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Commercial Real Estate Emerges as the Fourth Asset Class

Commercial Real Estate Emerges as the Fourth Asset Class

Before the 1980’s, institutional investment portfolios allocated investments between three dominating assets: stocks, bonds, and cash— also known as the “Big Three.” Commercial real estate was just one of the alternative asset classes (including hedge funds, private equity, and actual assets such as infrastructure and agriculture) that remained an ulterior investment.  Up until the liquidation of real estate in the late 80’s, CRE was largely inaccessible.

As investors sought ways to diversify their investment portfolios, CRE crawled up out of the woodwork of alternative asset classes. In addition, proliferation of its funds allowed the institution’s access to investment opportunities.

Where before CRE had been inaccessible to investors, by the early 90’s rapid advancements in the equity REIT (Real Estate Investment Trusts) market made CRE an alternative course for investors to consider. In 2001, third-party information providers had begun researching and providing the transparency requests necessitated by an asset class. By 2015 target allocation in CRE had risen to 9.62%. Although proprietorship of CRE still maintains its hindrances (lack of transparency, operational requirements, specificity of geography, illiquidity), it has rapidly risen above its fellow alternative asset classes to become the 4th asset class— now the “Big four.”

However, it’s not enough to simply understand the events that catalyzed commercial real estates evolution. Any institutional investment portfolio would do well to consider the pace of CRE’s continuous growth as a permanent allocation. Doing so will help assist in the unearthing of this market’s seemingly limitless potential in today’s 21st century.

Since 2012, capitalization in that commercial real estate sector has climbed to over $400 billion. Another way of gauging CRE’s influx of assets is by examining where institutional investment portfolios typically allocate their funds.

According to The Conference Board, a typical institution investment portfolio from 20 years ago would have allocated 50% to equities, 40% to bonds, and the remaining 10% would be split between cash and alternatives. A stark contrast resides between this and today’s projected distribution, which entails 55% allocated into equities, 20% bonds, 10% into CRE and alternative asset classes, leaving 5% allotted in cash assets. So, as we witness real estate bolstering its equity markets and acquiring developing market institutions’ and independent wealth funds’ portfolios, what is projected in its immediate future?

Based on 2015’s targeted allocation of 9.62%, the international flow of institutional capital would be estimated at $6.7 trillion dollars. This steady increase in CRE allocations only point towards a prosperous future where ownership in the markets will continue to span globally and the gap between debt and equity will continue to shrink. In addition, CRE cycles will become more frequent, facilitating the demand for qualified CRE managers who can thrive in this institutionally revamped industry.

As of now the GICS (Global Industry Classification System), which serves as the foundation for industry analysis, consists of 10 sectors. CRE is arranged to become the 11th sector.  And so, as commercial real estate finds itself in the throes of asset class competition, it continues to show promise for growth while it stakes its claim as the fourth asset class in today’s “big four.”

 

Chinese Investors Set Sights on Upstate New York

Chinese Investors Set Sights on Upstate New York

Ongoing turmoil and insecurity in China are encouraging many people to migrate to the United States. Chinese immigrants are now the third largest foreign-born group in the United States with an immigrant population of more than 2 million in 2013, according to the Migration Policy Institute. Recently, we’ve been seeing trends where more Chinese investors are setting their sights on residential and commercial properties around Upstate New York.

Upstate New York offers attractive opportunities for working families and singles alike. The Albany Business Review reports many Chinese-speaking buyers are seeking out investment properties and homes around Albany, New York, in particular, because of new job opportunities, affordable living expenses, and a quality education available at American schools. A group of Chinese and American investors have already purchased two downtown Albany office buildings for $4.25 million.

New York City and other parts of New York have already experienced a ‘flooding’ of Chinese investment dollars. $5.3 billion of Manhattan real estate was purchased in 2015 alone, according to data from Real Capital Analytics. From independent firms to conglomerates, New York is seeing a boost in developments and revitalizations thanks to Chinese investors who are moving their wealth outside of China in hopes of better returns. The Chinese government has loosened its grip on many restrictions it once had on investing in the United States and abroad, making the prospect of investing in New York’s high-profile neighborhoods even more attractive to Chinese investors.

