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> News of the day < A Department of Housing and Urban Development (HUD) proposal relating to the Real Estate Settlement Procedures Act (RESPA) “would result in significant increases in home purchase costs and undermine critical financing support at a time of severe mortgage and housing market turbulence,” according to the nation’s home builders. |
American International Group Inc., selling assets to repay a U.S. government loan, may seek buyers for some of its $16 billion in global real estate holdings.
The largest U.S. insurer, which agreed last week to an $85 billion federal loan to stay afloat, may find eager buyers for property it owns in more than 30 countries and 14 U.S. cities. In Manhattan alone, it controls three office buildings with 2 million square feet.
“Many of AIG’s properties could be trophy properties that don’t come up for sale very often,” said Ray Torto, Boston- based global chief economist for CB Richard Ellis Group Inc., the world’s largest commercial real estate broker. That could spur interest from multiple bidders, he said.
AIG’s plans to sell assets comes as demand for real estate slumps and banks hoard cash, creating hurdles for investors seeking financing. U.S. commercial prices fell 9.7 percent in July from a year earlier, according to the Moody’s/REAL Commercial Property Price Index released yesterday. The index is 11.4 percent below its October 2007 peak. The number of transactions fell 28 percent in the first half from a year ago.
Company investors may demand a shareholder vote on the federal loan plan, according to a person familiar with the situation. The investors, trying to derail the U.S. takeover, decided at a meeting yesterday in New York City to ask for financial data from the company, said the person, who declined to be identified because the talks were private.
Quality Businesses
Chief Executive Officer Edward Liddy told CNBC yesterday the insurer’s plane-leasing unit will be “an interesting business to sell.” Liddy said on Sept. 18 a decision on unit sales will be made “within weeks.”
AIG rose as much as 21 percent in New York trading today. The company may get $115 billion selling all of its units, analysts at Credit Suisse Group AG said today in a report.
“AIG has plenty of high quality businesses potentially for sale,” analysts led by Thomas Gallagher said. The insurer’s overseas life insurance and U.S. retirement services units are the most “coveted” businesses, he said. AIG’s foreign life insurance division could sell for more than $60 billion before taxes and its U.S. life and retirement companies may fetch $25.2 billion. The company’s aircraft leasing unit could sell for $3.4 billion before taxes, he said.
Acquiring Property
AIG has borrowed about $28 billion, the Federal Reserve said on Sept. 18. Company spokesman Nicholas Ashooh declined to comment for this story.
New York-based AIG, founded in Shanghai in 1919, amassed a global roster of real estate under the leadership of former CEO Maurice “Hank” Greenberg. In his 38 years leading the company, Greenberg built AIG into a sprawling enterprise that now sells life insurance, annuities, leases aircraft and manages $137.1 billion in client assets in its investments unit.
AIG acquired properties as the company grew, buying and building in major international capitals. The company also created a property investment unit, AIG Global Real Estate, to invest in and develop office, industrial, residential, retail and hotel properties around the world.
“I’m sure that selling off the real estate assets would be one of the first steps in that,” Eric Fitzwater, senior analyst at SNL Financial in Charlottesville, Virginia, said of AIG’s efforts to pay off its debt. “That’s an easy thing to put up for sale.”
New York Holdings
AIG owns its headquarters at 70 Pine St. in lower Manhattan. The 66-story building in the financial district was finished in 1932 and has about 775,000 square feet, according to Emporis.com, a database of tall buildings.
Lower Manhattan office building prices have fallen this year from their peak in 2007, according to data from Real Capital Analytics, a New York-based research firm that tracks commercial real estate pricing.
Prices for the 13 buildings sold to date averaged $442 a square foot, down from $504 a foot for the 26 buildings sold last year. Still, the 2008 average is almost twice the $222 a square foot that buildings traded for in 2004. At $442 a foot, the 70 Pine building would sell for about $343 million.
`Brilliant’ Conversion
If AIG sells the headquarters building, the buyer probably won’t use it for office space, said Dan Fasulo, managing director at Real Capital.
“I see that as a brilliant residential or hotel conversion,” Fasulo said. “I don’t think they’ll have a hard time finding a buyer for that asset.”
The building “just doesn’t have the efficiencies of a modern office building,” said Fasulo, who declined to speculate on how much the building may fetch.
