Bluestone & Hockley | Portland Property Management https://www.bluestonehockley.com Portland Property Management Tue, 21 Jan 2020 20:19:24 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.2 New PointCentral Smart Water Valve+Meter Helps Property Managers https://www.bluestonehockley.com/new-pointcentral-smart-water-valvemeter-helps-property-managers/ https://www.bluestonehockley.com/new-pointcentral-smart-water-valvemeter-helps-property-managers/#respond Fri, 24 Jan 2020 10:00:41 +0000 https://www.bluestonehockley.com/?p=27330 Smart IoT Home Automation Device Monitors Water Usage and Prevents Costly Damages for Property Managers and Residents. PORTLAND, Ore., Jan. 21, 2020 /PRNewswire-PRWeb/ — PointCentral, the recognized leader in enterprise-scale Property Automation solutions for short-term and long-term residential property managers, today announces the integration of Alarm.com’s Smart Water Valve+Meter into PointCentral’s IoT platform to help property managers... Read more ›

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Smart IoT Home Automation Device Monitors Water Usage and Prevents Costly Damages for Property Managers and Residents.

PORTLAND, Ore.Jan. 21, 2020 /PRNewswire-PRWeb/ — PointCentral, the recognized leader in enterprise-scale Property Automation solutions for short-term and long-term residential property managers, today announces the integration of Alarm.com’s Smart Water Valve+Meter into PointCentral’s IoT platform to help property managers prevent costly damage from water leaks in any of their properties and residents be smarter about water usage. Not only does the Smart Water Valve+Meter automatically detect high and low-pressure water leaks, and notify the property manager, it automatically shuts off the water supply when it detects a problem, eliminating the possibility of major structural damage and loss of personal property.

“Damage from water is the #2 most filed insurance claim in the U.S., with the average cost nearly $7,000,” said Sean Miller, president of PointCentral. “For property managers responsible for hundreds or thousands of properties, the risks are enormous. Our new Smart Water Valve+Meter was developed for just that purpose – to minimize their risk. In addition, the water management capabilities of the system allow managers and residents to monitor and report water consumption to help reduce waste and costs.”

As a smart device that is integrated with the PointCentral enterprise-grade automation platform, property managers and residents are able to manage everything from a central experience in the PointCentral website and mobile app – receive notifications of excessive water usage, dangerous temperature drops that may freeze pipes, toilets that run continually, and more. The device is designed to cost-effectively install into a housing unit’s main water line.

The Smart Water Valve+Meter will be available in the second quarter of 2020.

About PointCentral
PointCentral, a subsidiary of Alarm.com (Nasdaq: ALRM), provides short and long-term property managers of single-family and multifamily assets with an enterprise-class solution that monitors and controls Smart Home technology across all properties in their inventory over a best-in-class secure and reliable cellular network – increasing property awareness, reducing operational costs and improving resident satisfaction. PointCentral’s solutions allow property managers to realize operational efficiencies, enhancing the asset for guests and residents. For more information, please visit http://www.PointCentral.com/PR.

SOURCE PointCentral


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4 Tips And Tricks To Save On Your HVAC Expenses This Winter https://www.bluestonehockley.com/4-tips-and-tricks-to-save-on-your-hvac-expenses-this-winter/ https://www.bluestonehockley.com/4-tips-and-tricks-to-save-on-your-hvac-expenses-this-winter/#respond Fri, 17 Jan 2020 10:00:39 +0000 https://www.bluestonehockley.com/?p=27333 The post-Halloween candy feast is over, and, not only might your girth have increased, but the cost of heating your home is about to increase, too. With winter coming on, you’ll want to save on HVAC expenses, especially over the holidays. Take advantage of these tips to dramatically reduce your heating costs as the temperature... Read more ›

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The post-Halloween candy feast is over, and, not only might your girth have increased, but the cost of heating your home is about to increase, too. With winter coming on, you’ll want to save on HVAC expenses, especially over the holidays.

