Tellus Realty
A couple of weeks ago we had another real estate class. This one covered the basics of real estate investing. Among the subjects covered were the various types of real estate investments and their pros and cons. We also covered preparing to enter the investment arena and the basics of real estate investment analysis. We had a great class with lots of discussion and good questions from the students.
Here are the slides from the class.
You can also find copies of the slides on my SkyDrive site
We had a great class on Wednesday. Lots of students with information and experiences to share. Below are the slides from the class, updated with additional information based on class discussion. Be sure to check the HAFA program slide.
Along with slides we have the handouts available from my SkyDrive:
Here are the updated slides from our Right Way to Buy Foreclosures Class, last week. Thanks everyone who attended!
Below is a summary of sales for March 2011, from the Commercial Broker’s Association (CBA). I note the source because it is likely that not all sales that occurred are included. CBA data is a mixture of sales reported by their member agents and researching of sales that happened outside the system.
I have compared these numbers to similar data available from LoopNet, the national
commercial real estate listing service. After reviewing the data, I believe the CBA data to be the most accurate and useful for our local market and for tracking prices and trends in the local market. Occasionally, LoopNet has data that does not appear on CBA, which is the reason that I subscribe to their service. If you would like to have a complete analysis done of comparable sales for your property, please let me know. When performing analysis for a client, I compare and combine data from both sources.
March 2011 Sales
King County-There was a slight increase in the number of sales from February in King County, with 34 total sales. Only 2 property sales were foreclosure trustee sales. Sales were about evenly mixed between the 4 main property types: Industrial, Retail, Office, and Land.
The average price per square foot for each property type was: Industrial-$44/SF, Retail-$171/SF, and Office-$148/SF. Commercial land sales averaged $121/SF, after removing 2 residential land sales from the mix. Those two residential land deals would have lowered the average $/SF to just $5.84/SF
You may notice that the price per square foot for Office and Retail properties jumped significantly from February. This partially due to the lower number of foreclosure sales in each category.
Pierce County-Pierce County had a healthy increase in the number of sales. In March, 22 sales closed, more than in January/February combined. Sales were evenly mixed between property types. One thing to note, though, is that five of the office sales were of Frontier Bank locations throughout the county, by Union bank to the FDIC. I believe the result of this is an inflation of the average price per square foot for Office space. Typical sellers should not expect this kind of pricing in Pierce county.
The average price per square foot for each property type was: Industrial-$51/SF, Retail-$65/SF, and Office-$148/SF (again, this number is inflated by the Frontier Bank sales). Commercial land sales averaged $6.45/SF. The sale price for Commercial land is likely lower than typical due to sales transaction between government entities for several properties.
Snohomish County-There were only 4 sales reported by CBA for Snohomish County in March. Snohomish County commercial buyers seem intent on focusing on specific property types each month. In January, it was Industrial. In February, it was Office. In March, all the sales were Retail Properties. Also, all the properties were located in the southwest corner of the county, along the I-5 corridor. Another item to note is that half the deals were with cash buyers.
The average price per square foot for these Retail properties was $143/SF.
Below is a summary of sales for February 2011, from the Commercial Broker’s Association (CBA). I note the source because it is likely that not all sales that occurred are included. CBA data is a mixture of sales reported by their member agents and researching of sales that happened outside the system.
February 2011 Sales
King County-King County continued its strong sales trend from January, with another 29 commercial property sales closed. 4 property sales were foreclosure trustee sales. Sales were primarily of Industrial and Retail properties. There were 4 office property sales (2 of which were foreclosures).
The average price per square foot for each property type was: Industrial-$53/SF, Retail-$106/SF, and Office-$106/SF. Commercial land sales averaged $111/SF
Pierce County-Pierce County had a major drop in sales from January’s 13, with only 5 sales closed in February. There was one Office building and one Commercial Land sale.
3 of the sales were of Retail properties, averaging $91/SF, and there were no Industrial property sales.
Snohomish County-There were 8 sales were reported by CBA in February, up slightly from January. In a major switch from January, when most all the sales were of Industrial properties, February sales were almost all Office properties. There was only one sale each of Industrial, Retail, or Commercial Land properties. The Office sales were scattered throughout the southern half the county. Two were foreclosure sales.
The average price per square foot for these Office properties was $107/SF.
Our next Landlord 101 class is coming up in May (http://events.linkedin.com/Landlord-101-How-successfully-find-keep/pub/565569). One of the common discussion area is hiring a property manager. The questions are usually something like “Should I hire a property manager?”, “Can I manage my own property?”, “When should I hire a property manager?” The class is designed to help new real estate investors be successful when managing their own properties. But, there are times when it is appropriate to hire a professional. Here is an excerpt from my Landlord 101 book:
Property Managers
A common question is “Should I use a Property Manager?” In order to answer that question, it is important to understand what a property manager can do for you and it is important to understand your own goals and how using a property manager will affect how you achieve those goals.