Residential real estate developers have flocked to lower Manhattan and are constructing new luxury condominium towers or renovating former office buildings into apartments. Jeweler Tiffany & Co. and Bayerische Motoren Werke AG, the largest maker of luxury autos, have opened in the area.
AIG also owns 72 Wall St. and 175 Water St. in addition to 70 Pine, according to the company’s annual report. AIG owns about 2 million square feet of space in New York, said Richard Economou, a senior vice president in the New York office of UGL Equis, a commercial real estate firm.
AIG listed “real estate and other fixed assets, net of accumulated depreciation” of $5.7 billion at the end of June, according to a quarterly filing with regulators. A financial supplement on the company’s Web site lists $10.3 billion of real estate listed under “total AIG other invested assets.”
Client Assets
Separately, the real estate investment group had $11 billion in client assets under management at the end of June, according to the AIG Investments Web site. The real estate division started in 1987 and has more than 500 employees with more than 35 offices worldwide.
The unit has also closed 12 real estate funds that invested globally, including in North America and Asia.
In Tokyo, AIG owns a 15-floor building in Marunouchi, Japan’s most expensive business district.
AIG also owns at least 101 billion yen ($950 million) of properties on the balance sheets of five insurance units in Tokyo, according to annual reports of the company’s insurance subsidiaries.
The Tokyo office market has stumbled this year, as office vacancies rose for the seventh month in August. That’s the longest period of increases since June 2003.
Government Loan
The Federal Reserve is providing a two-year loan that will give AIG time to sell assets “on an orderly basis,” AIG said in a statement last week. The company almost was forced into bankruptcy after credit rating downgrades sparked a liquidity squeeze.
AIG’s woes came as Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection on Sept. 15. Lehman owns at least $15 billion of property assets in Europe that are for sale, according to PricewaterhouseCoopers LLP, the administrator in Europe of the insolvent U.S. investment bank.
AIG’s partners on some ventures may be interested in buying out the company’s interest at a discount, said David Neff, a partner in the Chicago office of law firm Perkins Coie LLP. AIG’s task will be to sell real estate assets at reasonable and not fire-sale prices to raise cash and pay off debt.
“They’re going to be looking, as far as real estate assets, presumably to do what Lehman is doing, which is to raise money and to avoid having to give away the store,” Neff said.
Fanciful titles, wide exposure in the media and etc. Are these important factors when choosing your mortgage consultant, broker or advisor?
Titles
No need to look for an advisor with a fanciful title. However, his or her title should indicate that they are the one for the job. No use looking for a “Mortgage Underwriter” when what you need is something like a “Mortgage broker” or a “Mortgage Consultant”.
Behavior
Look at how your advisor conducts himself. You do not want a consultant who keeps downplaying other firms or advisors. It is a strange behavior for a professional to have this type of conduct. Is the advisor trying to hide something about himself while shifting your focus on the inadequacies of others? I will be careful if I am dealing with these types of people.
Service
Look, you are trying to get a housing loan for your house. What you need is a mortgage consultant to advise you on the rates. You do not want a consultant to come over to you and force down some mortgage down your throat. A good service allows you to digest the information and make a good decision. A good service does not mean that he or she makes the decision for you or tries to force some thinking into your mind. If you feel uncomfortable with his services, feel free to look for another.
Experience
This is a lot harder. How are you really going to know if your mortgage consultant is experienced a not? Are you going to look at his age, looks, or certifications? A good consultant will be one that is referred to by your friends and those around you. They would have used his or her service and must be satisfied with it before recommending to you.
Popularity
Now this requires some serious thinking on your part. Are you going to choose your advisor based on his or her popularity? Are you going to choose her because she is always appearing on the television programs? In the U.S.A, there are many scammers who frequently appear on television programs. They often promise extremely high returns to those who invest in their programs and buy their products. They can range from buying into limited partnerships to learning short term trading techniques that promise “out of the sky” returns. These so called gurus have a large number of followers and fans. That makes it even harder for you to make a decision. Talk to a few people who can provide you clear and logical opinions about this.
There are many things to take note of, when choosing your mortgage advisor. Choosing the right one is certainly going to be a pleasant and financially rewarding experience for you in the long run.
