Commercial Real Estate Loans & Investment Sales

A Global Search for Returns

Article by Parke Chapman Via National Real Estate Investor

With so much foreign money pouring into U.S. property markets over the past few years—inflating prices and cutting returns—American investors increasingly are looking offshore for higher yields. There’s just one catch: The spread between U.S. and offshore returns is narrowing. Demand is strong globally, pushing down cap rates, and the ability to move money and market information at the speed of the Internet have left few undiscovered pockets of above-market opportunity.

Still, there is clearly more U.S. money looking for returns abroad. A recent survey by institutional real estate newsletter Real Estate Alert found that a total of 21 domestic operators are overseeing 26 funds that invest solely outside of the U.S. Tishman Speyer Properties, for example, is raising $1.3 billion for a series of funds that will target India, China and Europe. It’s also planning to launch a Brazilian joint venture.

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To learn more about Emerging Markets, please contact Pacific Security Capital at www.pacificsecuritycapital.com or call 1-800-844-6085

Retail Vacancies and Rents Rise, Pointing to Market Slowdown

Article By Ryan Chittum Via the Wall Street Journal

The U.S. retail real-estate market showed signs of slowing in the third quarter as vacancies moved higher but it wasn't enough to damp rents, according to a new study.

The higher vacancies are likely to reinforce investor concerns that weaker consumer spending means retail real estate has peaked.

Shopping-mall rents rose 0.9% in the third quarter -- the fastest pace in two years -- to $38.08 per square foot per year from $37.75 in the second quarter, according to the survey of the top 67 U.S. markets, excluding New Orleans, by Reis Inc., a New York-based commercial real-estate research firm. The vacancy rate moved to 5.4%, up from 5.1% in the previous quarter.Rents at strip malls were up 1% to $18.23 a square foot in the third quarter from $18.05 in the second quarter. The vacancy rate edged up to 6.8% from 6.7% in the second quarter as absorption -- the net change in occupied space -- slowed from its high second-quarter pace. Tenants absorbed 6.8 million square feet in the quarter, down from 9 million square feet in the second quarter.

In a potential sign of trouble in retail, 16 of the 67 markets surveyed had net decreases in occupied space at strip malls during the quarter as consumers appeared to pull back on spending, said Lloyd Lynford, chief executive of Reis. The total decrease in occupied space among the down markets was about twice the total decrease among down markets in the second quarter.

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To learn more about commercial real estate loans from Pacific Security Capital or its preferred client program, PacificEliteTM, please visit www.pacificsecuritycapital.com or call 1-800-844-6085

Pacific Security Capital Provides Commercial Real Estate Advisory Services for North Carolina Planned Community Project

Beaverton, OR, October 27, 2005 – http://www.pacificsecuritycapital.com – Pacific Security Capital (“PSC”), a leading commercial real estate investment bank providing advisory services, investment sales, capital markets and development services, announced today that it has been engaged by an offshore investor to provide commercial real estate advisory services for a planned community.

The 1000 acre North Carolina-based planned community will include single family detached housing, a golf course, and both retail and condo-hotel components.

“While our client is an experienced sponsor in the European Community, they are less familiar with the intricacies of real estate practices in the United States,” said Theddi Wright Chappell, Managing Director, Global Advisory Services, Pacific Security Capital. “By engaging Pacific Security Capital to provide advisory services we have been able to help them protect their investment.”

Pacific Security Capital will advise the investor on how to deal with diverse factors including:
• Complex agency requirements
• Environmental regulations
• Compliance related issues
• Local market considerations
• Political and geographic risk
• Changing capital markets,
• Planning and construction requirements
• Fluctuating costs and market absorption rates

“The financing, developing, constructing and managing of commercial real estate is a fluid, complex and ever-changing process that requires specialized knowledge and skills that are rarely found within most organizations,” said Chappell. “Pacific Security Capital has the experience and expertise to offer advisory services to its clients to minimize their real estate risk and maximize their Return on Investment, Assets, Equity and Operations.”

To learn more about commercial real estate advisory services from Pacific Security Capital or its preferred client program, PacificEliteTM, please visit www.pacificsecuritycapital.com or call 1-800-844-6085.