Take advantage of these tips to dramatically reduce your heating costs as the temperature plummets. Whether you have a single-family home—or a vacation rental business with thousands of units under management—the following energy-saving strategies will put some extra padding in your billfold while you—or your guests—stay warm and cozy all winter long.

Close Those Chimney Flues

If you’re planning on roasting chestnuts on an open fire this Christmas Eve, don’t forget to seal the chimney flue when you put out the fire. Keeping the chimney open is like forgetting to close a window all the way. It sucks out the warm air and forces in cold air, causing your HVAC system to work overtime. The same goes for dryer vents!

According to the Ask the Chimney Sweep blog, purchasing an automatic chimney damper system could be the way to go, so you and your guests never forget to shut the chimney flue again. Writing for Ask the Chimney Sweep, Clay Lamb suggests that automatic chimney dampers will soon become widespread, given the rapid adoption of other automatic and smart home tools.

As an aside, families should be aware that keeping the chimney open for Santa Claus isn’t necessary. Santa is magical and will find a way inside your home no matter what. Let’s just hope he’s bringing presents and not a stocking full of coal!

Circulate The Warm Air With Ceiling Fans

You might think ceiling fans are for summertime, but they’re just as valuable for circulating heated air throughout the house. Use the switch on the side of the fan, so they pull air upward to the ceiling and set them on the lowest setting. You won’t feel the breeze, but you’ll feel the warmth as they pull the cold air up and push the warm air down, creating more warmth without your needing to crank up the heat.

This image from Del Mar Fans illustrates how ceiling fans distribute the heat:

Seal Windows And Doors With Caulk, Weather Stripping And Heavy Drapes

Insulation specialists can test the seals around your windows and doors with a thermometer to see if you’re losing heat in these areas, but you can do it yourself by feeling the temperature changes with your hands and body. Homes lose most of their heat from the windows—but this doesn’t have to be the case. Sealing tiny cracks with caulk and weather stripping will shore up the leaks. This guide from Popular Mechanics will show you how to seal up your leaky windows and better insulate your home.

Cover up your windows with heavy drapes or curtains at night—or use thick blankets if you can’t afford drapes. Also, open your drapes when the sun hits the windows to take advantage of nature’s free heating. Following these tips will turn your pad into a cocoon of warmth, and your HVAC system won’t require as much energy for heating.

Invest In A Smart HVAC System

Whether it’s for your family home or commercial rental properties, a smart HVAC system will save you money on heating and cooling costs throughout the year. These systems use the most advanced smart heating and cooling technology available, not only to lower your energy bill, but also to extend the life of your HVAC equipment.

Alarm.com collected and analyzed HVAC data from tens of thousands of apartments and homes to develop this smart HVAC technology.

Here are some of the key benefits you’ll receive by investing in a smart HVAC system from PointCentral:

  • Pays for itself and puts money in your pocket: These systems extend the life of your HVAC equipment by notifying you when maintenance is needed before a more expensive problem arises. They help you save money on heating and cooling costs and will quickly pay for themselves, putting extra money in your pocket each month.
  • Learns your heating/cooling habits for greater efficiency: The smart thermostats use systems to monitor and learn your personal heating/cooling preferences—and automatically adjust themselves to more efficiently keep your home at the temperatures that make you comfortable. You can also program your smart thermostat with heating and cooling maximums, and time the thermostat to automatically reset to base-level heating/cooling levels when you (or your guests) are not at home.
  • Provides easy-to-understand HVAC diagnostics: A smart HVAC system provides detailed graphics and diagnostic information to maintenance personal so they can easily repair and extend the life of your HVAC units, and prevent the inconvenience of HVAC service interruptions.