Zeng Han Jun is the Business Financial Manager of Chan & Partners Consulting Group. He actively contributes articles about business and finance on a weekly basis, so as to share his knowledge with the financial consumers. He specializes in mortgage advisory and business brokering services in Singapore. He has been directly involved and plays a crucial role in marketing and sales of businesses in CPCG. He also provides advice on various kinds of mortgages and construction financing for private individuals.
The U.S. government is attempting to head off a collapse of the financial system by promising to provide “hundreds of billions” of support for financial markets and institutions by purchasing troubled mortgages from banks and other institutions.
Bush administration officials including Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have briefed lawmakers on Capitol Hill on the “urgent need for Congress to pass legislation approving the federal government’s purchase of illiquid assets, such as troubled mortgages, from banks and other financial institutions,” President Bush said today.
“This is a decisive step that will address underlying problems in our financial system,” Bush said. “It will help take pressure off the balance sheets of banks and other financial institutions. It will allow them to resume lending and get our financial system moving again.”
The details of the move to create an agency similar to the Resolution Trust Corp., which was created by Congress in 1989 to sell off the assets of failed thrifts, have yet to be hammered out.
Bush and Paulson said the government would also provide insurance for trillions of savings held in money market mutual funds — a critical source of capital for lenders that could disappear if investors panic and withdraw funds.
The U.S. Securities and Exchange Commission also issued new rules temporarily suspending the practice of short-selling the stocks of 799 publicly-traded financial institutions — a move that sent stocks soaring.
At a press conference, Paulson said that Fannie Mae, Freddie Mac and the Treasury Department will boost purchases of mortgage-backed securities to fund new loans but that the government must also take bad loans off the books of banks and financial institutions to unfreeze credit markets.
“We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to AIG so it can sell some of its assets in an orderly manner,” Paulson said.
Despite these steps, he said, the government must take “further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses.”
Investments backed by mortgages have become difficult to trade and “are choking off the flow of credit,” Paulson said. The clogging of financial markets “has the potential to have significant effects on our financial system and our economy.”
Investments backed by troubled mortgage loans are “parked” on the balance sheets of banks and other financial institutions, preventing them from financing productive loans, Paulson said. “The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them. The normal buying and selling of nearly all types of mortgage assets has become challenged.”
The government, by taking on the assets that are weighing down financial institutions and threatening the economy, can prevent more failures of financial institutions and thaw a frozen credit market that’s unable to fund economic expansion.
Paulson said Fannie Mae and Freddie Mac will boost purchases of mortgage-backed securities (MBS), and the Treasury Department will also boost spending on a program in which the government buys such securities directly.
The Mortgage Bankers Association welcomed that aspect of the plan, saying it should provide support for mortgage rates.
“The fear was that the illiquidity in the financial markets we have seen this week would have reversed the recent drops in mortgage rates,” said John Courson, MBA’s chief operating officer.
“The broader steps outlined by Treasury are aimed at ending the further meltdown in the financial markets and are designed to minimize the resulting impact of the market turmoil on the broader economy,” Courson said. “It is another step in the long-term process of restoring a balance between the supply and demand for housing in a number of markets and thus addressing the continuing problem of mortgage delinquencies and foreclosures.”
Boosting purchases of mortgage-backed securities will provide some initial support of the financial system, Paulson said, but not enough. Many banks and financial institutions hold are stuck with securities that don’t meet the regulatory requirements to be eligible for purchase by Fannie or Freddie, or by the Treasury program.
Congress must authorize the government to buy bad loans, Paulson said, through a “troubled asset relief program” that would likely involve an investment of “hundreds of billions” of dollars. Bush acknowledged “a significant amount” of taxpayer dollars will be on the line, but that the plan is for the money to eventually be paid back.
“The vast majority of assets the government is planning to purchase have good value over time, because the vast majority of homeowners continue to pay their mortgages,” Bush said.
The risk of not acting would be far higher, Bush said, because further stress on financial markets “would cause massive job losses, devastate retirement accounts, and further erode housing values, as well as dry up loans for new homes and cars and college tuitions. These are risks that America cannot afford to take.”
Appearing on “Good Morning America,” Senate Banking Committee Chairman Chris Dodd, D-Conn., said the United States was “days away from a complete meltdown” of the financial system, which Congress would work to prevent.
