Panel Discussion

Today I am in Davie participating on a panel for a Land Use Permitting and Entitlement Course at the Huizenga School of Business and Entrepreneurship at Nova Southeastern.

The class consists of MBA students that are getting a specialization in Real Estate. The focus of this class is the entitlement and permitting process, as well as a better understanding of the roles and relationships between permitting agencies, consultants, the public, and implementing law.

An expert for every market

I spend most of my days working on real estate deals in one form or another. Sometimes it is a loan being sold to investors, sometimes it is the liquidation of a developer's inventory and on a rare occasion it is a good old fashioned traditional real estate transaction. I want to share one of my secret weapons with you; his name is Mike Timmerman.

Mike and I have known each other for over 10 years and he consistently delivers recommendations based on hard data versus other "experts" that go with the current trend. If you are a regular reader then you know I like Mike and have written about his great talent for making sense of all those real estate numbers. Mike and I have not had a chance to work together much over the last few years but we did have an opportunity last week and that is what I want to tell you about today.

I have a client that needed to know precisely what the market decline rate has been since 2005 for a specific market. I had my own ideas and my client had his own ideas about the market for this type of product. Mike quickly dove into the data and delivered an analysis that, after extensive review, was right on the money. I will say Mike did not give us the answer we were looking for but his insight and mountains of data backing his conclusions were absolutely spot on.

Today it seems as though everyone with a computer is an "expert" analyst and nobody thinks twice about manipulating the data to reach a preconceived conclusion. Fortunately, Mike never got that memo and he works like he has for the last 30 years - letting the data reach the conclusion. That is not to say Mike does not have instinct. In late 2005 Mike presented his analysis at an Urban Land Institute program in Naples where he announced the party was over. Now if he had just looked at sales or permits issued he would not have come to his gloomy conclusion. Mike took it a step further and looked at affordability and a survey of where people closing real estate contracts lived. He found the market had priced most real buyers out of the market place the previous years appreciation rates had reached unsustainable heights. He also found most buyers were from up north, namely Ohio and Michigan. In hind sight Mike called as he saw it and he was correct.

If you have a need for hardcore data analysis and someone to make sense of market you are in, I suggest you contact Mike at mtimmerman@fishkind.com, oh yeah, tell him Dave sent you.

Just in case you are wondering, Mike did not ask me or pay me to write this blog. I cannot help that I am a cheerleader for those I respect and admire.

Unconventional Wisdom

I had lunch with an investor friend of mine on May 18 and we had a very interesting discussion about the economy in general, real estate prices/values and the stock market. First let me say if a man is measured by his friends then I am the richest guy in the world. Not only are my friends smart but they are generous with their time and allow me to probe their thoughts on what is happening but also why it is happening (in their opinion).

My friend sees the general economy as sluggish and thinks it will continue to be flat for some time. He sees much trouble ahead for the commercial real estate market. It may be because there is too much space and not enough tenants or consumers may not be spending enough to keep the tenants in place. Regardless, he sees cap rates heading back to the historic mean of 10%. In english that means retail/strip centers may fall as much as 40% in value from 2006 prices. Compounding the situation is many centers are not stable as in they are not 90% full and most are losing tenants such as Circuit City, Linens & Things and other bygone companies.

On top of that, rents are still falling in centers across America to entice tenants to move from one center to another. Plain and simple, the commercial market IS ugly and will get worse. I have to say I agree with my friend. With that said, I also have friends in areas that are not overbuilt and their centers are staying full and rents are stable but these are in less populated areas.

As for the stock market, I keep reading about how much cash is sitting on the sidelines ready to invest in anything that makes sense. I was talking to my friend about a graph someone sent me that showed money market deposits as a ratio of the S&P and it showed a monster amount of available cash. My friend pointed out how the graph misrepresented the actual amount of available cash because the S&P index is down by almost 50% since a year ago. Therefore there is not twice as much cash as a year ago as the graph indicated, it is more of a reflection of how the S&P is down. My friend really likes SRS (Super Short Real Estate Index) and I will tell you I am also a fan of SRS and I own it as part of my own holdings. All of my investor friends believe the stock market is over bought and we are in a secular Bear Market that just happens to be in a rally.