 

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Lease or own a building for your business? https://www.bluestonehockley.com/lease-or-own-a-building-for-your-business/ https://www.bluestonehockley.com/lease-or-own-a-building-for-your-business/#respond Fri, 10 Jan 2020 18:12:58 +0000 https://www.bluestonehockley.com/?p=27318 About twenty years ago, we had a dream of owning our own building to move our company into.  We scrimped and saved and after three years we purchased a 6000 square foot building.  It was a great building and we owned it for about eleven years then we outgrew it, sold and moved into 13,000... Read more ›

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About twenty years ago, we had a dream of owning our own building to move our company into.  We scrimped and saved and after three years we purchased a 6000 square foot building.  It was a great building and we owned it for about eleven years then we outgrew it, sold and moved into 13,000 square feet of leased space which this year we reduced to 11,000 square feet because with computer efficiencies we got rid of all of our filing cabinets and did not need as much room.  In this article, I will layout the advantages and disadvantages of leasing and owing there are benefits to both.

 Advantages of owning your own building

As you might expect there are many reasons to own your own building.

  • Building your net worth – Typically (not always) * buildings appreciate in value, especially if you hold them over the long term and you are located in a growing area. This value growth then is reflected in your personal financial statement. * Building appreciation depends on the economic cycle and location demand for and quality of a building.
  • Debt reduction – As you make payments on your loan the balance on your loan decreases by the amount of the principal reduction, which increases your net worth.
  • Rent out part of the building – You might have the opportunity to rent out part of your building either to a company you own or to a tenant. This will generate rental income and offset your operating and finance costs.
  • Hedge for the future – As your business grows you have room to grow (in other words you buy a building that is bigger than you need an then you can absorb more space over time).
  • Tax breaks – You can deduct interest, depreciation and building operating expenses, which you can’t do when you lease space.
  • Control – When you own a building you control the use and any tenant improvements in the space, you don’t have to ask a landlord for permission. On the other hand, you have to pay for those improvements as well. You might also have it located close to your home so you can bike to work.
  • Building your retirement – as you build your business you can pay off your building and have it available to either rent out to your business or to others as part of your retirement plan.
  • Marketing – The other benefit of owning your building is that you can install building signs with your corporate name and have all of your customers and potential customers see it increasing your marketplace visibility.
  • Harvesting cash as the building value increases – depending on the loan you have in place (and prepayment penalties), you might be able to refinance and harvest equity growth to buy other real estate or use for continued business operations.
  • Easy to do – Buying a building is not really that difficult if your business makes money, you prepare and pay your tax returns on time.

If you have good credit buildings are pretty easy to buy. You can either finance a building using conventional financing (25 – 30% down) with your bank or credit union or with the help of SBA financing; the government has made getting a loan simple by using an SBA direct underwriter. There are basically two programs, the 504 and the 7(a) and they typically ask you to put down 10 -15% for a down payment and fees. One thing to bear in mind is that you need to occupy 50% or more of the building you are buying.

With an SBA 504 loan, proceeds can be used to buy a building, finance ground-up construction or building improvements, or purchase heavy machinery and equipment. Seven(a) (7a) loan proceeds can be used for short-term or long-term working capital and to purchase an existing business, and building refinance existing business debt, or purchase furniture, fixtures, and supplies.

At-A-Glance Comparison

https://cdcloans.com/lender/504-7a-loan-comparison/

Disadvantages of owning a building include:

  • Down payment – you need to find the money for the down payment, which means you need to have the extra capital available.
  • Partners – If you have partners that don’t get along with you or you with them, do you really want to own a building with them?
  • Qualifying – You and or your partners may not qualify for financing, maybe you had a recent bankruptcy or other credit problem.
  • Capital trapped – If you company is growing very quickly you may need the capital that was used for the down payment and maintenance of the building to help fund your company growth instead it is trapped in the building.
  • Prepayment penalties – These penalties make it hard for you to refinance you building early if you need to use some of the appreciation to help fund your company growth.
  • Reduced rent – The danger in owning a building is that you might subsidize your company operations and not charge yourself market rent, thereby reducing the appreciation in the value of the building.