After meeting with Paulson and Bernanke Thursday night, House Speaker Nancy Pelosi, D-Calif., said “time is of the essence” and that she hoped Congress would move “very quickly,” the Associated Press reported.
Augustine Faucher, director of macroeconomics at Moody’s Economy.com, said that while it’s unclear what mechanism the federal government will use to purchase debt, it’s safe to assume companies unloading illiquid securities on the government would take “huge losses” on the face value of those assets. But taking those losses would allow the firms to continue providing the loans that make the global economy function.
In a column for the Dismal Scientist newsletter, Faucher said the government could dispose of the debts gradually, “without the pressure to dump it all at once and thus push down prices, exacerbating the problem.”
Faucher said the reluctance of banks to lend each other money demonstrated that drastic measures were needed. The TED spread — the difference in yields between three-month Treasury bills and the three-month LIBOR banks charge each other for loans — soared above 300 basis points Wednesday, higher even than the aftermath of the stock market crash of 1987, he said.
“In normal times, no one would want the federal government buying hundreds of billions of dollars worth of financial market instruments,” Faucher said. “But these are obviously not normal times.”
The American Bankers Association was critical of the plan to insure money market mutual funds.
“Today’s action will undermine the role of banks during this current crisis and has the potential to have an extremely negative impact in the future,” ABA President and CEO Edward L. Yingling said in a letter to Paulson and Bernanke. “Simply put, the ability of banks to attract and keep deposits is being compromised in a profound fashion. Our bankers are, understandably, very upset by the action.”
Faucher characterized the proposal to insure money market mutual funds and the temporary ban on short-selling financial stocks as “minor.” What really matters, he said, “is that someone needed to step in and take control, and the Treasury and Federal Reserve have done so.”
Writing on his blog, The Big Picture, Fusion IQ Chief Executive Officer Barry Ritholtz called the Bush administration’s plan “the new New Deal,” reffering to the government programs created during the Great Depression in the aftermath of the 1929 stock market crash.
“We now see that the grand experiment of deregulation has ended, and ended badly,” Ritholz said. Ironically, he said, proponents of deregulation “have effectively turned the United States into a massive Socialist state, an appendage of Communist Russia, China and Venezuela.”
There’s no doubt that many of you have felt the continuous ebb and flow of the real estate market in recent years. What separates top producers from their less-successful counterparts in this and every market is their ability to work on their business while working in their business.
What’s the difference? For most, it begins with the right mindset. Real estate sales is not just a job; it is a career and a business that requires planning, careful thought, organization and systems that create and maintain balance, accountability and forward momentum.
Step 1: Have a plan.
Part of working ON your business is to create a written plan. You likely fall into one of three categories:
Planning is critical to realizing your goals, generating consistent income and creating an exit plan that ensures you have a valuable “book of business” that you can sell when you are ready to retire.
Your plan should:
Step 2: Employ smart marketing.
In today’s competitive arena, effectively marketing yourself, your listings and your business requires both consistency and laser focus.
Consistency. Countless agents send single marketing pieces to blanket areas of several thousand consumers, with no intention of following up. Many others take the “holiday” approach to staying in touch by sending an annual holiday card in the hopes that they are remembered. Both of these approaches are a waste of time, energy and valuable marketing dollars.
Truth is, you should be in contact with your sphere of influence at least every four to six weeks. Using the popular send-call-see approach (part of our free BusinessBASETM), you can easily set up a system for contacting your VIPs each month. Send a postcard, letter, newsletter, flyer, novelty or note one month. Call with a friendly event reminder, helpful hint, or just to say hello the next month. During the third month, arrange to see them via a networking event, social gathering or quick in-person visit (with notice, of course) where you drop off a small token, informational item or card. Then start the “rotation” over again. Such consistency creates vital ‘top-of-mind’ awareness that often becomes “the key to the kingdom” when growing your referral base and creating a reliable income.
Laser focus. I’ve written before about the power of target marketing in today’s sales arena. Gone are the days when agents could afford to take a “shotgun” approach—casting a wide net in the hopes of “catching a few” wastes precious resources on prospects that couldn’t, wouldn’t or shouldn’t do business with you for any number of reasons.
Response rates increase dramatically when you speak directly to the needs and interests of a particular group. Wise agents seek out demographics and/or geographics that they relate to or have a history of success with. The more comfortable you become speaking to a particular group or segment, the more you become recognized or thought of as a specialist in that field.