Even some of the more rural areas in upstate New York will soon see a facelift. Idea Campus in California’s Silicon Valley started identifying commercial real estate investment opportunities in the Adirondack area to build a summer camp for Chinese students attending university in New York and Northeast cities. Plans for a training institute for Chinese students and their families are also underway. These initiatives would help create startups and businesses that in turn could encourage Chinese executives to move to the United States.

China continues to be one of the world’s largest economies and is currently the second-largest destination for foreign direct investment (FDI). While it has demonstrated exceptional economic output over the years, it still lags behind in outbound foreign direct investment (OFDI). President Obama has taken steps to attract foreign investment in an effort to promote economic activity and generate more jobs. Chinese firms sent $6.4 billion to the United States in the first half of 2015, according to Rhodium Group and continues to be the fastest-growing national investor in America. Other parts of the United States that are seeing an influx of Chinese investments and migrants include South Carolina, California, and Michigan. Michigan alone has attracted more than $600 million in Chinese investment over the past four years, according to TIME Magazine.

China’s economy is not showing any signs of improvement so experts suggest investment in the United States and New York real estate may end up slowing down in the next two years, according to a report from the Asia Society. Still, approximately $58 billion will be invested in commercial real estate between 2016 and 2020; $17.1 million in commercial real estate investments were already made between 2010 and 2015.

Political unrest, economic uncertainty, and minimal business opportunities are some of the key forces driving Chinese nationals to invest outside of their own country. For many investors, buying property overseas and focusing on developing organizations and businesses that would prompt more Chinese citizens to migrate — and improve their quality of life — is a more worthwhile venture. Upstate New York presents a number of opportunities for Chinese investors with attractively priced properties and potential for new developments in both rural and commercial districts.

 

Why Technology is Crucial to Today’s Real Estate Market

Why Technology is Crucial to Today’s Real Estate Market

More than ever before, the power to change your world is in your hands. Just slide the unlock bar of any smartphone and the universe is essentially at your fingertips. As the app economy grows, food delivery and social media are rapidly becoming the least exciting innovations. Like in other economic sectors, new technologies in real estate are creating unprecedented opportunities to save or make money when buying a property or investing in the real estate market.

Zillow and Trulia, the biggest digital real estate portals in the U.S., allow consumers to search over 110 million property listings. Though the two companies merged in 2015, each site and family of mobile apps retains its distinct flavor. Zillow provides information that is specifically tailored to home buying while Trulia helps people figure out the best place to live by furnishing data on schools, crime rates, and the overall neighborhood. Zillow also helps consumers obtain financing and connects them with brokers—and even offers helpful links for interior design.

For a buyer looking to spruce up her own home or flip one to make money, a service called Houzz takes Zillow’s design guide to the next level. Connecting people with over 10 million interior design ideas, contractors, and home décor retailers, Houzz can help address any design need. But its services do not end there. The site also features a search engine for local architects and building designers, allowing someone the opportunity to start building a home from scratch without setting foot outside his living room.

Technology also helps people invest in real estate without purchasing any property at all. Online crowdfunding platforms, companies that invest money into mortgages or directly into properties in order to generate returns, open people to a whole new world of investing outside of the stock market. Though past success is not guaranteed to yield the same results in the future, crowd funders have reportedly achieved returns of 10-13%. One such platform, Fundrise, requires only a $1,000 investment to get started, making investing in real estate convenient and accessible.

Digital investing in mortgages is not limited to individuals either. Created by the Kushner brothers, members of one of New York’s real estate dynasties, Cadre is a digital platform intended to help a select group of clients such as family offices and endowments make the best real estate investment decisions. Cadre’s employees use their expertise and training to prescreen opportunities. Clients may then view recommendations on the company’s virtual gateway.

The power of technology gives people unprecedented flexibility and freedom in their real estate search, but technology does not offer all the answers. Despite Zillow’s powerful search tools, certain insights cannot be found on any engine, even Google. Regardless of how technology is merged with real estate, real estate professionals are still the best protection and defense for purchasing property.