Leasing a building or part of a building 

Advantages of leasing

  • More liquidity – You have to make lease payments (which uses up cash) like rent payments, but you do need to put a chunk down to buy a building earning you more liquidity and no trapped equity.
  • You have a partner in the building – The landlord is your business partner. This can be a plus. Depending on the lease, the landlord might be making all the repairs to the building (including your lightbulbs), this saves you a lot of time, energy and money, and makes taking care of your space someone else’s problem. Freeing up your time and money for growing your business.
  • Tenant improvements – As you rearrange your business and staff to adjust for your business growth, your landlord might pay for a portion of the tenant improvements of the space – in trade for a longer-term lease. This is a huge expense saver.
  • Flexibility – Most important is that when you lease you have flexibility. If your business grows or shrinks, you can adjust the space you need in a building, something that is more difficult and more expensive to do in a building you own.

Disadvantages of leasing

  • Rent is expensive – When you buy a building you can get fixed-rate financing and can control the expenses over time. This is not the case in space you lease.  The landlord will be looking for annual increases to the rent (unless you are located in a place where this a dearth of tenants and many buildings).
  • Lack of equity growth – The property does not grow in value because you do not own it.
  • Lack of Rental Income – You don’t have the opportunity to lease out the space and make rental income. (Yes, you can sublease space, but you end up paying the landlord the rent, not yourself so no real upside to you).
  • Rent increases – The landlord can choose to increase to a level that is higher than you can afford.
  • Not renew lease – The Landlord can choose not to renew the lease, forcing you to incur significant moving costs when you don’t have the money.
  • Specialty Building – If you have a specialty use, like an aircraft manufacturing plant, or chemical storage, it becomes more difficult to find a building that you can use and you may have to build one and lease it to yourself.

How to make the right decision to rent or to own

As you have noticed making this decision is not simple. Most important is though are the fundamentals.

Primarily, you need to focus on your business making money. Once you have stabilized your business and it has a long term (at least 10 years) future, you should ponder the idea of owning real estate rather than leasing. Owning real estate can help grow your net worth and make banks feel more comfortable lending money to help fund the growth and day to day operations of your company.

That being said, it makes total sense to lease as well, especially when your business is young, or your growth is hard to forecast. Five years after we bought our building, we outgrew it and had to find a building nearby to lease.  As we outgrew that space (conference rooms in basements), we decided to lease rather than own, so we could have a larger space. Many years later we became more efficient in use of our space and we shrank down. This was easy for us to do since we leased the space rather than owned it and we had a cooperative Landlord. We used the equity from the building we owned and decided to buy investments separate from our company.

As you home in on this decision, look at both the long term and short-term view for your business.  Clearly owning real estate will help your net worth grow, the question is, does that decision fit into the business plan for your company. Additionally, if you have partners and involve them in real estate investments, it gets much more complicated as they have issues in their personal life (like bad credit events, illnesses, and divorces) that might affect your partnerships.

Take your time making these decisions. Involve all your advisors, lenders, CPA’s, attorneys and real estate agents as you try to get to the best decision for you, your family and your business to find success as you make your decision. You can always change your mind as your business and life situations change.

By Clifford A. Hockley, President

Bluestone and Hockley Real Estate Services

*Cliff wrote a book called “Successful Real Estate Investing: Invest Wisely, Avoid Costly Mistakes and Make Money” … you can find it online HERE!


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What Keeps Multifamily Investors Up at Night https://www.bluestonehockley.com/what-keeps-multifamily-investors-up-at-night/ https://www.bluestonehockley.com/what-keeps-multifamily-investors-up-at-night/#respond Fri, 10 Jan 2020 10:00:04 +0000 https://www.bluestonehockley.com/?p=27327 “When properties are trading at such low cap rates owners need to be right about their assumptions.” Berkadia surveys its mortgage banking and investment sales experts every year to see what issues are at the top of their minds. It also does an internal survey of prospective clients, which it doesn’t publish. This year’s results... Read more ›

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“When properties are trading at such low cap rates owners need to be right about their assumptions.”