So discover the wonderful world of data mining; your watch and your wallet will thank you for it! Here are just a few examples:
Step 3: Put systems in place. Without systems, you’re like a hamster on the wheel–spinning and spinning without really getting anywhere. Systems are the only way to establish and maintain the delegation, automation and streamlining necessary to continuously work ON your business. Systems allow you to:
What systems should you have in place?
Working ON your business requires dedication and a commitment to the activities that earn you top dollar and allow you to “feed” the career you’re building. Never lose sight of the fact that prospecting, presenting and closing should always be at the top of your list.
Believe it or not, there’s never been a better time to succeed in this industry. Seize the opportunities that others see as obstacles. Learn from the success stories that have come before you, and model their ability to navigate exponential growth, a balanced life and a book of business so valuable and reliable that they never have to wonder where their next deal will come from. I wish you much success!
Although Wall Street’s woes got a lot of attention on Capitol Hill last week, so did the continuing crisis in home foreclosures.
Starting October 1, home owners who owe more on their mortgage than their property is worth may be able to qualify for new FHA “Hope” refinancings that cut their debt, lower their interest rates and help them start rebuilding equity.
Sounds like a great opportunity for hundreds of thousands of hard-pressed owners, but there’s a huge potential snag: Their lenders and loan servicers have to agree to participate, and they may not.
Why? Because among other requirements, lenders and bond market owners of mortgages will have to agree to write down the balances due on the loans below current market values for the house — in other words, they’d need to take immediate and sizable losses on those mortgages.
At a House financial services hearing last Wednesday, a top Bank of America executive, Michael Gross, said Congress may have unrealistic assumptions about how many lenders and investors will agree to participate in Hope refinancings.
“My biggest concern,” said Gross, “is that expectations for (this) program might be too high.”
Rather than booking instant losses many banks and bond investors might prefer to work out customized loan modifications with borrowers instead — renegotiating loan balances, reducing monthly payments and even interest rates - without having to deal with FHA.
But Congressional critics like House financial services committee chairman Barney Frank say the banks have already been doing that — and foreclosure rates are still rising in many markets.
Frank is threatening to make massive — though as yet unspecified — changes in the federal rules governing home mortgage servicing that would force lenders to be more responsive to borrowers stuck with underwater properties.
In the meantime, borrowers who believe they might benefit from a Hope refinancing, should start talking with their servicers to see whether there’s a chance. The law expressly makes the decision voluntary for all financial institutions — borrowers cannot compel them or take them to court to force their hands.
But Barney Frank’s ominous warning to lenders just might get some banks’ attention and soften their stances on taking part in the Hope program. At the very least, home owners who talk to their lenders about Hope refinancings could open the door to customized loan modifications that help them out of their jams.
Recently we considered a situation where a buyer, who had executed a buyer-broker agreement with his agent, backed out of a purchase transaction. In that case, the buyer owed a commission to his agent because the agreement stipulated that the commission was earned when the buyer entered into the purchase agreement.
That case raises questions about sellers and their agents. Is a listing agent’s commission earned when a purchase agreement is entered into, or only upon the closing of the transaction? Of course the answer to this question will depend upon the particular listing agreement that is used. Listing contracts vary from state to state and within states. In California the form that is probably most commonly used would be the Exclusive Authorization and Right to Sell listing agreement produced by the California Association of Realtors® (CAR). Under the terms of that agreement there are three distinct sets of circumstances in which a commission may be owed by the seller to the listing agent.
(1) If a buyer is procured (not necessarily by the listing agent directly) “who offers to purchase the Property on the [stipulated] price and terms, or on any price and terms acceptable to Seller.” This is similar to the buyer-broker agreement. If the seller enters into a purchase contract during the term of the listing, the commission has been earned.
Indeed, if an offer is made that matches the price and terms set forth, the commission is earned. Although we acknowledge that there could be disputes as to whether an offer really matched the price and terms.
(2) “If, without Broker’s prior written consent, the Property is withdrawn from sale, conveyed, leased, rented, otherwise transferred, or made unmarketable by a voluntary act of Seller during the listing period, or any extension.” A listing contract does not obligate a seller to sell; but if the seller changes his mind or in some way refuses to sell, a commission is owed.