If you are an accidental landlord, a property owner who has entered the landlord arena less by choice than by necessity, deciding to use a Property Manager may be an easier decision, and wiser decision, than if you have enter the landlord field by choice with the intent of purchasing more properties. The reason for this is incorporated in the services a property management company will typically provide.
Property management companies will typically provide most of the following services:
Property Management for Accidental Landlords
The last item in the list above is the most important for the accidental landlord. If you are not someone who wants to be a landlord and are not willing and interested in taking the time to learn the legal and ethical responsibilities that go with being a landlord, then using a property management company is a ‘no brainer’. Hire a good property management company and focus on the activities and investments that get you excited.
Even if you are willing to learn the ropes, in hopes of saving yourself some money, keep in mind the cost of time required to perform all the other functions a property manager provides. Your time may be better spent with more profitable investments including your current job, analyzing your stock portfolio, or spending time with your family and friends.
In any case, keep in mind that using a property management company comes with a cost. Typical fees include a leasing fee that averages one month’s rent, and an ongoing fee of 5% to 10% of monthly gross income. The total dollar amount of the fee will depend on your market, the number of units you have under the company’s management, and the amount of work involved in managing your property. The financial cost of a property management company is the most typical reason that a property owner may decide not to use a property manager.
If you are an accidental landlord, the risks of managing your properties without proper knowledge of your legal responsibilities outweigh the cost of having a property management company. For example, the total cost of using a property management company will likely run about two months’ rent for the first year, and only 1 month’s rent each year that you don’t need to re-rent the property. In contrast, the eviction process can mean you go 5-6 months with no income, and that is if the eviction process is handled perfectly, with no mistakes on your part. It is not hard to see how the investment in hiring a property management company can prove a better financial decision than the possible decision to let in a bad tenant. Of course, there is no guarantee that a property manager won’t let in a bad tenant, but they will at least know how to handle the eviction process correctly if that happens, shortening the time spent with no income. Property managers also have expertise in marketing properties and you should expect that they can get your property rented faster than you do, for more money.
This logic applies to those property owners who have purposefully entered the landlord profession, also. But, the word “profession” is important, because if your plan is to own multiple rental properties and to enter the field full-time, dumping the 9-5 job, you need to treat it as a profession. That means fully understanding all aspects of the job. That is why I recommend that real estate investors manage their own properties when possible, at least at the beginning.
First of all, managing your properties yourself will be good idea because it makes the out-of-pocket expense of managing your property far less. By decreasing the management expense, you increase the cash flow and return on your investment. As noted in the example above, this is dependent on your management skills being sufficient to lower the risks, such as avoiding evictions and reducing turn-over in your rental properties.
By performing the property management functions on your own, you will learn firsthand:
As a result of managing your own properties, you will ingrain the knowledge you need to make better investment decisions in the future. You will more easily identify when a property is not only an acceptable investment, but when it will be a great investment. You will learn how to tell when a property will be low maintenance, when it will get a premium for monthly rent, and when it will attract long-term tenants. These are all things for which you can learn the theory by reading, but which you can only truly learn in practice.
As you acquire more properties, you will likely come to a point when managing your properties will take so much time that you will want to hire help. You may hire an employee as a property manager. But, before you get to that point, you will likely find that hiring an outside property management company will provide you services you need to make the best use of your time in identifying good investment properties and providing strategic direction, at an acceptable cost. When you come to that stage in your real estate investment career, you will have the in-depth knowledge of what the property management company’s value is, that you can better judge their services and even provide valuable strategic directions to them that will make their services more valuable to you.
Lastly, it is possible that hiring a property manager may be forced upon you by legal requirements. For example, in the state of Washington, property owners must have an in-state representative that tenants can contact to handle issues. Many other states and local municipalities have similar laws. If you don’t have a family member or friend close by that can act as that representative, you may be forced to hire a property management company. Additionally, if your investment property is located too far away for you to conveniently show the property, meet tenants, handle inspections, or find maintenance contractors; you may find that you really need the services of a property manager, just because of the location.
So, hiring a property management company can be a good idea, especially under the following circumstances:
In the February newsletter, I sent out the January Sales summary for all three counties. I didn’t go into a lot of details, so let me know if you need more information.
6 sales were reported by CBA in January. All but one were industrial properties, located in Everett/Mukilteo, Lynnwood, and Monroe. The average price was just over $100/SF
An impressive 29 sales were reported for King County in January. In King County, the majority of sales were Office properties, followed closely by Industrial properties. There was a few land and Retail sales also. Prices for office properties averaged $146/SF and industrial properties averaged $83/SF.
13 sales were reported for Pierce County in January. These were almost evenly divided between Industrial and Retail properties. Industrial properties averaged just under $70/SF and retail properties averaged almost $127/SF.