Berkadia surveys its mortgage banking and investment sales experts every year to see what issues are at the top of their minds. It also does an internal survey of prospective clients, which it doesn’t publish. This year’s results for the latter were surprising as the twain definitely did not meet.

“We asked them the same question as we did our brokers—what major trends impacting multifamily financing are on your radar for this year—and access to debt, which was among the top concerns for brokers, was the last thing clients were concerned about,” Ernie Katai, executive vice president and head of Production at Berkadia, tells GlobeSt.com.

Instead, their number one concern was property-level cash flow, he says. “It makes sense of course. When properties are trading at such low cap rates owners need to be right about their assumptions.”

As it happens, Berkadia’s 2020 Outlook Powerhouse Poll, which will be released this week, identifies several trends that can move the needle on borrowers’ assumptions.

Concerns about rent control are one example. That can make it very hard to value a property, Katai says. So far such problems have remained at bay. “What has happened with the legislation is that it has allowed for rather large increases, such as around 7%. The fear in the industry is that at some point it could be ratcheted down to 1-2%.”

From the perspective of investment sales brokers and mortgage bankers, interest rates and the upcoming presidential election are expected to have the greatest effect on multifamily investing and financing in 2020, with interest rates (86%), the 2020 presidential election (44%) and GSE reform (41%) as the top three. For trends impacting multifamily investing, investment sales brokers ranked interest rates (77%), the 2020 presidential election (63%) and debt underwriting (40%) as the top three factors.

GSE reform, to state the obvious, has the potential to lead to significant changes for multifamily finance. For this year, the agencies have a scorecard to follow, Katai says, but as they get better clarity about the path ahead their lending strategies could change. “There is a certain cautiousness that comes with that.”

It’s not all bad news. Katai also says that the continued uncertainty around GSE reform has “paved a wide, prosperous road for institutional investors and other nontraditional lenders to enter the industry.”

Debt funds, for example, are becoming more creative. “Also I think we will see more out of life companies, such as more diversity with product offerings like bridge transactions. Everyone is coming to the table in agreement that they have to be smart and creative.”

The poll was conducted in December 2019 of over 150 Berkadia investment sales brokers and mortgage bankers across 60 offices.

Erika Morphy

Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region, and national topics. She’s a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.


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Dear Pam, what do our homeowner association dues cover? https://www.bluestonehockley.com/dear-pam-what-do-our-homeowner-association-dues-cover/ https://www.bluestonehockley.com/dear-pam-what-do-our-homeowner-association-dues-cover/#respond Mon, 06 Jan 2020 22:46:29 +0000 https://www.bluestonehockley.com/?p=27311 Dear Pam, We are new homeowners and this is our first time living in an HOA. Can you please explain what our monthly association dues cover?  That’s a great question and one that we often find ourselves reviewing with new homeowners. Your HOA dues cover a wide range of expenses, and this will vary depending... Read more ›

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Dear Pam,

We are new homeowners and this is our first time living in an HOA. Can you please explain what our monthly association dues cover? 

That’s a great question and one that we often find ourselves reviewing with new homeowners. Your HOA dues cover a wide range of expenses, and this will vary depending on the approved budget items and amenities within your community. All associations have operating expenses and in addition, they set aside money in a reserve account for future capital expenses and repairs.  The operating account covers the day-to-day expenses and they include such things as contracted services (landscaping), common utilities, common insurance, association amenities (pool, clubhouse, etc.), and maintenance and repairs to common areas. In addition, it is a State requirement to have a reserve account and save money to properly maintain all building aspects as the components reach their life expectancy and to protect against any unforeseen emergency repairs.