(3) This is known as a “safety clause” provision. It is negotiable at the time the listing agreement is drawn up. It provides that a commission will be due the listing agent if, within a specified time period after the end of the listing period, a purchase agreement is entered into with some prospective buyer who had been shown the property, or who had made an offer, during the listing period. For this to apply, the listing agent must supply the seller with the names of all applicable prospective buyers within 3 days after the end of the listing period.
There is one scenario that hasn’t been considered yet. Suppose the buyer backs out of the transaction. Is the listing agent still owed a commission? After all, the commission was earned when buyer and seller entered into the purchase agreement. In this situation the listing agreement seeks both to balance equities and to confront reality. It would typically be unlikely that the seller would have the funds to pay a commission if the transaction fails, and, besides, the failure is due to the buyer’s action, not the seller’s.
Thus the listing agreement provides that, in the case of buyer default, a commission is due the listing agent “only if and when Seller collects damages by suit, arbitration, settlement or otherwise.” Moreover, the amount of commission due the listing agent is limited by the amount of the settlement. It can never be more than the commission would have been, but it could be less. It is to be the lesser of one-half the net damages recovered (i.e. after any expenses are taken out) up to what would have been full compensation.
Suppose the listing commission was to have been 4% of a $500,000 transaction (i.e. $20,000), but the buyer has defaulted. If the seller was able to recover $10,000 (net) in damages, the commission owed the listing agent would be $5,000.
Typically, commissions are paid when a transaction closes; but a closing is not always necessary for a commission to have been earned.
Mosca: International buyers recognize that real estate in the United States is an excellent investment. International real estate purchases in this country continue to be a significant share of business for commercial and residential real estate agents and brokers across the country. According to the 2008 National Association of Realtors profile of international home buying activity, between 150,000 and 190,000 homes were sold to foreign nationals from May 2007 to May 2008. This year Canada replaced Mexico as the country with the largest share of foreign buyers with the percentage of Canadian buyers doubling to 23 1/2 percent from 11 percent last year. Those are impressive numbers aren’t they?
Bodnarchuk: They are incredibly impressive and they will be accelerating. The Canadian dollar has been on a rampage now for eight consecutive years and the value is virtually at par with the U.S. dollar. Just in the past 18 months, it’s up 20 percent. Plus, they are not feeling the impact of the increased gas prices; they are not feeling the impact of the higher food prices. The real estate market in Canada has been on a 10-year rage, so right now they are at the 10-year high of this bull market. Canadians feel very, very wealthy. Their stock market is at an all-time high, the gold is at an all-time high, oil is at an all-time high, and this is all good for the Canadian market which is a resource-based market. Canadian real estate investors are asking themselves, “do I want to put more money on the top of a 10-year real estate bull market or should I look south at the U.S. market where I can buy at an over inflated currency level and at a discount.” It’s a trend and it is escalating.
Mosca: The most popular states right now with international buyers are Florida, California, Texas, Arizona, New York, Washington, and Nevada. Those are nice places to go and purchase investment property?
Bodnarchuk: Any Canadian market that has a direct flight to your city, there is a high probability that you can get Canadian buyers there. More and more Canadians, because they have so much equity built up in their real estate, their stock market is on fire, and because their investments have done well, they tend to be more and more cash buyers. The Royal Bank of Canada has been very aggressive in the U.S. with a division called RBC Assured that can now finance Canadians to buy U.S. properties. They can get them financed within a couple of days based on their Canadian credit, based on their Canadian assets and Canadians have no problem paying 20 or 25 percent down, it’s what they are accustomed to. The Royal Bank of Canada sees them as a better credit risk than American investors. This has never happened before. In fact, if Canadians ever tried to buy American real estate, they had a hard time getting financed. That’s all changed now.
Mosca: Why the U.S.?
Bodnarchuk: America is a gold standard. Emerging markets and the world have always looked to the U.S. as a leader. Everyone knows the U.S. is going to rebound. It’s simply a matter of time. International investors are using the currency leverage against the American dollar as a short-term arbitrage situation, and that is why we have such an influx of international buyers and Canadian buyers, the latter being the biggest American ally and whose economy depends on the U.S. economy. I almost look at Canada as a neighboring state that is similar and has always been friendly to Americans. Canadians are so excited about this opportunity and know it’s not going to last long. They know that the Canadian currency cannot sustain this level. They know the U.S. currency cannot stay where it is. They understand it’s a short-term opportunity.