Google Earth Gathers Commercial Real Estate Data

Article Via Marketing VOX

CoStar Group, commercial real estate's largest data provider, and Google are in talks about integrating building information with Google Earth mapping service, and preliminary discussions have taken place with Yahoo as well, reports the Mercury News (via SearchEngineLowdown). "We have licensed some content to Google already," said Andrew Florance, chief executive officer of CoStar Group. The deal is Google's initial foray into the realm of commercial real estate.

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To learn more about commercial real esate investment bank, Pacific Security Capital, or its preferred client program, PacificEliteTM please visit www.PacificSecurityCapital.com or call 1-800-844-6085.

Commercial Real Estate Investment Bank - Pacific Security Capital - Engaged As Exclusive Program Manager for $1 Billion Las Vegas Mixed Use Project

Beaverton, OR, October 20, 2005 — http://www.pacificsecuritycapital.com – Pacific Security Capital (“PSC”), a leading commercial real estate investment bank providing capital markets, investment sales, advisory services and development services, announced today that it has been engaged as the exclusive program manager for a mixed use project in Las Vegas with construction costs estimated to be in excess of $1 Billion dollars.

Pacific Security Capital will provide turnkey program management services for the project which is expected to consist of retail, gaming and condominium components.

“Pacific Security Capital is seeing the demand for its third party development services sky-rocket,” said Mike Myatt, Executive Managing Director. “The size and sophistication of many of the projects we are engaged in require a unique combination of skill sets that very few service providers can offer.”

Pacific Security Capital will provide the following turnkey program management services for the Las Vegas project:
• Entitlement Consulting
• Fee Development
• Project Management
• Construction Management
• Capital Markets Services

“When a client is going to take the risk of making such a substantial investment into a commercial real estate project, Pacific Security Capital manages the risks associated with large scale development projects,” said Myatt.

To learn more about capital markets, development services, investment sales, or other advisory services from Pacific Security Capital or its preferred client program, PacificEliteTM please visit www.PacificSecurityCapital.com or call 1-800-844-6085.

The Risks & Benefits of Investing in Emerging Markets

By: Jim Kean, Managing Director, Chief Investment Officer
       Mike Myatt, Executive Managing Director

Over the past 20 years, the commercial real estate market in the United States has developed a depth and sophistication that is beginning to approach the maturity and efficiency of alternate asset categories. Improved market efficiencies coupled with today’s surplus of capital flow have created the most competitive commercial real estate market environment in recent history. The confluence of these macro economic trends and current market conditions have created a reduction in the total investment returns that can be achieved on investments in U.S. commercial real estate assets.

Given the surplus capital flow and the fact that commercial real estate as an asset class offers many advantages over other investment alternatives, asset/investment managers will not be able to disinvest themselves from real estate allocations, rather they will simply begin to look around for other higher growth markets that will allow them to maintain yield. Emerging Markets in Eastern Europe, India, Latin America, China, and the rest of Asia present scenarios for higher growth, even on a risk adjusted basis. On an aggregate basis the statistics are impressive. For example, currently 80% of the world’s population accounts for 20% of world GDP. By 2015, 50% of world GDP will be accounted for by Emerging Markets.1 Consider the following:

• Rising Economies: Over the past decade, the twin drivers of expanding world trade as well as a more globalized production system have permitted a number of Emerging Markets to experience the highest GDP rates in the world. China has routinely experienced 8-9% annualized growth and India has followed closely with 7% annualized.
• Demographics: For the most part, Emerging Markets represent younger populations, growing numbers of well-educated professionals, an expanding middle class, growing consumer bases, urbanization, and rising incomes. In addition, the structure of family life for these modern middle class populations is assuming the “western” nuclear form and moving away from the more traditional extended cohabitating family unit.
• Commercial Demand: The economic expansion as well as the presence of global companies that bring employment oriented around intellectual capital is creating demand for modern, western style, commercial real estate infrastructure. Core assets such as office, industrial, retail, multifamily and hospitality are all experiencing rising demand.
• Residential Demand: One of the biggest exports the U.S. has had over the past twenty years has been culture and lifestyle. As the successful Emerging Market economies undergo the demographic shifts described above, demand for western style single family residences as well as modern multifamily is experiencing explosive growth. An example of this is in India. Investments of more than $25 billion USD will be required in the next 5 years to fulfill an expected shortfall of 22.7 million housing units.2
• Closed Market Systems Opening Up: Most successful Emerging Markets have been engaged in systematic reform of basic societal values we take for granted in the developed world. These include property rights, legal process, published regulations and statues, methods to ascertain and certify real property rights, etc… In addition, specific reforms such as privatization of state owned industry, relaxation of capital controls, and liberalization of rules regarding Foreign Direct Investment (FDI) are all encouraging growth and investment.

