Wednesday, September 16, 2020

 

         News      

The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership

¨ E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com

 

 

 

REAL ESTATE INVESTMENT OUTLOOK SEPTEMBER 2020

 

The unanswered question now is: Where do we go from here? The answer is hinged on three issues at least: (1) Can a second wave of accelerating infections after the travelling and summer holiday season be avoided? And if not, will regional and partial lockdowns be sufficient to contain the virus? (2) Related to this, is the question as to whether a medical treatment and vaccine will be available. (3) If  our economy is revitalized, will the strength of the economic recovery be sufficient to restore the real estate investment markets?

 

The combination of a fear of infection, public guidelines, mandatory lockdowns and great uncertainty produced a sharp deterioration in economic activity with a deep and widespread shock to our labor market. An unprecedented number of workers (39% on average reported by the Organization of Economic Cooperation and Development (OECD)) shifted to telework, pushing the boundaries of the potential for this alternative way of organizing work.

 

Our jobless claims surged to around 6.9 million at the end of March. The weekly average of initial jobless claims now stands at approximately 3 million, as indicated by the US Bureau of Labor Statistics. This labor market trend is reflected in an US unemployment rate of 14.7% for April. In July, as some lockdowns were relaxed and people returned to their jobs, the unemployment rate dropped to 10.2%.

 But the gap between the pre-crisis level and the current level of real estate activity is still very wide. With the resurgence of new infections, consumers have become more cautious and are avoiding restaurants, shopping areas and entertainment events. In addition, the vast majority of plans by states to relax the containment measures have been suspended or new restrictions are even being imposed. This also reflected in the industrial production number for July, which declined from approximately 5.5% in June to around 3.2% in July, indicating that economic activity appears to be plateauing. 

 

Given the heightened uncertainty about the longer-term impact of the disease on the real estate markets, we still, however, prefer lesser cyclical real estate markets, such as residential income, but are keeping a hold designation  on most multifamily markets . This integrates a sharp earnings contraction for the second quarter 2021 based on calstatecompanies Market Cycles research, with a lukewarm recovery during the third and a likely acceleration into the fourth quarter. And it compares with 2008/2009 during the Great Recession where earnings retreated on a similar scale. It is therefore fair to assume that we will have strong earnings momentum building up going into 2021, as seen in the aftermath of the financial crisis

Calstatecompanies publication Market Cycles will keep you informed as the real estate investment market changes. It will give you a two-year head start on when and where you should be investing. Our quarterly newsletter gives a clear, concise analysis of over 175 different markets across the country, and makes timely recommendations on WHERE and WHEN to buy or sell in Pockets of Opportunity

 

ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com

 

UTUBE: https://youtu.be/868wrjNPQFM  

 

 

Monday, August 17, 2020

 

         News      

The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership

¨ E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com

 

 

 

WHEN WE COME BACK….

 

 

WHEN WE COME BACK….after this coronavirus commercial  break whoever is our new leader will have to manage the economy as it restarts in earnest in 2021.  Finances have been overextended by the massive fiscal packages approved so far, and hard choices will need to be made about whether to push ahead with further stimulus, or to try to constrict spending as the recovery gets underway. Therefore, we do not believe that tax policy will be at the top of the policy agenda for either of the presidential candidates after inauguration. We can imagine that taxes might be gradually used over time to strengthen fiscal ratios , where the Congressional Budget Office estimates that the debt-to-GDP ratio may reach 120% over the coming years. In addition, it is possible that tax incentives will be created to promote a more sustainable  consumer attitude toward scarce resources. Whether this may hurt earnings or would even support earnings will depend on the availability of technology to support the ability of consumers to adopt more sustainable behavior.

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Calstatecompanies  recommends a long-term investment approach, the temptation admittedly exists to position real estate investments to take advantage of, or hedge against, potential election outcomes. We caution investors against doing so at this time, but instead advise them to be ready to alter their investments as new information arises. One reason for this is that the election outcome is highly uncertain, and positioning  right now for a specific outcome leaves it vulnerable to the risk of a different outcome, with different real estate market consequences. Instead, we recommend tactically adjusting real estate investments to reflect the evolving outcome probabilities and the policies likely to be adopted in each case. The implied rationale for this approach is to maintain diversification so that a single outcome does not cause significant financial agony. In other words, we believe that the elections will have a more short-term impact on the real estate markets. Consumers adapt to changed policies over time and enhance their return continuously. Therefore, a diversifying your real estate investments based on the research reports issued by the calstatecompanies Market Cycles will give you the information you need to make sound investment decisions.  