Mosca: We have talked about financing in Canada and now I want to learn about financing that is available here in the U.S. (Stan Hanks, RealSource Commercial joins the program). We keep hearing, reading, listening, and being told over and over and over that there’s no money out there. Stan, has that been your experience?
Hanks: Let’s talk about real deals. I was on the phone with one of my key correspondent lenders about a student housing project here in Utah. We were able to secure a $1.4 million loan and the borrower can pick between a rate of 6.25, 6.66, or 6.7 on a 3, 5, or 7-year loan. The money is out there. It took me about seven different lenders to finally find the one that would do this deal. That’s what’s different. You have to work a little harder. You have to find somebody like us who have correspondent relationships and can package a loan to look its best and wind your way through what we are currently going through. By no means should anyone think that they can not get a loan. We are closing two multifamily projects today and it hasn’t been easy, but we’re going to close them. We also have financing available for Canadian investors as well. There are obviously banks in Canada willing to lend into the United States but similarly there are lenders here in the U.S. that will lend to foreign nationals. There are opportunities out there whether you are a U.S. or international investor.
Bodnarchuk: Stan, we’ve got some European buyers from the U.K. or from Ireland who would love your experience on getting them financing. We’ve seen in some cases they have had to put 50 percent down. Has that been your experience?
Hanks: That has not been our experience. We take one of two approaches. One approach, if they’re buying on their own, is to have two levels of U.S. entities prior to getting to the borrower. That was required by one of our lenders. The second approach is to invest in one our tenant in common projects. For example, if an international investor is one of 20 different individuals that have bought a property, our lenders feel fairly comfortable with the other 19 U.S. citizens. That’s an alternative that is working quite well for our international clients.
Mosca: Roman, it’s great to hear from folks who understand their business and listening to you it’s obvious that you understand Canadian buyers coming into this country and how to market those properties effectively for your customers and clients.
Bodnarchuk: We’ve spent 10 years on this. We have projects in 10 countries and 30 cities so we’ve done it the hard way. We found a lot of real estate purchasers today come and view the property and the emotions kick in. There is a lot to be said when marketing investment properties to think about the emotional aspects. Whether buyers admit it or not, that is one of the main reasons they buy. The other thing we’ve learned doing this for the last 10 years is women are probably the most important decision-makers when it comes to real estate. In 92 percent of the cases, they are the main influence.
Mosca: Kent, is that something you’re finding with tenant in common (TIC) investors?
Anderson: In fact, just yesterday that was definitely the case. Our TIC program has several advantages and distinctions. One is that they are prepackaged. Financing is just one of the items that’s already prepackaged into the deal. It makes it a lot easier for the clients to have the financing in place, and to have all the due diligence completed for them. Another key feature for our clients is that can simply invest a dollar amount that makes sense to them and the sponsors’ requirements, and get access to higher quality properties.
Bodnarchuk: People are looking for more of a turnkey investment. The tenant in common solves a lot of issues like not having all the stress and the worries.
Anderson: That’s one of the biggest features of a tenant in common program. You don’t have to be involved in all the day-to-day of managing that property. You can turn it over to the experts to take care of that but, at the end of the day, you own your own property. The owners of that project still control the property by their vote. They control it but they don’t have to be involved in all of that day-to-day stuff.
Mosca: Roman, in dealing with real estate brokers and agents around the globe, do you think they’re aware of the fact that they can opine on and recommend tenant in common investment opportunities and collect a commission on that?
Bodnarchuk: I don’t think they do. Over the past 10 years we’ve been involved in about $4 billion of transactions. Education needs to get done. Getting e-mail out and doing meetings at the different firms is the best way to get that information out (if you are a real estate agent or broker and would like to know more about TIC commissions and fees, you go to www.incomepropertyinvestmenttalk.com, and click on the video of Blaine Walker).
Peay: It’s fun to see professionals come in and seek education on how they can add additional resources and income. We are seeing a lot of brokers and professionals have an interest in this. It’s been fun to help them understand what’s available to them.