Best,

Pam

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Americans bought more stuff online this holiday season; e-commerce sales jump 18% https://www.bluestonehockley.com/americans-bought-more-stuff-online-this-holiday-season-e-commerce-sales-jump-18/ https://www.bluestonehockley.com/americans-bought-more-stuff-online-this-holiday-season-e-commerce-sales-jump-18/#respond Fri, 03 Jan 2020 20:03:49 +0000 https://www.bluestonehockley.com/?p=27303 If you did some holiday shopping this year, there’s a good chance you made purchases online. Americans spent more online in the weeks leading up to Christmas this year, despite a shorter holiday season. Overall, seasonal shopping from Nov. 1 to Dec. 24 was up 3.4% over last year, with online sales swelling 18.8%, according to Mastercard SpendingPulse, which tracks spending trends.... Read more ›

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If you did some holiday shopping this year, there’s a good chance you made purchases online.

Americans spent more online in the weeks leading up to Christmas this year, despite a shorter holiday season.

Overall, seasonal shopping from Nov. 1 to Dec. 24 was up 3.4% over last year, with online sales swelling 18.8%, according to Mastercard SpendingPulse, which tracks spending trends.

Online sales hit a record high, according to the report, released Thursday. It found clothing, accessories, and electronics to be the primary drivers behind the e-commerce boom with specialty apparel sales jumping 17%. Jewelry sales increased 8.8% and electrics sales grew 10.7% over last year.

“Due to a later than usual Thanksgiving holiday, we saw retailers offering omnichannel sales earlier in the season, meeting consumers’ demand for the best deals across all channels and devices,” said Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks, in a statement with the report.

Amazon took advantage of big shopping days like Cyber Monday and Black Friday by offering customers “deeper discounts and more deals of the day than ever before,” the company said in a press release revealing its holiday sales results.

Amazon said billions of items were ordered worldwide, and the number of products delivered with free one-day and same-day shipping nearly quadrupled in the U.S. Amazon called the holiday season “record-breaking,” and it said it sold more than half a billion items in its brick-and-mortar stores.

The best-selling items on Amazon.com included the company’s Echo Dot, Fire TV Stick with Alexa Voice Remote and Echo Show. Robot vacuums and apparel were also popular choices among shoppers.

“We are pleased to present our interim sales results for this important season, which reflect improved global trends compared to previous quarters this year,”  said Alessandro Bogliolo, CEO of Tiffany & Co.

Follow Dalvin Brown on Twitter:@Dalvin_Brown. 

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Hope for the Homeless Foundation https://www.bluestonehockley.com/hope-for-the-homeless-foundation/ https://www.bluestonehockley.com/hope-for-the-homeless-foundation/#respond Sun, 15 Dec 2019 18:03:36 +0000 https://www.bluestonehockley.com/?p=27295 It was a Saturday night, like any Saturday night in Portland, Oregon.  The roads were clear, and it was 50 degrees out. We were invited to a special meeting of friends. A group that has wanted to see if they can have a positive impact on the city of Portland’s homeless crisis. As we showed... Read more ›

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It was a Saturday night, like any Saturday night in Portland, Oregon.  The roads were clear, and it was 50 degrees out. We were invited to a special meeting of friends. A group that has wanted to see if they can have a positive impact on the city of Portland’s homeless crisis.

As we showed up just on time, we found out many more people showed up than they expected, and they needed more chairs. The room was packed with over fifty people who all indicated by their presence they were “mad as hell and did not want to take it anymore.” The homeless problem has become hugely challenging, especially in downtown Portland.

This meeting had been called to see if we were interested in supporting a different approach to battling the homeless crisis in Portland. The president of this 501(c)3 not for profit organization, Doug Marshall, a commercial mortgage broker, and his wife Carol have spent the last 25 years helping the homeless and have envisioned a new way to try help solve this problem through the Hope for the  Homeless Foundation (HHF).

For most of us it’s difficult to know which organizations are doing a good job helping the homeless return to stability. Recognizing this problem, HHF’s plan is to evaluate grassroots organizations and pick the best ones to financially support.  After vetting the organizations, those who financially contribute to HHF will vote on an annual basis, to decide which organizations they choose to receive funding.