The Best Time to Buy Commercial Real Estate

The Best Time to Buy Commercial Real Estate

Commercial property offers better value than its residential counterpart. Abundant supply creates a fairly open playing field and better economies of scale. Commercial tenants also sign longer leases, which generate more cash flow than residential ones. Combined with bigger tax write-offs for commercial properties, commercial investors see bigger returns.

However, despite the relative ease of investing in commercial property, strategic thinking helps maximize the value of one’s purchase. Like with any other type of investment, the aim is to “buy low and sell high.”

So when is the best time to buy low? The answer lies in the real estate value cycle. Prices rise and fall in four stages: recession, recovery, expansion, and contraction.

During recession, property prices are low but financing becomes scarce or expensive. Commercial properties also have higher vacancies during this time. Nevertheless, because sellers are more likely to negotiate a lower price and the general price trend typically falls below replacement costs, this is the best time for buyers with high liquidity to invest.

However, potential investors in this stage should note that in addition to having enough cash to purchase a commercial property, they should also have extra reserves to pay for carrying costs, expenses associated with running the property while vacancies are high.

As the real estate market improves, it enters the recovery phase. More tenants return to the market as confidence in it increases. Property owners can also expect better financing options during this time. But because property prices have not yet reached a zenith, this is still an excellent time to buy commercial property, especially for those buyers who will need a mortgage.

Nevertheless, a good level of liquidity remains important at this stage. Most commercial lenders like to see a 30% down payment before they will green light a loan. Even if they require less, commercial sellers traditionally require at least a 20% down payment for a deal to be struck.

Once recovery is complete the market begins its expansion. At this point, vacancies are low and financing becomes readily available, but the price of real estate may jump higher than its maximum during previous expansion phases. For investors who already own commercial property, this is the best time to “sell high.”

Though it is possible for buyers to find a good deal during this time, rising prices make doing so more difficult. Potential investors should be more mindful of their specific needs and price trend indicators if they are looking to purchase during this stage.

Eventually, the real estate market begins to contract. Vacancies increase and property prices start coming down. Because the market was oversaturated during the expansion phase, financing becomes more expensive and harder to get. Purchasing may be a good idea, but prices will be lower in the coming recession phase.

Unfortunately, there is no set duration for any of the four phases, and sometimes the early stages of each are difficult to ascertain. Nevertheless, at some point the signs that indicate each stage become clear, allowing potential buyers ample opportunities to form their investment strategies.

Can Manmade Lakes Save the World?

Can Manmade Lakes Save the World?

2015 was the warmest year in history and 2016 is on its way to setting a new record. In the era of manmade threats to the environment, it may seem hard to believe that any human intervention can actually benefit the planet. But tens of thousands of manmade reservoirs already in use around the world demonstrate the present benefits and future potential of artificial water structures.

A Little History

Man has manipulated water to his benefit for millennia. The ancient Mayans created several gigantic artificial lakes that supported thousands of city dwellers. Like Maya, Sri Lanka also built tens of thousands of water tanks between the third century BC and the twelfth century AD to sustain irrigation. Today, there are more than 75,000 dams in the United States alone that generate clean hydroelectric power.

Present Water Manipulation Is More Important Than Ever

Modern urbanization poses a challenge to the natural fresh water supply. By 2050, two-thirds of the world’s population is expected to live in cities. Development is essential to accommodate this population boom, but development comes with environmental consequences. Construction releases pollutants that can end up in nearby waters. New structures also result in the loss of porous surfaces that soak up rainwater, leading to adverse effects on stream banks and aquatic life.

Fortunately, a variety of manmade water structures can complement development by absorbing the runoff from construction or offering new sources of fresh water.

Wet Ponds

Wet ponds are runoff holding facilities. They are built with vegetation, which helps hold sediment and nutrients contained in urban runoff. Once the vegetation finishes cleansing the runoff, the water in the wet pond is released to a nearby natural body to help preserve downstream habitats.

Wetlands

Wetlands contain much more vegetation than wet ponds and thus serve as excellent filters for urban runoff. Constructed wetlands provide reliable pollutant cleansing and may serve as an excellent habitat for wildlife.

