Inventory, Median Price for Single Family Properties in PORTLAND, OR.

“Huge commercial real estate lender may file bankruptcy, heightens meltdown fears”

As more businesses struggle in this economy, it certainly affects their ability to pay what is often their largest expense, rent.  We know several local landlords that have had to forgive rent, lower rent, and still lose tenants. And, when you’re dealing with commercial buildings, their value is all based on the rents they generate.

That loss in value is never good, but it is certainly worse for those that borrowed the money for their building. It affects “the ratio”, or the amount of debt on your property in relation to what it is worth. In the past, this wasn’t as big a problem. You could know that your property was worth less than you owed on it, but that fact was not something the bank wanted to think too much about. Today, with the FDIC making frequent visits to banks, auditing their files and checking their loans, bankers are much more keen to watch these ratios.

So how do you get your “ratio” back in compliance? Simple…the bank calls you up and asks you to write them a check in order to make up the lost value. Ouch! And in the recent real estate market, depending on when you bought or built your building, that check could be a whopper.

So now, your building is costing you more than it’s making you every month, its value is decreasing and picking up speed, and to top it off, the bank wants a huge check.  Some borrowers are saying to heck with this, stopping their payments, and now their banks gets to hire expensive attorneys to go through the foreclosure process so that they can take possession of an almost vacant building which they essentially paid well over market prices for.

You can’t run through that scenario too many times and still call yourself a business. Don’t believe me? Ask Capmark.

Economist says recession may end by November .

Mind you, we’ve seen a 30% increase in the DOW Jones Index since March 9th. Would have been much more impressive to see someone stand up then and say this is the bottom. Now, I realize that the DOW is not the economy. But my sense is that April marked the month that people in business and investment started to exhale. It may have not been the bottom, but it was nice to feel your toes touch the bottom, even if it was a stretch.

But what if you’re the type of guy that would rather buy a mutual fund than a stock? Let somebody else do the math, the management, and base your investment on the strength of their pro forma and analysis. If this is the case, then a 1031 TIC may be for you. In this scenario, you’re not buying a whole piece of property. You evaluate a pro forma submitted by a “sponsor” who is looking to raise a target amount of capital secured by an undivisible interest in a particular property. There is normally a minimum investment amount you can 1031 into the property, and a maximum amount of capital that is looking to be invested. Multiple owners come in through multiple closings. The performance of your investment is usually controlled by a put-call agreement and by aggregating together with the other investors are able to buy a more valuable piece of property than you would normally be able to purchase that, theoretically, may have a higher return on investment than a property of less value. At some point in the future, the property is sold, or your interest is purchased, and the tenants in common 1031 into their next investment.

There are a number of people in Central Oregon putting these kind of investments together. If you would like their names and numbers please contact me. For more information check out http://en.wikipedia.org/wiki/Tenants_in_common_1031_exchange

“The use-your-house-as-an-ATM-to-live-beyond-your-means stimulus is finished, thanks to the recent de-leveraging/crackup in the bond market. The refi game and the bull market in housing it created postponed the consequences of the largest stock-market bubble in history. Though the Fed and the rest of the government succeeded in postponing the fallout from the massive misallocation of capital that took place in the mania, they have also succeeded in compounding and exacerbating those consequences. Even more leverage was created in the system, as we attempted to speculate our way to prosperity. “

The latest edition of Dwell magazine focuses on the future of prefab possibilities. One of the more interesting articles showcases the FlatPak House idea of Charlie Lazor. The design is very impressive, but I was disappointed to see the $200 per foot estimated cost for building the system in my area. That cost includes many things right down to appliances, but does not include site work, permits, utilities, survey, or of course, the land.