Archive for Commercial Real Estate News and Articles
Real Estate: Banks, Dubai And The Black Swan
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Greetings from New Mexico….
I found out today that New Mexico is not LAST in everything. We are first is DWIs as well as the first state to adopt a Real Estate Recovery Fund…which has now been adopted by most states. So…yes…we do have pride in being first….or maybe we have pride in being last?
Anyway…
Quick thought….
A while back I was reading a book by Nassim Nicholas Taleb called The Black Swan. Great book by the way. Anyway…I remember Mr. Taleb talking about banks and how over the years…the banks have gotten bigger all over the world (smaller banks being absorbed by the big ones). What was more interesting was how he stated that all the banks are tightly connected in a dangerous way. More specifically, how if one big banks goes down how it impacts all the other banks.
Now…we all saw this when big banks started failing in the United States….but have we really been impacted by failing banks in other parts of the world? I am sure we have in one form or another…but what is happening in Dubai brings Mr. Taleb’s words back to life. If…by some chance the ordeal with Dubai explodes. Will we see another big bank fall? Which we all know is possible. If another big bank falls…what will be the impact to us Americans? ….to the world?
I am sure I am showing my ignorance…but in the big picture of things….I do know this is a dangerous situation. Chances are someone will save the day ….for now….but I am sure we have not heard the last of this situation.
Read more here on the situation in Dubai:
Dubai Scrounges for Cash as New Deadline Looms
Until next time…..rob
Commercial Real Estate Financing – Lending Basics: Servicing
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So many lenders! But who is lending? Group picture from CIY in Southern, CA
Greetings from the metropolis of Cedar Crest, NM. I am back from a fun-filled week in Southern California with my youth group. Twenty three young adults and four adult leaders (including myself) attended a week-long CIY MOVE (www.ciy.com) event that was mind blowing. Again, just like when I returned from Bolivia this summer, I am returning home a little more different then when I left. I am seeing things, myself, and everything for that matter….differently.
Anyway…..
Today’s topic is a continuation of financing commercial real estate investments. We are trying to give you a very basic understanding of the “lending” side of things with regards to buying commercial real estate.
So…….
There are several aspects to obtaining financing for the acquisition of a commercial property. This post will focus on the duties of a servicer and outline this person’s crucial role in the commercial lending process.
What does a loan servicer do?
A commercial loan servicer is an entity that collects, monitors and reports loan payments, handles property taxes, forecloses on 
defaulted loans, handles late payments and manages insurance escrows. Many commercial lenders also service their own loans. However, some lenders only originate and fund loans and then sell the loans to a servicer to handle the maintenance issues of the loan until the entire debt obligation is fulfilled.
How are loan servicers paid?
Loan servicers make money from small fees attached to payments made on loans. The fees usually are .5% or less of the periodic interest payment. This means that if a mortgage balance is $200,000 and the servicing fee is .5%, the servicer can retain ((.005/12) x 200,000)=$83.33 of the next payment before passing the rest of the payment to the loan note holder.
Loan servicing is traded in the secondary market like mortgage-backed securities. Servicing strips, which are securities created from cash flows resulting from servicing fees, are the commodities traded. These strips are used for valuation of the security when traded on the market.
What can my servicer do for me?
It is important to know who will be servicing your loan when you are in the process of obtaining financing. By understanding your potential servicing partner’s policies, you can develop the right financial planning strategy. For example, if your lender does service the loans they make, they may have more lenient policies for prepayment or delinquencies because they will want to retain you as a client for future deals or refinancing. Lenders who do not service their own loans may not know the full servicing 
policies of the companies they sell their loans too. If you are obtaining a loan that may need to be refinanced in a few years, it is important to know what options you have.
I hope you are learning from our blog. Please be sure to register to get our free video series on investing in commercial real estate.
Until next time……rob
Commercial Real Estate Property Spotlight: Investing in Office Buildings
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Office space? Let's just go play and eat candy!
Greetings from ‘the border town” of El Paso, TX! Last day in the “sun city” then off to the mountains of New Mexico for a few days….where I make my way to the CIY conference in California. I am taking my youth group to LA for a week-long conference which I know will be a blast. Looking forward to my travels. I will be connecting with some of the crew that went to Sucre, Boliva with Food For The Hungry….so I am really excited to go.
Anyway….
I visited almost most of my assets in the El Paso, TX area and I have a mixed bag of thoughts. Although, overall, occupancy is over 95% in my retail centers. I have one shopping center that is experiencing higher than normal vacancy. Which seems to be impacting the area as a whole. In the same area, I have a smaller center where the existing tenant is doing very well and I have a new restaurant moving in. The TIs (Tenant Improvements) are being done and the restaurant should be open for business in a couple months. But I digress.
Today’s post is about office buildings. Office space as an investment is an odd bird. Actually it is a straight forward investment when it comes to commercial real estate. Everything is done in “square feet” which is simple enough BUT office buildings tend to react to market cycles much more strongly than other assets. That is not to say that they are a higher risk category such as industrial. Office space, in my experience, is more of a “knee-jerk reaction” segment when the economy slows. Disagree? Let me know your opinion. If it is a good comment, I will post it.
Investing in Office Buildings
This is the next post in a series that will highlight the different types of properties available to investors. The posts are an overview of general information. As with all investments, you should properly research the opportunities to determine whether
they fit your portfolio.
What are Office Buildings?
Office buildings are properties that lease spaces in which companies or individuals conduct business. Office buildings may be anywhere from 500 square feet to multi-floored skyscrapers. Some spaces lease only to one tenant and others to many.
What Do I Need to Know About Investing In Office Buildings?
Office buildings can be a very efficient way to build your wealth, but you need to do your research to find the right opportunity for you.
Office buildings are divided into three categories: Class A, Class B and Class C. Class A properties are superior to Class B and C; Class B properties are superior to Class C. Class A properties attract the best tenants, are in the most desirable locations and offer the best amenities to tenants. Class B properties offer lower rents but still provide aesthetically pleasing spaces. Class C buildings are more functional than pretty and often are older.
According to real estate lawyer, Joseph Velez, “in the eyes of commercial lenders, office properties are seen as having less risk than other types of investment properties. For this reason lenders have more leeway in terms of Loan To Value and down payments. Loan to Value may be as high as 97% accompanying only 3% down and strong qualifications.”
Like most commercial real estate, valuation stems from actual and potential income. This means that the property’s value is directly related to the amount of income it can generate. If you have high quality tenants and profitable lease terms, the value of the property will be greater.
What Is Different About an Office Space Lease Versus a Multifamily Lease?
Office space leases offer more creativity. Most office spaces provide either triple net leases “NNN”, gross leases or a modified 
gross lease. According to investorwords.com, the leases are defined as:
• NNN Lease: A property lease that requires the tenant to pay rent, taxes, insurance and maintenance expenses.
• Modified Gross Lease: A property lease that requires the tenant to pay rent and requires the landlord to pay all expenses relating to property operations.
• Gross Lease: A property lease where the landlord pays all expenses normally associated with ownership including utilities, repairs, insurance and taxes.
Obviously, an investor will make more money from NNN leases. Please see our earlier posts about leases for more information. Depending on state laws, landlords may be forbidden from offering NNN or modified gross leases.
In Conclusion
Office Buildings are a common addition to many investment portfolios. If you are considering investing in an office building, take the time to tour other properties in the market and look at each building’s performance. And, as always, if you have questions, contact the experts at The Real Wealth Company.
Until next time…..rob