time.

 You must kiss a lot of frogs to find a prince.  Keep that in mind when dealing with real estate and it will make the experience much more enjoyable.

Posted in Brokerage, Commercial Real Estate, Joint Ventures, Property Acquisition, Property Development, Property Maintenance, Property Management, Real Estate Consulting, Recommended Vendors, Residential Real Estate | No Comments »

Figures lie and liars figure

Monday, January 31st, 2011

We’ve all heard the saying, “Figures lie and liars figure’, but normally it is used in conversations about politicians and economists.  However, I’ve found it equally true when dealing with the real estate industry.  It is a tough pill for me to swallow as I make my living through real estate services but I must admit a lot of real estate professionals aren’t being completely honest.  For the record, I want to make it clear that I’m not generalizing that all real estate professionals lie, certainly I don’t.  What I’m saying is that there are a significant number who do.

 My firm, Katchen Company, represents commercial buyer clients as a broker, consultant or joint venture partner.  Through this representation we help our buyer clients with their due diligence necessary to make an educated buying decision.  One of the main documents that are utilized is an Income and Expense recap or a Pro Forma of expected performance for the property.  As you might expect, the listing agents prefer to us a Pro Forma rather than real numbers.  Hum, I wonder why that is?  Obviously, an Income and Expense recap indicates the real income and expense for the property where a Pro Forma indicates the expected performance once a property is purchased.

There are several areas where, “Figures lie and liars figure’, in a Pro Forma document with the most obvious being income.  Properties that are currently receiving rents below market will magically start receiving market rents or even higher at the moment of purchase without loss of rent to vacancy or cost for repairs, tenant finish or commissions.  Speaking of vacancy, regardless of how much vacancy the property currently has it will fare better than the current market the moment it is purchased.  Obviously, the seller does a terrible job of managing the property expenses because the Pro Forma indicates how much the buyer will be able to reduce the cost of property management, utilities, repairs, property taxes and insurance.  All without having to make any repairs to the differed maintenance on the property.  Since they’ve already toyed with the number so far it is not unusual to see the CAP Rate mirror or be lower than the lowest rate being offered for the same type of property.  Please notice that I didn’t say similar quality of property.  I’ve seen Class C properties being offered at CAP Rates only considered for “Investment Grade” properties.

 As you can see, “Figures do lie and Liars figure’.  So what is a person going to do to protect them self when looking to purchase a commercial property.  My best advice is to find an experienced professional for representation.  How will you know if they are no better than the one representing the buyer?  You won’t, but at least you’ll be assured they can play of good hand of “Liars Poker” when representing you in negotiations of the purchase price.

Posted in Commercial Real Estate, Joint Ventures, Katchen News, Property Acquisition, Property Development, Property Maintenance, Property Management, Real Estate Consulting | 1 Comment »

If it walks like a duck and quacks like a duck it must be a duck!

Monday, January 24th, 2011

In the United States at the local, state and national level we are seeing the wide spread use of semantics by our politicians.  A verbal form of smoke and mirrors to deceive the public into believing that these government representatives are being fiscally responsible and that they are reeling in expenses and reducing taxes when all along they are spending more and taking more out of our pockets.  How so you may ask, when taxes have remained flat or in some areas been reduced.  It is through the use of fees for services that were once paid for from the revenues generated through taxes. 

 For example, look at my home state of Colorado where the Tabor Amendment is in place and requires politicians to get voter approval of any tax increase.  The idea of the amendment was to get politicians to live within a budget.  There is very little chance of that happening so the local and state representatives have found a way to increase revenues without having to get voter approval.  They slowly and methodically moved services once covered under the umbrella of property taxes out on their own to stand alone and now charge a fee for the service.  The storm sewer bill that shows up once a year in your mailbox is a prime example of a service that was once paid for through property taxes and is now separately billed as a fee.  Tax … fee; if it walks like a duck and quacks like a duck, it must be a duck.

 As a commercial developer I’m flooded with “fees” on every project attempted.  The politicians call them “Impact Fees” and imply that the “Rich Developer” is putting a burden on the local government in order to benefit themselves economically.  This is readily accepted by the general public who seems to be fine with the money grab as long as it isn’t from them; but it is.  Any costs associated with a development project are passed on to the consumer.  “Impact Fees” add to the cost of developer constructing a shopping center, the retailer will have to pay more in rent in order for the developer to be reimbursed for these expenses and the  consumer will pay more for goods and services so the retailer can recoup the higher cost of rent.  To the developer, retailer and consumer it is an increase in a fee, but is it really a fee.   If it walks like a duck and quacks like a duck, it must be a duck.

 Look at the taxes we now pay and take a minute to think back at what they once covered.  Now look at all the fees we pay today and I think that you will agree.  Fees are taxes; if it walks like a duck and quacks like a duck, it must be a duck.

Posted in Commercial Real Estate, Joint Ventures, Katchen News, Property Acquisition, Property Development, Property Maintenance, Property Management, Real Estate Consulting, Residential Real Estate | No Comments »

One Man’s Opinion

Wednesday, January 12th, 2011

A few years back I got the idea to write a book which I would title One Man’s Opinion.  While I never pursued the idea I had made a rough draft as to what it would contain.  The draft consisted of a laundry list of hot button topics like taxes and immigration and my intention was to write a chapter on each topic detailing my opinion.  Since it was strictly my opinion the content would be neither right nor wrong, just one man’s opinion.

 Yesterday I was receiving training on Social Media from Victoria Wolf of Red Wolf Marketing and she advised me to decide what my voice would be for the company’s social media campaign and to make a committed effort to maintain that voice throughout all venues.  I thought about it for some time and it struck me that while I hadn’t found time to write my book I could certainly use that idea and implement it into the company’s social media campaign.  Thus, in the coming weeks, months and years I will give my opinion on timely business topics and how it relates to real estate in particular.  I will endeavor to entertain, inform and educate through my articles.  If you agree with what I write, thank you; if you disagree with what I write remember that it is just One Man’s Opinion.

Posted in Commercial Real Estate, Joint Ventures, Katchen News, Property Acquisition, Property Development, Property Maintenance, Property Management, Real Estate Consulting, Recommended Vendors, Residential Real Estate | No Comments »