 

 ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com

 

UTUBE: https://youtu.be/868wrjNPQFM

 

 

 

 

Wednesday, August 5, 2020

         News      

The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership

¨ E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com

 

 

 

Real Estate Investment Outlook August 2020

 

 

It looks like the corona virus has spiked. When we will see a decline again depends on various factors: 1) the effectiveness of the fiscal support measures  2) how fast jobs will return and short-working schemes  can be reverted to normal working time employment, 3) how fast supply chains can be fully repaired, 4) how resilient private consumption will be in the light of elevated unemployment and rising debt burdens, and 5) the impact of possible second waves.

 

According to its World Economic Outlook, the world economy, especially the advanced countries, is expected to contract in a coordinated fashion.  Most countries have embraced various support measures such as tax deferrals, loans, equity injections, and guarantees. These policies will only have an indirect impact on growth this year because they provide financing rather than directly increasing spending.

 

The Fed has already stretched its balance sheet at a frantic pace. Its total assets have grown from 4.2 trillion USD in December 2019 (representing about 19.2% of GDP) to 7.2 trillion USD by early June 2020 (±31.5% of GDP). Most of the expansion thus far can be explained by its “traditional” asset purchase program targeting Treasury and government sponsored enterprise (GSE) securities. The holdings of those increased from 3.7 trillion USD in December 2019 (17.2% of GDP) to 5.6 trillion USD by the end of May 2020 (25.8% of GDP), surpassing their previous record in both nominal terms and relative to GDP (over 24% of GDP in 2014). In addition to these programs, which are already reflected in the bank’s balance sheet and which as yet do not have an official upper limit, the Fed has pioneered new measures to provide up to 2.3 trillion USD in loans to support the economy, only a portion of which is currently disbursed. This latter figure includes up to 750 billion USD allocated to purchase corporate bonds from issuers which are either investment or noninvestment grade.

 

 

One argument in favor of a potential boost to inflation is the massive fiscal spending that is being used to fight the worst consequences of the current slump in economic activity. But arguing that fiscal stimulus is a game-changer is putting the cart before the horse. It is not the current stimulus that matters but whether huge deficits will continue long into the future. It must be noted first of all that a big amount of the fiscal measures announced are loan guarantees rather than fresh new money. There is nothing simulating about adding more debt to balance sheets. Even a direct form of stimulus is designed to be temporary and self-calibrating. The bulk of the fiscal stimulus is also temporary – households have received a one-off paycheck, more likely to be saved rather than spent, as happened in 2008. As things stand, the fiscal stance is set to be massively contractionary next year, not expansionary.

 

These policies will have a devastating effect on real estate values in the coming years. To keep on top of the real estate markets and avoid the rocky road ahead, we recommend using calstatecompanies “Market Cycle” which gives you a two-year head start on when to buy, sell or hold.

 

 

ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com

 

UTUBE: https://youtu.be/868wrjNPQFM

 

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Thursday, July 9, 2020


         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨ E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com






Leading Residential Income Markets
2nd Quarter 2020


            LOS ANGELES, CA. The Center for Real Estate Studies (CRES) has just released their second quarter 2020 issue of “Market Cycles".  It gives a forward look at more than 150 residential income markets with “buy, sell or hold” recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in residential income properties.
 
            The current number of markets in the “Sell Phase” is thirty-three, according to Eugene E. Vollucci, President of calstatecompanies.  The number of markets in the “Buy Phase” is fifteen. Mr. Vollucci states, “This quarter the three top buy recommendations are Atlanta, GA, Greenville, SC and Portland, OR. The three top sell recommendations are Bellingham, WA, Denver, CO and Newark, NJ. The other markets are currently in a hold phase,”
according to Mr. Vollucci. 
 
            In this edition of our Market Cycles, we find the first quarter 2020 rental vacancy was highest outside Metropolitan Statistical Areas (MSAs), which was higher than the rate in the suburbs, and the rate in principal cities. The rental vacancy rate in principal cities was not statistically different from the rate in the suburbs. The rental vacancy rate inside principal cities was lower than first quarter 2019, while the rates in the suburbs and outside MSAs were not statistically different from the first quarter 2019 rates.
 
Unemployment rates were higher in May than a year earlier in all 389 metropolitan areas, the U.S. Bureau of Labor Statistics reported today. A total of 109 areas had jobless rates of less than 10.0 percent and 16 areas had rates of at least 20.0 percent. Nonfarm payroll employment decreased over the year in 357 metropolitan areas and was essentially unchanged in 32 areas. The national unemployment rate in May was 13.0 percent, not seasonally adjusted, up from 3.4 percent a year earlier           
The level of uncertainty in our economy is currently at an all-time high with the path of the recovery difficult to predict. Our government has taken major steps to try to cushion us and our economy through these difficult times. According to Zumper’s National Rent Report for April, Google search volumes for apartments for rent were down between 10% and 35% last week in its top cities, while long-term inventory dropped by about 12% last week.
We are keeping an eye on the real estate investments outlook created by the spike in coronavirus and policy steps that are being taken, but we would advise against putting too much weight on a specific-point forecast until the future pathway becomes clearer.
 