All of the factors described above play into a developing long run scenario where opportunities exist for the real estate investor interested in global real estate opportunities and higher returns. All of the asset categories we are familiar with in the U.S. market will be in demand within these developing economies. As well, with this demand for modern real estate built to developed world standards and quality will be a concurrent need for all of the ancillary services required to maintain a modern real estate infrastructure. Site selection, construction and property management, financing – all services will be in demand.

For all of the optimism surrounding the macro and micro economic trends driving the globalization of commercial real estate, investors wishing to approach emerging markets should rightly do so with some degree of caution. Some of the more common risks of investing in emerging markets include:

• Political risk: The process of modernizing the economies and systems of emerging markets does not represent a steady or predictable process. Many of these countries have experienced situations of two steps forward and one step back. Most of the setbacks are greatly influenced by political developments that at times represent backlash against western ways.
• Legal and regulatory transparency: Every country has a system for governing property rights and development. It goes without saying that an improper appreciation for how these systems work within a specific country could have a severe impact on investment returns.
• Property rights: In the U.S., title companies provide a very systematic, quickly researched method for determining legal descriptions of property as well as what constitutes a claim on the subject property. Things are not nearly as straight-forward in an emerging market. For example, in Panama, even after a local real estate attorney researches a property, “squatters” can step forward and file a legal claim of historical residency rights to the property. Many of the emerging markets have long running histories and complex, difficult to resolve boundary situations. An absence of a central database of titles and property deeds may also add confusion to the issue of who owns what.
• Lack of professional real estate skills: emerging markets are fragmented and lack the professional services a developed world investor may take for granted. Finding real estate professionals with the requisite skills to participate in a real estate transaction may be challenging.
• Operational and logistical concerns: maintaining offshore investments in commercial real estate can add to the complexity of operational and logistical efficiencies. Time zone issues alone can cause a burden to operational efficiency. Property and asset management, financing, and many other normal operational and logistical considerations cannot just be taken for granted.
• Liquidity concerns: Lack of central databases as well as public records of transactions means that there is a deficiency of market pricing information to make comparisons as well as drive transactions. Reduced market transparency also means that transactions take longer to close. Word of mouth selling methods because of a lack of a database driven listing service impedes transactions and liquidity.
• Infrastructure: In the U.S., there is an assumption of basic infrastructure as structured and mandated by an organized governmental authority. While there may be complaints within our system regarding the process developers may need to go through regarding sewer, power grid, water systems, traffic planning, clean air, parks, environmental issues, etc… in many cases rules governing infrastructure and who is responsible for it barely exist in these countries. A real estate investor and/or developer may end up assuming the development and capital needs for all the basic infrastructure usually provided by a more developed society.
• Zoning and impairment: Every market has a different approach to what the owners of properties around your property may or may not do. In many of these environments, little or no zoning exists. The risk of someone engaging in development detrimental to the value of your property is very real.
• Capital Controls: When confronting the issue of repatriating capital from a successful real estate investment, there is a real danger of not being able to extract capital and/or profits from the Emerging Market. For example, China has been known to impose “profit taxes” when foreign interests are trying to bring capital home from the sale of a property. Argentina currently requires the creation of a one year capital account in the amount of 30% of invested capital for every FDI in the country, which will be held by the Argentine government during the period of the investment. While the present situation has the government treating this capital well, in 2002 during the currency crisis, the government ended up seizing a number of large cash accounts.
• Currency Risks: Let’s say U.S. investor is taking dollars and purchasing an Indian property denominated in rupees. Two years later the property sells and you record a big profit. However, if you did not hedge the currency, you risk recording a loss or at least a reduced profit because of exchange differences. In the past five years alternatives for country specific currency hedging have become much more affordable but it still is a risk factor that needs to be addressed.

While all of the above risks (and more) can be present in emerging markets investments, these risk factors can be successfully managed by engaging the appropriate professional advisor. Entering an emerging market without an experienced country specific advisor in tow can cause at best project inefficiencies such as time delays and at worst total loss of investment. When considering the development of an emerging markets strategy, best practices would suggest that engaging a global commercial real estate investment bank with a local point of presence would assuage many of the concerns listed above.   

