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By AZ Advisory Team, January 29, 2010 6:58 pm

Operating Expenses (OE)

Operating Expenses are those things that the property owner must pay for while owning the property. Such expenses might include property taxes, insurance, maintenance fees, management fees, and utilities.

Net Operating Income (NOI)

The Net Operating Income is the amount of money that would go to any investor after receiving all income and paying all expenses, with the exception of payments on loans and income taxes. The NOI is important because it makes all real estate investments that are purchased for cash flow equivalent.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 28, 2010 10:56 am

Vacancy and Collection Losses (V/C)

Vacancy is the measurement of time, expressed in percentage of the GPI, that you would expect the property to not have a tenant. Every property will have periods of vacancy due to change-over in tenants plus market cycles that make it harder to find tenants.

Collection losses, much like vacancy in that no income is being collected, is when non-paying tenants are in the property and either need to be motivated or evicted. This too is expressed as a percentage figure of GPI.

The key to Vacancy and Collection Losses is that you can compare different types of properties in different market cycles. Perhaps an office in the higher price range will have longer occupying tenants, thus a lower vacancy, whereas a property in a student area can be expected to turn nearly every year, resulting in a higher vacancy. Using the correct figures for vacancy allows us to compare these two properties and determine which one is the better buy.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 27, 2010 10:22 am

As a commercial real estate investment advisor, I evaluate every property’s potential return on investment for my clients.  I have found out that some people do not know where to start. Location, accessibility, demographics are some important factors but these are not enough.  Qualitative characteristics of a property seem to play a major role but let us remember to look at the numbers to have a good picture of what we are going to invest in.

There is an equation I call the Commerial Real Estate Stack.  This is a basic of measurement model which allows an investor to look at an investment property and convert it to a mathematical model so that it can be compared with other investment options.

This mathematical equation will allow the investor to determine the Net Operating Income (NOI) of a property. Here are key terms:

Gross Potential Income (GPI)

The Gross Potential Income of a commercial property is the best case scenario of what it can generate in rent. If a property can charge $2,000 per month, then the GPI would be $2,000 x 12 = $24,000 per year.

Please stand by for the continuation.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 26, 2010 6:08 pm

Purchasing ahead of the market’s bottom, as opposed to waiting for concrete signs of recovery, provides investors with the advantage of relatively limited competition. Resumption of job growth will draw more investors back into the market, and, while prices may soften further before stabilizing, they ultimately will pass through current levels at the start of the next appreciation cycle.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 25, 2010 2:07 pm

One of the biggest risks to the economic recovery and commercial real estate is rising interest rates ahead of a recovery in end demand. In the last few weeks of 2009, the 10-year Treasury yield moved up 60 basis points to 3.8 percent. This move largely reflected a capital shift toward equity markets as risk tolerance rose but also illustrates inflation concerns and volatility in the U.S. dollar. This recent rise in long-term rates may not last, as geopolitical concerns and a choppy economic recovery pattern may create a fl ight to safety, but the prospects of a jump in interest rates above and beyond the sustainable 3.5 percent to 4.0 percent range poses a risk to the housing recovery and places additional pressure on commercial real estate values.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 22, 2010 3:40 pm

Lenders Remain Cautious, but Encouraging Signs Emerge. Banks will remain the primary source of financing for commercial real estate, with the exception of apartments, which will continue to benefit from agency lending. Life insurance companies are showing renewed interest in lending, but a 2010 surge is unlikely due to capacity limitations. While traditional CMBS is not expected to become a major source of financing in the near term, the first TALF-eligible CMBS issuance was met with strong demand and paved the way for a few non-TALF deals in the weeks that followed.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 21, 2010 8:17 pm

Commercial Real Estate – Office: First-time unemployment claims fell in December to their lowest point since the onset of the financial crisis in September 2008. In addition, only 11,000 jobs were lost in November, the lightest month of cuts since the recession began. Reductions were concentrated in the manufacturing, construction and information sectors and were almost offset by growth in healthcare and the professional and business services sector. The gain in professional and businesses services hiring was driven mostly by a surge in temporary staffing, which rose for the fourth consecutive month in November after a prolonged period of contraction. This trend suggests that staffing needs at many companies have begun to increase as a leading indicator of eventual payroll hiring when companies enter an expansion mode. The recession has claimed nearly 7.2 million jobs so far, including 4.1 million positions in 2009.

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By AZ Advisory Team, January 20, 2010 8:00 am

Commercial Real Estate – Office: Vacancy growth is slowing down and is expected to recover relatively quickly due to the limited construction of new offices during the recession.  Tight credit markets continue to hamper office investment activity but also restrict new development. The latter bodes well for office property owners in the next recovery cycle, building on the benefits of below-trend construction during the past several years. In 2010, less than 30 million square feet of new office space is slated for delivery, the lightest period for completions since the mid-1990s. Many projects have been deferred or abandoned in recent quarters, and the planning pipeline continues to thin due to weak office space demand and a lack of financing. As a result, owners of existing properties should have an extended opportunity to fill vacancies ahead of the next upturn in construction. This may even drive rents up when demand grows in the upturn against limited supply of offices.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 19, 2010 9:26 pm

Medical Office Investments: While fewer office sales were reported in 2009, medical properties accounted for roughly 25 percent of the total, up from 12 percent prior to the credit crunch. Despite deep office-using job losses in recent years, healthcare posted steady gains through the recession. The combination of aging baby boomers and potential healthcare reform will draw more investors to this segment in the near term. It is estimated that if 30 million uninsured gained coverage, as current legislation anticipates, the added demand would require approximately 59 million square feet of medical offi ce space beyond what is needed to satisfy normal demand trends. Cap rates in the medical offi ce sector have increased but not to the degree registered among traditional office assets, with the average of 8.5 percent up just 120 basis points from the low recorded in 2008.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, January 18, 2010 10:08 am

Following four consecutive quarters of contraction, GDP expanded at an annualized rate of 2.2 percent in the third quarter of 2009, signaling a technical end to the recession. The resumption of growth marks an important turning point; however, the increase is attributable to government spending and incentives such as the “Cash for Clunkers”program and the first-time homebuyer tax credit. With only $234 billion of the $787 billion stimulus package paid out to date, government spending should support modest economic growth through most of 2010. A more vigorous, self-sustaining expansion is unlikely to gain traction until the second half of the year, when renewed business and consumer confidence will translate into increased demand, replacing the stimulus as the primary driver of economic growth.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.