Manmade Lakes

In the not too distant future, manmade lakes may protect the environment by cooling power plants. Power plants generate electricity by using steam from burning fossil fuels to spin gigantic turbines. To make this process work, over 30% of American plants use fresh water from natural streams to cool their condensers. Because these plants release the used water back into the wild, local ecosystems and aquatic life are damaged. Manmade lakes offer an alternative that can conserve natural freshwater and preserve local environments. Crystal Lagoons, the company behind this project, also hopes to use the heat transferred to the water from power condensers to power desalination plants, which will add to Earth’s supply of freshwater.

Conclusions

Critics suggest that manmade lakes are a gimmick. Others worry about potential negative environmental impacts.

Of course, any manmade water project should be studied and evaluated critically before it’s built. Incorrect planning can indeed harm more animal and plant life than it will save. However, as is already evident by the historic use of manmade water structures, we have every scientific tool and plenty of incentives to develop land and property in a sustainable fashion.

6 Easy Ways to Fix Your Credit

6 Easy Ways to Fix Your Credit

If your credit score took a hit after declaring bankruptcy or you have a low credit score because of late payments and maxed out credit cards, you still have opportunities to repair your credit. Fixing bad credit may take some time but there are some very specific things you can do to give that credit score a boost. Being more mindful about your spending is a necessary first step. Here are six easy ways to fix your credit:

#1: Pay Down Credit Card Balances

Clean up your credit card act by paying down credit card balances as quickly as possible. If you have some money in a savings account, consider using a portion of savings to pay down debt quickly or selling items for cash so you can take care of a payoff. Bringing down credit card balances down to below 30% of your available balance on all credit cards could be all you need to bump up your credit score.

#2: Pay All Bills On Time

Make paying bills on time a higher priority so you don’t get stung by late payment fees and a report to the credit bureaus. Create a payment calendar for all your bills so you can keep track of due dates or use a budgeting app that is set up with reminders to avoid late bill payments each month.

#3: Check Your Credit Report for Errors

Pick up your free credit report from annualcreditreport.com or take advantage of perks offered by your credit card company to order a free credit report and credit score. Check your report for errors and notify creditors and the credit bureaus of mistakes that need to be corrected. Even something as simple as a typo on a reported balance or records of late payments that weren’t actually late can hurt your credit score.

#4: Stop Applying for Lines of Credit

If you’re still stuck in the cycle of living off credit cards or finding it impossible to live within your means so that personal loans become your financial cushion, it’s time to revisit your spending and money management habits. One of the worst things you can do when you’re trying to fix your credit is to apply for another credit card or a personal loan. Every application will take a few points off your credit score and show up on your credit report as an inquiry. Find ways to save money so you aren’t stuck in the debt cycle.

#5: Keep Accounts Open

Even if you have a couple of credit card accounts with zero balances, don’t be tempted to close down the account entirely. Having open lines of credit can actually help you — as long as you aren’t using them. Even when you manage to pay down some of those credit card balances, it’s a good idea to leave the accounts open and in good standing since they will contribute to your credit utilization rate.

#6: Use a Secured Credit Card

Apply for a secured credit card where you make a deposit that the card issuer uses to create your credit limit. You use this card for various purchases and responsibly pay off your balances in full each month. Consistently paying off the balance or making at least the minimum payment each month can help you rebuild your credit.

Rebuilding your credit history can take some time but there are several things you can do to fix your credit. Use the six strategies to improve your credit score no matter what type of situation you may be dealing with and get yourself on a healthy financial track.

See more: Infographic: 6 Easy Ways to Fix Your Credit

How Are the Effects of Tech Being Felt in the Real Estate Market?

How Are the Effects of Tech Being Felt in the Real Estate Market?

Technology has had a deep impact in the lives of every American. Thus, it should come as no surprise that it has also become interwoven into the fabric of almost every aspect of everyday living. This includes the buying, selling, and management of residential, multifamily, and commercial real estate. With a market valued at over $40 trillion, making it the single largest domestic-owned asset, the real estate sector has presented challenges when it comes to incorporating recent technological advances into its daily operations. Even as certain aspects of the market have fully embraced tech, others have struggled finding their way in this new world.