In summary, the opportunity to get involved on the ground floor of the growth markets in commercial real estate over the next twenty years is available. Undergoing the effort now to learn and understand how investments work in emerging markets will pay dividends for the persistent, patient, long run investor. If an emerging markets investment strategy is selected by an investor group, it is critical that a country specific set of risks is established and subsequently addressed to protect investor capital and returns. A successful strategy will involve selecting a set of advisors who can help a new investor navigate the maze of issues present in each geographic area.

For more information on investing in emerging markets, please contact commercial real estate lender Pacific Security Capital at www.pacificsecuritycapital.com or call 1-800-844-6085

Commercial Real Estate Lender - Pacific Security Capital - Provides $8.3 Million Industrial Property Loan

Beaverton, OR, October 11, 2005 –- http://www.pacificsecuritycapital.com – Pacific Security Capital (“PSC”), a leading commercial real estate lender, announced today that it has provided an $8.3 Million industrial property loan to a local Portland-area property developer.

The loan was collateralized by a 200,000 square foot industrial property with an office component. The building is occupied by a single non credit tenant.

“The owner was able to negotiate a lease extension which allowed them to lock down today’s low interest rates and pull some equity out of the transaction,” said Michael Wenzlick, Senior Managing Director, Pacific Security Capital. “Even though the tenant was not investment grade we were able to provide long term non recourse financing for the borrower.”

“Concurrent with the loan closing, Pacific Security Capital coordinated the defeasance of the existing loan,” said Wenzlick, “which is a form of loan prepayment that is being seen more and more in the commercial real estate financing world today.”

Defeasance is a prepayment provision that is increasingly being used by commercial real estate lenders to substitute collateral and increase the predictability of payment streams, meaning that the lender can offer the borrower a lower interest rate.

Pacific Security Capital closed the loan at the end of September and provided a ten year fixed interest rate of approximately 5.3%.


For more information on commercial loans please contact commercial real estate lender Pacific Security Capital at www.pacificsecuritycapital.com or call 1-800-844-6085

Equity Financing

Article Via Chicago Tribune by Stephen D. Froikin

Equity means ownership. Equity financing means that you give an ownership share of your business to your investor. Your new "partner" expects to share in the profits of your business. Equity financing differs from debt financing in two ways:

1. Lenders expect to get their money back plus interest. The amount of your obligation is fixed. There is a repayment schedule and that's it. Once a lender is paid off the relationship is over.

2. Equity investors don't expect to get their money back in the same way as lenders. They expect to get a stream of income out of the profits of the company. There is no payment schedule and the stream of income can vary over time. This is a riskier situation for the investor, so the hope is for an even higher return than a lender would get. Of course, investors are interested in more than the stream of income. They'd like to be able to sell their share in the business if they ever need to. That's the return of capital, similar to a lender's getting back the principal amount of a loan, but the amount is not fixed. Instead, it depends on what a buyer would pay for the ownership share.

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For more information on Equity Financing, please contact Pacific Security Capital at www.pacificsecuritycapital.com or call 1-800-844-6085

Apartment Vacancy Rate Continues to Decline

Article by Michael Corkery Via RealEsate Journal

The nation's apartment market continues to climb out of a four-year slump, posting another quarter of declining vacancies and rising rents.

The vacancy rate for the top 67 metropolitan apartment markets in the U.S. fell to an average of 6.4% in the second quarter, from 6.6% in the first quarter, according to new statistics from REIS Inc., a New York-based real-estate research firm. Average rents also increased slightly.

It's good news for apartment owners, who have weathered years of sagging rents and mounting vacancies. Since 2001, the apartment market has been hurt by weak job growth and the flood of Americans taking advantage of low interest rates to buy homes instead of renting apartments.

Researchers say there's now a healthier balance of supply and demand. The number of apartments occupied by tenants rose by 10,103 units in the second quarter, after an increase of 3,584 in the first quarter.

A major factor driving these numbers is condo conversions. Developers are rushing to turn rental apartments into condominiums, thus reducing the rental supply. Fewer new apartment buildings are being built because most new construction is giving rise to condos.

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For more information on Apartment Loans and Condo Financing, please contact Pacific Security Capital at www.pacificsecuritycapital.com or call 1-800-844-6085.