Believable Hype Or Just the Same Old Smoke & Mirrors?

Believable Hype Or Just the Same Old Smoke & Mirrors?
By: Nicholas A. Dunlap, CPM


Could it be that all this talk about a Commercial Real Estate bust is just that? Outlook and Statistics released this week by a number of sources, including TD Bank, the National Association of Realtors and CSUF’s School of Economics certainly bode well for property owners and real estate investors nationwide approaching a future that is rumored to have more than $1.4 trillion dollars in debt coming due prior to 2014.

The Financial Institution’s Perspective

Sure, TD Bank is one of many banks that issued Commercial loans, however, the model that TD followed, according to TD Bank CEO Bharat Masrani is a conservative one that will keep them out of trouble. Anyone who has applied for financing in the past two years certainly notices an increase in regulation, however, Masrani feels that his firms conservative lending practices will deliver them from evil, or in this case, distress. In a business built on risk taking, Masrani said that TD stuck to their footprint and did not meddle in property types they were unfamiliar with. Based on their practices, he feels that a Commercial Real Estate bust is not in our near future, although specific property types in a number of local markets may be hit hard.

The Economist’s Outlook

Although it has at times been nasty, multifamily has outperformed other product types through the downturn and will continue to do so through 2011. Jobs are slowly being created and bringing with them the need for workforce housing. Additionally, California State University Fullerton released their first quarter Southern California Economic Indicator and cited a 0.87% increase in economic activity. CSUF Economist Adrian Fleissig feels this will also result in an additional increase over the next 6 months and that we are on the road to recovery so long as the number of jobs continues to increase as well.

The Industry Watchdog’s Outlook

Financial performance of these (property types) assets is bolstered by improving rental figures and occupancy rates. According to Lawrence Yun, Chief Economist for the National Association of Realtors, multifamily is the strongest sector of the marketplace. While there have been a number of new projects introduced to the market, Yun feels that rents may decline by as much as 1.5% through the end of 2010, but will climb back 1.2% in 2011. Nationwide, the vacancy rate is expected to decline from 7.3% to 6.3%.

The Boots On the Ground Outlook

Marketing and leasing activity has picked up tremendously on the two major product types we own and operate: office and multi-family. In fact, last week was a record week for us in which we processed and approved 15 rental applications, both for residential and office. A typical week consists of half that amount, and until late, the only calls for office space were “wheeler-dealer”, promo seekers with no true concept of rental rates, concessions or value. Now, we are seeing multiple-year lease terms taken with fair concessions for both parties.

With the increase in activity, we have seen a slight increase in market rates. In most residential rental markets, with the exception of new class A product, the days of paying and begging for move-ins are over.

The Wrap-up

While the data and statistics certainly bode well for real estate investors and operators, I feel that we will still see some sort of market correction. It is important to remember that not all financial institutions were as prudent or conservative in their commercial lending practices as TD Bank was. We know what happened with the residential market, so unless the Federal Government issues a mandate of sorts to extend in-place financing on performing assets when the loans come due, this $1.4 trillion dollar amount will become a huge factor.

For those of us who are not highly leveraged, cash flow will continue to improve and a sense of normalcy should return to the market. In Orange County, I feel it has already.

Go Go Gourmet! Tickets On Sale Now at DPG Headquarters!

The Gourmet food truck is the hottest food trend around. Known widely throughout the streets of Los Angeles, these trucks do not often serve the Orange County area. Until now...



Providing a prix fixe menu, we have:

Louks- Gourmet Greek Food (www.LoukstoGo.com)
Crepes Bonaparte- Crepes and More (www.CrepesBonaparte.com)
Barcelona on the Go- Spanish & Argentinian fare (www.Barcelonaonthego.com)
Taco Dawg- Need we say more? (www.twitter.com/tacodawg)

Tequila Tasting and Sampling provided by Azunia Tequila.
Hosted Bar AND MORE. Music provided by Dubgypsy Entertainment.

This event will sell out. Tickets are $50 pre-sale and $60 at the door. Pre-purchasing of tickets is strongly encouraged. Contact me directly by email to arrange your purchase.

ALL PROCEEDS benefit Childshare, a non-profit organization placing children from troubled homes in temporary and permanent care. This is a great party for a great cause! Do not miss it!

Avoid the Summertime Vacancy Blues

Avoid the Summertime Vacancy Blues
By: Nicholas A. Dunlap, CPM


Graduation time, kids are out of school, family vacations and three day weekends are here, you guessed it, summertime is upon us. Even the best apartment communities experience turnover in the summertime. Follow these 3 secrets to make sure you fill your vacancies before Independence Day as opposed to after Labor Day.