It is the end of 2010 and time to review sales in the local area and the outlook for the future. Large commercial firms with in-house analytics teams, such as Cushman & Wakefield and Grubb-Ellis, do not generally report on real estate activity outside of the Seattle/Bellevue markets. However, data from those markets can be used to make inferences about the health of more suburban markets, including East King County and Snohomish County. Third quarter reports indicate that market will remain soft in the short term, but is about to turn around. Absorbtion rates for office and industrial properties are negative, but the rate at which space is coming on the market has slowed and general interest in leasing new spaces has increased. With the overall lack of new development, absorbtion rates are likely to turn around in the next year… though the market is unlikely to improve quickly.
The sales market is slowly improving, or rather the negative trend has slowed down. Lower prices have brought out investors looking to pick up solid investments. One area to be cautious about is lending. 2010 and 2011 are the years when a large number of commercial loans will come due. Activity in the BPO market, price opinions often ordered by lenders to verify the value of properties when they are distressed or in danger of becoming distressed, has picked up in recent weeks. This suggests that a greater number of distressed properties will be on the market soon.
In the mean time, here are the statistics for last year. Numbers are based on sales reported to, or researched by, the Commercial Brokers Association.
Snohomish County Sales Summary
From January 1, 2010 to December 31, 2010, sales statistics by category are:
|
Property Type |
Number of Sales |
Low Sale Price |
High Sale Price |
Average Price per Square Foot |
|
Industrial/Flex |
12 |
$625,000 |
$7,300,000 |
$97.88 |
|
Office/Mix Use |
30 |
$255,000 |
$3,296,000 |
$212.79 |
|
Retail |
43 |
$310,000 |
$16,150,000 |
$196.59 |
|
Land |
21 |
$310,000 |
$6,596,691 |
$189,864.68 (per acre) |
The following chart illustrates the number of sales in Snohomish County by month. As you can see, closings peeked in June, with close to double the sales of any other month. In fact, in 6 months of the year, there were only 5 sales closed.
King County Sales Summary
From January 1, 2010 to December 31, 2010, sales statistics by category are:
|
Property Type |
Number of Sales |
Low Sale Price |
High Sale Price |
Average Price per Square Foot |
|
Industrial/Flex |
82 |
$350,000 |
$46,000,000 |
$99.26 |
|
Office/Mix Use |
112 |
$250,000 |
$15,520,000 |
$265.53 |
|
Retail |
101 |
$255,000 |
$15,520,000 |
$156.07 |
|
Land |
47 |
$100,000 |
$93,000,000 |
$970,082 (per acre) |
The following chart illustrates the number of sales in King County by month. As with Snohomish County, closings peeked in June. However, in general, sales were more evenly spread throughout the rest of the year.
I’ve had lots of positive responses to posting slides from our other classes.
Here is a summary of the commercial sales in Snohomish County and King County’s Eastside for the last few months. Specifically, the sales from August 1 to October 31, a 3-month period.
During this period, the average number of transactions is largely unchanged from previous months. But, the transactions are far larger, with some high-profile transactions in East King County. The data comes from the Commercial Brokers Association database, so is limited to transactions reported there.
East King County Sales
In East King County there were 17 sales during the period. In October, there were only 2 transactions closed. But, they were large transactions. The largest was the sale of a 164,000 square foot office building in Overlake for $46,000,000 ($279/SF). The building was sold to investors and was fully leased to Microsoft. The other large transaction was the sale of a 110,000 square foot Yarrow Bay office building for just over $21 million (about $195/SF).
In September, there were 9 transactions closed, the most transactions of any month this year. The largest was the sale of the The Bravern towers in Bellevue for $410,000,000. That amounts to $598 per square foot. This Seattle Times article provides most of the details. Other transactions ranged from $275,000 for 20 acres in North Bend to $15.6 million for a business park in Issaquah ($162/SF).
In August, there were 6 transactions on the Eastside. The smallest was for developable land on Bothell-Everett highway, which sold for $67,000. The largest was for a Bellevue nursing home for $7.1 million ($115/SF)
Here are links to the details:
http://www3.commercialmls.com/epropertydata/9528748399557
Snohomish County Sales
In Snohomish County, there were 30 sales during this three month period. This is a large jump compared to the previous months. Most of the sales occurred in August and September, with only 3 in October.
11 of the sales were in August. In fact, the 4 largest transactions were in August. Those 4 were:
There were several much smaller transactions also, including a $310,000 retail property in Arlington and a Marysville office building purchased at the Trustee’s sale for $350,000.
In September, there were 15 transactions. The largest was the sale of a large lot and retail building in Monroe to St. Vincent DePaul (who moved out of their previously leased space also in Monroe). The sale price was $2.4 million ($71.64/SF). Other transactions included land, office, retail, and industrial sales in Everett, Lynnwood, Mukilteo, Edmonds, and Snohomish. Sales include sales of 2 Office condos in Everett for $533,475 and $390,600 ($391 and $330 per square foot, respectively).
As in King County, sales slowed down in October, with only 3 transactions closing:
Here are the details of the Snohomish County Sales:
http://www3.commercialmls.com/epropertydata/3744748418150