Bodnarchuk: Some in America have a myopic view of who their potential buyers or customers are. We need to look out to the rest of the world. America is not a very difficult place to sell right now. I think Americans are the most negative about America but the rest of the world still views America as really the gold standard in terms of investment in the economy.
Mosca: What are your golden nuggets for today?
Anderson: Investors who bring their money to the United States should conduct due diligence on the provider to make certain they have the capacity to get deals done. Check their track record, number of deals done and their experience.
Peay: There are opportunities for brokers and real estate professionals to earn additional income by putting clients in the right place at the right time, in a shorter time period. We’ve been doing this with brokers nationwide for nearly 20 years. The golden nugget is that there is an opportunity to receive more income and to make it a perpetual stream.
Bodnarchuk: The world has become very, very small because of the Internet. People need to think beyond America, especially Canadians. They love American properties. That’s the opportunity we have right now.
When shopping for a home, don’t get tripped up by hackneyed marketing phrases like “gourmet kitchen,” “diamond in the rough,” “needs tender loving care” and “one of a kind.”
Too often, such descriptions are subjective euphemisms artfully crafted to get you interested in a property, rather than objective wordsmithing that may actually turn you off.
There’s nothing illegal or unethical about the lingo used in real estate marketing — unless it is purposely deceptive — but it is up to buyers to see through the veil of the verbiage that comes with the effort to sell homes.
So says the “2008 Report on Home Buying Euphemisms and Lingo,” by the National Association of Exclusive Buyers Agents (NAEBA), a group of real estate agents who only represent buyers. And right now, buyers, facing a credit squeeze and underwriting hurdles that make them want to yell “Uncle!” need all the help they can get.
The report stems from an informal survey of association members asked to provide descriptions they found in listing data along with what they actually, physically found when they arrived at the property.
Says the report: “Please note these are individual cases in our agent’s experiences. These descriptions may not apply in every case.”
Some examples include:
“As-Is” often means the seller isn’t willing to perform any repairs or upgrades, not that you can’t negotiate defects or other items found during an inspection. A home inspection will give you the true meaning of “as-is.”
“Bedroom” can be a small office with or without a closet. All real bedrooms should have a window to the outside.
“Cozy” could mean it’s too small for your big-screen TV.
A “fixer-upper” could be a home in major disrepair, one that hasn’t been lived in for a decade, a 100-year old home or all of the above.
“FROG” is a term found in listings from the south and southwest that means a Family Room Over the Garage or a bonus room. Be sure the room, if added on or built-in later, was done so with a proper permit and current building codes.
“Light and bright” could mean everything is clinically white — tile, paint, even flooring.
“Very bright sunny home,” could mean there is no shading from trees.
“Walk to schools, shopping and entertainment,” could describe a property in a largely retail or commercial district.
The NAEBA says buyers who are attracted to properties because of marketing language should consider how words are used and determine if they best describe the home or if the language is window dressing.
Here are a few things to think about as you evaluate the home in question, according to the NAEBA.
Big-city developers are beginning to pick up on developing and building earth-friendly projects. Over the years, alternative energy sources were usually reserved for those folks living in more rural areas, with the personal budgets to build solar panels and one-stand wind mills to create a personal power grid. Now, condo developers are taking it to the next level in urban development.
Kalahari Harlem in New York City is a prime example of green development. The 250-unit condominium includes eco-friendly amenities such as energy from 25 percent renewable sources of wind and sun, bamboo flooring, and car-sharing services on the premises. The high-efficiency electrical components of the units, such as EnergyStar appliances, provide condominium homes that consume 20 percent less energy than its non-green counterparts.
LowImpactLiving.com reports green housing is experiencing unprecedented growth with buy-ins by developers for the highly desirable dwellings. Green buildings are starting to break ground in metropolitan areas such as Chicago and Los Angeles as well as concentrated areas throughout New England and the South.
Green Condos are in compliance with the U.S. Green Building Council’s Leadership in Energy and Environmental Design certification program. “LEED is a third-party certification program and nationally accepted benchmark for the design, construction, and operation of high performance green buildings,” according to the Green Building Council’s web site.
“LEED gives building owners and operators the tools they need to have an immediate and measurable impact on their buildings’ performance,” it says. “LEED promotes a whole-building approach to sustainability by recognizing performance in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality.”