The challenge is overwhelming, and the bar is high, and Doug asked all of the people at the event to donate a minimum of $1,000 to create a strong showing and help develop a dynamic funding base. He also asked all of us to spread the word of this amazing organization.

Julie and I do not typically send out requests like this to our clients and friends but felt that this organization, one that we support, might be worth your looking into.  So, we decided to take this space usually reserved for market updates to share information regarding this foundation.

You can play a role in helping deliver hope to homeless families in Portland.

With increasing rents and the cost of living, many people with less opportunity and fixed incomes have landed on the streets and not found a safe place to live. They need our support. I respect the fact that we have been fortunate and ‘there, but the Grace of God go I.”

Julie and I urge you to review the rest of the information in this December 2019 Quickfacts which relates to more information about the foundation and sends you to a link to the foundation website.  Doug and Carol and the board of Hope for the Homeless Foundation (HHF) are seeking people who want to help reduce the number of homeless and help resolve the homeless crisis by supporting their innovative approach to the problem.

When you get there, consider helping in any way you can. Thank you for considering this organization in your charitable giving plans.

Happy Holidays,

Cliff and Julie Hockley and the Bluestone and Hockley staff.

 

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Fed’s Interest Rate Policy Has Little Impact on Lending Activity https://www.bluestonehockley.com/feds-interest-rate-policy-has-little-impact-on-lending-activity/ https://www.bluestonehockley.com/feds-interest-rate-policy-has-little-impact-on-lending-activity/#respond Fri, 13 Dec 2019 23:16:45 +0000 https://www.bluestonehockley.com/?p=27287 Most commercial real estate lending is indexed over the five- and 10-year treasury bills. The Federal Reserve’s recent interest rate cuts have sent a surge of excitement through the commercial real estate market. Rates have returned to 2018 lows, however, Metro Group Realty Finance says that the Fed’s interest rate reductions have little to do with financing... Read more ›

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Most commercial real estate lending is indexed over the five- and 10-year treasury bills.


The Federal Reserve’s recent interest rate cuts have sent a surge of excitement through the commercial real estate market. Rates have returned to 2018 lows, however, Metro Group Realty Finance says that the Fed’s interest rate reductions have little to do with financing activity, because most commercial real estate lending is indexed over the five- and 10-year treasury bills.

“The recent Federal Reserve reduction in the Federal Funds Rate has little to do with velocity of investment or financing of commercial real estate,” Patrick Ward, President for Metro Group Realty Finance. “The cost of capital for commercial real estate lending, for the most part, is indexed over the five- and ten-year treasury bills. The treasury bills are a global instrument affected by worldwide geopolitical events, not necessarily United States monetary policy. The spread ranges from a low of 1.6% to 2.50% for most properties and continues upward above 2.50% based on the risk profile of the property.”

Financing activity is tied to these factors, which have put rates in a range od 3.6% to 4.25%. “This is still considered an attractive cost of capital, and in many cases, provide positive leverage,” says Ward. “For example, we recently funded a $15 million loan on a large multi-tenant industrial building in the city of Commerce. The loan was a conservative loan-to-value, so we were able to provide a loan price at 1.42% over the ten-year treasury. By taking advantage of the low-interest rate environment, we locked rate when the ten-year T-bill was at 1.70% for an all-in rate of 3.12% fixed for ten-years.”

As a result, Metro Group doesn’t expect the Fed’s reduction in interest rates to have a major impact on loan volumes and financing in 2020; however, the low interest rate environment will continue to fuel strong activity. “Every source of capital that we work with has ample capacity and is expecting increased allocation of proceeds for commercial real estate lending in 2020,” says Ward. “The Mortgage Bankers Association Economic Forecast projects a slight decrease in volume to 1.90 trillion from 2019 projected volume of 2.06 trillion.”