 
 
ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com







Thursday, June 25, 2020


*                   News
Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨ Webpage calstatecompanies.com ¨ E-Mail  CalStatecompanie@aol.com


Media Contact: Center for RE Studies                                                        For Immediate Release


Comprehensive Property Analysis Strategies


THE INTERNAL RATE OF RETURN (IRR) TO AIM FOR

The IRR should reflect the degree of risk you’re willing to take. The riskier an investment, the higher the IRR. If you’re purchasing a building that has decreased in value only because of temporary market conditions, your degree of risk might be considered moderate. Conservative projections are computed using rental growth and vacancy rates, and they establish the lower limits of the IRR. IRR projections based on replacement costs determine the higher limits of the IRR. Analyzing both rates of return allows you to assess the risks versus rewards relationship of each investment.

REVENUE ASSUMPTIONS THAT MAKE SENSE

Revenue assumptions play an important part of your analysis. In addition to the information provided by consultants, check with local rental firms. They are on top of current trends and demand. Lease agreements should be verified to actual rents for each tenant. Use rental applications to develop tenant profiles. Obtain a signed estoppel from each tenant attesting to the rent paid, occupancy dates, and deposits. Rent raises don’t always occur on the first day of the month or in the first month of the year. A careful review of rental agreements will assist in making accurate cash flow projections. Ideally, try to stagger individual rent raises throughout the year. It is less disturbing to the entire complex.

Vacancies vary in seasonal locations like college towns and resort areas. Make provisions for these fluctuations in cash flow projections.  Don’t assume income will be received evenly month-to-month and year-to-year. Projections based on research will result in a more accurate IRR.

ANALYZE EXPENSES CORRECTLY

When analyzing expenses, refer to the real estate investment inspection report. It should detail, by projected date the costs, repairs and replacements for each unit and the entire building. Using a comprehensive computer program will produce accurate operating budgets. 

Mechanical equipment such as water heaters, dishwashers, garbage disposals, and pool equipment, for example, have estimated life spans.  Major repairs and replacements on roofs, plumbing, decking, and cement should be detailed by estimated costs and the dates work is to be started and completed.

As with income, expenses do not occur evenly throughout the year.  For example, in cold climates, utility bills are higher in the winter than in the summer. With grounds and pool maintenance, it is just the opposite.

Expense figures should be compared with those published by the IREM. All sizable discrepancies must be explained.

Do not make flat rate projections. Don’t apply inflation rates across the board. Projections should be made on an item-by-item basis using the best information available. For example, if the inflation rate of 5 percent is used in one year, don’t use it again unless it applies. Actuals should be used whenever possible.

USE THE FEEL-AND-TOUCH ANALYSIS

As part of the analysis, we at calstatecompanies believe that absolutely nothing beats the feel-and-touch approach. A physical inspection of the real estate investment and the neighborhood will confirm your consultant’s reports. Critical words like good, bad, best, worst, bright, dull, a lot, and a little are subjective. Make sure everyone’s singing from the same hymn book when praises to your real estate investment are being sung!

Ask yourself the following questions when evaluating the area as part of the physical inspection:

            • Would you be willing to live or at least collect the rents in
   this neighborhood?
• What’s the graffiti index?
• How does the landscaping of the other properties compare with the one    
   you’re considering?
• Is there debris in the streets?
• Are there cars on blocks?
• Is it completely off the beaten path to major shopping and
  Work centers?
• Is the community growing favorably in the direction of your real
  estate investment?
• Are transportation lines readily available?
• Are schools and recreational facilities nearby?
• What is the ratio of renter- to owner-occupied buildings?

The greater the rental population, the more transient the area be-comes and the greater possibility of it being left unkempt. The physical test will give you that personal viewpoint necessary to complete the analysis.

Even in depressed markets you should look for properties in good locations. A cardinal rule is to buy the worst property in the best location, not the best property in the worst location. Buying the poorest real estate in a good location, at least gives you the opportunity to upgrade it. Whereas, upgrading an entire neighborhood could be difficult, if not impossible. When in doubt, a drive through will help.  Contact your local real estate investment management company or real estate licensee for assistance.



ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization and President of calstatecompanies. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com