Lining Up Buyers and Sellers with Brokers

If you’re searching for the area of the real estate market where tech has had the greatest impact, look no further than the residential sector. Brokerage apps now allow you, as a broker, to both proliferate listings to a mass audience and give your buyers a resource to use when evaluating their purchasing options. While a number of these apps have been introduced in recent years, those that have risen to dominate this particular tech space include:

  • Hightower
  • Compass
  • Redfin
  • CompStak

These differ from traditional realty websites in that while realtors tend to limit their financing listing to regional lenders with whom they have established relationships, these new brokerage apps allow users access to the newest real estate technological tool: online mortgage services. New services such as Rocket Mortgage by Quicken allow prospective buyers to submit applications, get prequalified, and research their financing options in a mere matter of minutes.

Smart Assistance for Startups

Commercial real estate is another area of the American realty market that has also made great strides in incorporating technology. Yet along with using the tools listed above to help tenants locate space to lease, the CRE market has also adopted a new approach to helping businesses, particularly startups, support their operations. Incubator organizations and city-sponsored co-operatives allow small businesses access to operational space while also providing technological and support services. These allow. These services give those running startup companies the chance to focus on their businesses rather than worrying about how they’re going to afford their overhead. Typically, the costs for rent, staffing, and IT are spread out across the members of the incubator, or are covered by a sponsoring institution.

Underutilized Resources for Rental Property Information

However, one segment of the real estate sector that has shown to be lagging in embracing tech is multifamily rental housing. This may seem somewhat surprising to you given that it represents the fastest-growing segment in the market. Yet the chief complaint that many tenants across the country share is that they’re still unable to pay their rent electronically. This seems surprising given the capabilities of online property management systems. Even these tools, however, are viewed by industry insiders as being underutilized. The hope is that property owners simply aren’t aware of their capabilities, and that as they’re discovered, the potential these systems offer in capturing and sharing tenant data will allow the multifamily sector to catch up with the rest of the market.   

It is said that technology is at its best when solving issues related to matter, space, energy, or time. Where it falls short is in dealing with problems of the human mind. Perhaps nowhere has that been more evident in its integration into the real estate sector. However, if the early success that technological updates in certain real estate markets have shown as anything, it’s that once tech does finally establish a firm foothold in the real estate industry, it will rapidly change it for the better for both clients and brokers.

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How to Invest in Distressed Assets

How to Invest in Distressed Assets

One of the big items in the business and investing section of the news has been distressed assets. Currently, MISC, a shipping company headquartered in Malaysia, announced that it is seeking distressed assets. Bloomberg reported that KKR, a private equity firm based in New York, was interested in distressed assets. If you are interested investing in this opportunity, learn more about what they are and how to determine if the asset is even worth your time.

What Is It?

An asset is something of value, thus, a distressed asset is one that has lost its value. For example, in commercial real estate, there might be a piece of land which has experienced financial trouble. The owner might be willing to sell at a greatly reduced price to cut their losses. The buyer has to determine if the value of an asset is worth the risk against the asking price. Many investors use a method called “D.O.V.” (pronounced like dove). It’s important to find all the problems with the asset before making that investment.

D is for Debt Searching

It’s crucial to verify all encumbrances on the asset before signing any paperwork. Buyers must be diligent about their investment. On distressed assets, one of the biggest problems is other creditors who have a claim to the property. Search for actual liens on the property or equipment. These types of debts are easy to find. Don’t stop there. Investors must also look into “debt affecting equity in a company.” Unsecured debt is often the most difficult to find, but it could affect the status of an asset of the business.

O is for Ownership

There are multiple stories in the news about renters and home buyers being swindled by people who don’t really own the property. The potential for this happening with commercial real estate may seem much lower, but it is possible. Investors must determine ownership of the property whether it’s a personally-owned asset or business-owned. This is most easily determined through a lien search or title search. Following that, check the tax records or get a bill of sale from the seller. Do not depend on the word of the seller that they have the right to handle the transaction.