By Kelsi Maree Borland | November 27, 2019 at 04:00 AM


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Occupiers Opting to Buy Real Estate to Avoid Rent Increases https://www.bluestonehockley.com/occupiers-opting-to-buy-real-estate-to-avoid-rent-increases/ https://www.bluestonehockley.com/occupiers-opting-to-buy-real-estate-to-avoid-rent-increases/#respond Fri, 06 Dec 2019 16:40:26 +0000 https://www.bluestonehockley.com/?p=27280 With average asking office rents across the country up nearly 20% over the past five years, many occupiers are seeking alternatives to leasing space. One option to circumvent paying high rents is for a business to invest in its own building, which entails additional benefits of portfolio diversification and avoiding the need to recognize a... Read more ›

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With average asking office rents across the country up nearly 20% over the past five years, many occupiers are seeking alternatives to leasing space. One option to circumvent paying high rents is for a business to invest in its own building, which entails additional benefits of portfolio diversification and avoiding the need to recognize a lease obligation on its balance sheet as required under Financial Accounting Standards Board (FASB) regulations.

While many variables affect overall occupancy cost, leasing tenants’ interest in the benefits of property ownership is probably keenest in high-rent markets. San Francisco now has the most expensive rents ever, with an average asking rate of $83.02 per square foot in the third quarter. The only other market with a rental rate that came close to San Francisco’s was New York at $80.24 per square foot.

With New York, San Francisco and other major urban centers pricing many tenants out of their markets, the suburbs are getting a lot of attention. In some desirable submarkets including Oakland, California, rents are trending toward being out of reach for some businesses. Recently, Bay Area Rapid Transit (BART) was leasing its headquarters at 300 Lakeside Drive in Oakland with a base rent of $34 per square foot, plus operating expenses of about $6 per square foot. That lease expires in 2021, and although BART had the option to extend the lease for two additional five-year periods at 90% of fair market value, its rate would be an estimated 60% increase.

To mitigate this exposure in the future, the agency purchased a recently renovated building in Oakland for $142 million, or $568 per square foot. This is not a new approach. Major companies that have purchased buildings for their own occupancy include Salesforce ($637 million or $780 per square foot in 2015), Juul ($397 million or $1,147 per square foot, 2019) and Zynga ($228 million or $340 per square foot, 2013). In addition, Google, Facebook and Apple have spent billions building their own corporate campuses.

For the firms in these examples, it made more sense to invest in themselves and purchase their buildings instead of leasing. The investments have helped to insulate them from the market trends and created an opportunity to save money they would have spent on escalating rent over the long term. This approach allows these owner-occupied assets to be unaffected by new FASB standards governing the treatment of real estate leases.

Accounting advantage

The new rules, which took effect in 2018 for public companies and in January 2019 for private firms, require that lessees list any lease longer than 12 months on their balance sheets as both an asset and a liability. With this change in the FASB rules, rent obligations are no longer considered an expense reported off the balance sheet.

As a result, more companies will struggle to build credit, since debt ratios will appear inflated. In addition, due to the differences in the way lease-related assets are treated under both generally accepted accounting principles and for tax purposes, deferred tax assets and liabilities may be directly affected.

Today’s low interest rates add to the appeal of purchasing buildings for owner occupancy. Borrowing costs are significantly lower than they were 10 to 15 years ago.

Just as we are seeing some companies shift their attention from urban centers to the suburbs in search of locations offering more affordable operating costs, we are also seeing more companies look at purchasing buildings rather than pay the often-higher costs of leasing.

As in the residential market, timing matters. Many companies that bought earlier this decade are now cashing out and taking advantage of market pricing. Zynga, for example sold its headquarters South of Market for more than double its 2012 purchase price. It will, most likely, again look to purchase in a lower-priced market.

While the case can usually be made for small and large businesses alike to consider owning their commercial property, today’s economic climate makes the idea especially attractive. As a wealth creation strategy, it might be tough to beat for a long time.

As the Research Analyst for Transwestern’s Walnut Creek, Calif., office, Jerry Milenbach tracks local, national and global market trends to deliver acute analysis and creative insight for all service lines.

Translations Blog

By Jerry Milenbach

November 13, 2019


 

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