1.Know Your Market- Conduct a rental survey to understand where your proposed asking rent fits within your market. Identify a competitive rate based on the location of your property and the specific makeup of the unit and proceed accordingly. Be sure to price yourself for activity: not too high, not too low.

2. Respond Quickly- Whether it is a first showing, verifying a completed application or responding to an applicant on whether or not they have been approved for move-in, time is of the essence. Respond promptly to ensure your prospects do not look elsewhere.

3. Customer Service- Realize that the key to your success is serving your customers. Be hospitable, cheery and professional in your presentation.

Right now, the rental market is hot. The up-tick in consumer confidence reflected in recent Retail statistics has certainly found it’s way into the marketing and leasing sector of apartment homes. Just today, we processed 7 applications to rent our apartment homes and better yet, 6 of 7 were accepted outright without a co-signer! If this is a sign of things to come, we are in for a great summer.

Consumer Spending On The Rise

Consumer Spending On The Rise
By: Nicholas A. Dunlap, CPM


Screw the banks, feed the economy…or so the actions of our nations consumers most currently suggest. Data released today by Morgan Stanley shows that mortgage delinquencies are up 8% from mid-2007, but that consumer spending rose 3.6% in the United States last quarter. So instead of robbing Peter to pay Paul, we are not paying Peter to pay Paul. Same difference? Not necessarily.

We are experiencing an increase in “Strategic Defaults”, which sounds quite complex and sophisticated despite the fact that it is nothing more than realizing that the market value of your home is dramatically lower than the value of your loan and deciding to walk away from the property. This works for apartment owners and managers who will continue to welcome new renters into the marketplace. Statistics show that these consumers are paying other bills and satisfying their other obligations, but have simply stopped paying their mortgages. That said, they should be able to pony up the extra cash for a solid security deposit upon moving into an apartment home.

It’s no wonder REITs and other apartment owners are doing so well at present. Rents are down from recent years past, but occupancy is up from last year and there are a number of new renters in the marketplace to replace those who have left and continue to leave to become first-time homeowners.

My Plea To Congress

My Plea To Congress
By: Nicholas A. Dunlap, CPM


Recently, I was selected by the Institute of Real Estate Management to join them in Washington, DC to lobby our state and district politicians on behalf of the interests of Commercial Real Estate owners locally and nationwide. Our interests include but are not limited to: preserving the flow of capital into the Commercial Real Estate market, maintaining the current Capital Gains taxation rate of 15%, increasing the Savings and Loan lending caps from approximately 12% to 25%, introducing a sort of Commercial Mortgage insurance to protect the equity gap (difference between market value of a property and the value of the current loan) on performing loans only as well as accelerating depreciation from 39 years to 15 years on leasehold improvements and lastly, extending the terms of currently performing loans so as not to require a balloon payment or “fire” sale type of action.

This event marked my first trip to Washington, DC and clearly illustrated to me the need for Commercial Real Estate professionals to make known the ongoing issues we are facing in our industry. Of the 7 politicians we visited, it was somewhat disheartening to see that a mere 2 of them were aware of the issues. Apparently, the other 5 felt that the issues were not as severe as the residential market and that the market was actually showing signs of improvement. On the contrary, the 2 who were aware of the issues still saw the foreboding shadows ahead. I would like to commend Ken Calvert, a Republican from Corona, California, who was extremely aware of the issues and has been extremely proactive in supporting our causes. For your reference, I have included below a copy of the “canned” speech I was delivering to our Representatives.

“In today’s economic climate, we are seeing performing loans come due on properties where the borrowers have no means of paying the full balance due. Contrary to non-performing loans, these loans are paid on time and the borrowers are not behind in payments. By extending the life of the loan, banks can avoid having to foreclose on these properties, as well as the costly, lengthy, legal battle should the buyer be forced into a Chapter 11 bankruptcy merely to obtain a loan extension.

Further constricting this process is the lack of available credit to re-finance the debt on the property. WIth over 6% of all Commercial Real Estate loans underwater, where the loan amount exceeds the market value of the property, it is prudent for our lending institutions to extend the length of time that borrowers have to pay their loans in full, rather than require a re-finance.

Understand that these performing loans are loans that are supported by the property, where the income generated by the property is sufficient to pay the loan. I ask you, on behalf of the Institute of Real Estate Management, to urge the Federal Reserve and Treasury to provide greater guidance to the holders of Commercial debt. A simple term extension for performing loans could prevent many properties from going into default or foreclosure.

There is no cost to tax payers and simple guidance from our Reserve and Treasury can help the many borrowers who are teetering on the brink of bankruptcy.”