Back to real estate in general. One thing my friend has been saying for some time now is do not buy (for investment purposes) anything for a year or so. He believes the prices will be the same if not lower a year from now and the chance of further decline is just not worth the risk of marginal returns (rents) and carry costs such as taxes and insurance. In general I agree with him but there are always exceptions and one should keep their eyes peeled for those exceptions (i.e. some distressed bank own property for example). It also depends on why you are buying too. If you are buying to use for your own purposes, then there is no risk of lost expected rental income and you will pay taxes and insurance wherever you live or run your business.

In closing I hope everyone has a great Memorial Day weekend. Stay safe.

Racing for Charity

This past weekend I participated in the " 33rd Annual Great Dock Canoe Race" at Crayton Cove in Naples, Florida. I have been attending this event since 1990 and this year was my first time competing!

The Annual Great Dock Canoe Race is arguably Naples' most popular event. Contestants and spectators travel from throughout the country to race and watch, and thousands of people, from young children to grandparents, celebrate the Race on land, dock and bay. The Theme for the event changes each year, and the costumes and headgear of the participants and spectators are as much a part of the day as the paddling.

My partner in the race, Kent Skrivan of Garlick, Stetler & Skrivan is a very strong rower and is generally responsible for our 5th place finish in the VIP race with a respectable time of 4:26.

At the races, over $7,000 was raised for CHS Healthcare a private, not-for-profit “safety net” health care provider with 12 health care facilities located throughout Collier County which includes the Ronald McDonald Care Mobile. They offer basic primary and preventative medical and dental health care services. In calendar year 2008, they provided services to over 46,700 patients (over 31,000 of which were children) for a total of nearly 186,000 patient visits! You can visit their website at http://www.collier.org/

In the pictures, I am the one in the front wearing an orange Gator hat.

Getting a loan

I know the media is pretty good about reporting how bad the economy is doing and "no one" is lending.

I have worked on over 17MM in loans this month and find the banks willing to lend...just not at the same crazy standards they were using in 2005 (got a pulse - great you are approved!). I am seeing LTV's in 60-75% range with the key being what exactly is the value today. This is where my company helps by assisting lenders review specific assets for a specific loan. In many cases it is not pretty. The fact is there is not much a bank or anyone can do when the borrower owes or wants to borrow 10MM for a 2MM asset - which is all too common these days. That is how I see things from where I sit.

If you have a question about lending, asset valuation or development in general, drop me an email dave@keystonellc.net

Finally...someone gets it!!

I was reading the paper last Sunday (as I do most Sundays) when I saw an ad by a local developer touting their project as a great place to live. Now this type of ad is generally not too shocking since every developer says the same thing about their respective projects.

What caught my eye was the marketing blatantly touted the fact the community did not have a Community Development District (CDD), a tool large developers use to finance the development of their property through bonds where the residents of that community pay the bonds back. It is a slick deal for developers. They pass the development costs on to the end user while at the same time charging as much as every other development for their land (yes CDD's are real - I am not making it up).

As I was saying, a local development known as the Vineyards has something few developments in this area can say NO DEBT. That means when you buy a new or existing house in their project you do not have to pay additional CDD fees to live there. What a novel concept!

There are many developments in Florida and elsewhere in the country where the residents are saddled with $10-20 thousand (or more!) in debt the day they close on their house. In my less than humble opinion, the CDD tool is over used and does not save the consumer any money. Too many MBA's and CPA's with little regard for future buyers appetite to pay more fees long after closing were driving the development bus.

So Kudos goes to the Vineyards and the "in hind sight" brightest developers in the land. They have an attractive community with all of the amenities one could ask for with ZERO add-on fees for the buyers. As their ad says "This Developer Gets It!". I agree.