V is for Value

Every asset has an intrinsic value, but generally, the value of something is the amount most people will pay for it. When there isn’t a market for a particular asset, it can be difficult to set a valuation. Distressed assets, especially those in commercial real estate, have the market, but it can be difficult to completely price a piece of property without understanding many different elements:

  • Environmental issues
  • Improvements to the property
  • Entitlements
  • Relevant codes: local, state, and federal
  • Restrictions on the location
  • Use of the property

Other Investment Concerns

Once the property has been vetted, the sale of the distressed asset might still be held up if a third party decides to interfere with it because of fraud, bankruptcy, or another claim. This is why sellers must do their due diligence before making an investment.

 

2015 U.S. Census Bureau Reveals What States Americans Are Moving To

2015 U.S. Census Bureau Reveals What States Americans Are Moving To

In December of last year, the U.S. Census Bureau released its population predictions with some surprising and not so surprising results. According to a Bloomberg article, examination of the findings reveal which states are growing, and which states are losing residents for other destinations. North Carolina’s population count passed 10 million, and Florida saw an increase of people that surpassed California in nearly 10 years.

The states that had the largest population number from 2010 to 2015 were coastal ones, but the Southern regions, saw the most influx of people moving in, especially Texas. NYC made the top 10 list, even with rising real estate prices, but this may not signal a moving back to New York. Instead, those people may be newborns of current residents, and international travelers.

Where Americans are moving to and from

Where Americans are moving to and from

In general, the reasons people are shifting from big cities to ‘medium-sized’ cities is simple: rent is cheaper, opportunities are greater, and a generation of Baby Boomers are moving to warmer pastures. In other words, New Yorkers and Californians are losing people to their smaller neighbors.

Reports Justin Fox for Bloomberg:

University of Chicago Chang-Tai Hsieh and University of California, Berkeley Enrico Moretti the estimated that Americans’ tendency to move from high-productivity regions to low-productivity ones had reduced U.S. gross domestic product by 13.5 percent. They figured that regulatory constraints on housing alone depressed GDP by 9.5 percent.

Americans Moving Less

Americans Moving Less

What is interesting to note is that Americans are moving less than usual, but when they do move, they’re choosing states that have affordable housing and high productivity value.

Should You Buy or Rent?

Should You Buy or Rent?

Is it important that your house is an investment?

Sometimes people buy property as investments, and not as a homestead. For those of you who fall into that category, it can be a great decision based on your current employment situation, money in the bank and whether those are your primary forms of revenue. Of course real estate is a great way to generate money for the buyer, but if it is your only form of investment, make sure you enter into the transactions knowing the costs versus profit margins. If your purchase is your sole form of income, you may be depleting your savings with repairs, tenant disputes, and other maintenance fees you may not have thought about.

Have you crunched all the numbers?

Make sure you have crunched the numbers and go over them with a certified accountant, then add a lot more. Unexpected expenses always come up if you’re a buyer. For renters, in many cities, you have to may be expected to pay out a third of your salary to rent every month. Make sure you’re able to do so.

Can you handle the stress?

As a renter, the money you pay every month for rent is gone, never to be seen again. In that way, the buyer wins out. However, if there are problems with the properties like faulty plumbing, roofing problems, or tenancy issues; the win goes to the renter. If you don’t own the property, you don’t have any stack to keep it beautiful. This is not to say that there aren’t tenants and landlords who enter a mutually beneficial relationships. As a renter, there is a lot less stress involved. You can call the owner to deal with property problems. As an owner, you don’t have that luxury. The costs of plumbers, contractors, etc can add up and cause major strain on your wallet and stress on your peace of mind.

How long do you expect to be in the home?

I’ve known people who fell into the rent-to-buy category because they have plan to live on the property long term, so it behooved them to buy the place insteading of throwing away money. For buyers who are looking to pay a mortgage instead of rent, the same applies. But if you don’t plan on staying too long and expect a temporary living situation or a flip and sell arrangement, be sure to research the neighborhood. If you end up staying for a short while, you may be shortchanging yourself if the resale market isn’t’ sustainable.

In recent years, people have been opting to rent inside of buy due to rising rates, though multifamily seem to fare well when thinking of buying. Regardless of what you decide, do the research and talk to a reputable advisor.

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