Vacancy and Credit Loss

So what is the actual difference between Vacancy and Credit Loss. Vacancy is the loss of potential income which is attributed to space in a building that is not leased. More simply put...this is empty space that could be making money for the landlord. Credit Loss, on the other hand, is the rent due that the landlord has not been able to collect due to a tenant's default. Again, simply put...rent that is owed that has not been paid.

This is one of the reasons that bankers will often use vacancy and credit loss in the formulas that is above a current vacancy rate. The apartment complex may have a vacancy rate of 5% for the last 3 years, but the banker may use a 10% vacancy and credit loss rate in order to cover any tenants that may be in place, but not paying the rent due.

New Federal Funds Rate-Lowered Again

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

http://money.cnn.com/2007/12/11/news/economy/fed_statement/index.htm

Let's Define Net Operating Income (NOI)

The Net Operating Income (NOI) of a property is very simple to figure out. It is defined as follows:
Potential Gross Income=The total amount of money a property could make
-Vacancy and Credit Loss= subtract any empty space or tenants in place that haven't paid.
-Operating Expenses= subtract actual expenses on the property i.e. Utilities, Taxes, Insurance, maintenance, employees, etc. (this does not include the mortgage or income taxes)
=Net Operating Income

Entertaining Quotes about Money

These are some entertaining quotations from various people and their thoughts regarding money. If you have any others feel free to send them to us.


"In God we trust. All others must pay cash."
(American Saying)

"I don't like money, but it quiets my nerves."
(Joe Louis)

"Money is better than poverty, if only for financial reasons."
(Woody Allen)

"The way to make money is to buy when blood is running in the streets."
(John D. Rockefeller)

"Sex is like money; only too much is enough."
(John Updike)

"I don't know much about being a millionaire, but I'll bet I'd be darling at it."
(Dorothy Parker)

"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem"
(JP Getty)

"The only way not to think about money... is to have a great deal of it."
(Edith Wharton)

"Never get deeply in debt to someone who cried at the end of Scarface."
(Robert S. Wieder)

"If you want to know what God thinks about money, just look at the people He gives it to."
(Old Irish saying)

"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery."
(Charles Dickens)

"If you would know the value of money, go and try to borrow some."
(Benjamin Franklin)

"My problem lies in reconciling my gross habits with my net income."
(Errol Flynn)

"Bart, with $10000, we'd be millionaires! We could buy all kinds of useful things like... love!"
(Homer Simpson)

"The easiest way for your children to learn about money is for you not to have any."
(Katharine Whitehorn)

"Finance is the art of passing money from hand to hand until it finally disappears."
(Robert W. Sarnoff)

"All I ask is the chance to prove that money can't make me happy."
(Spike Milligan)

"A wise man should have money in his head, but not in his heart."
(Johnathan Swift)

What the heck is a "cap rate" anyway?

This is a question that I get all of the time. What is a cap rate and how do you figure it?

First of all a cap rate is short for capitalizaton rate. A cap rate is a ratio between the cash flow produced by a property and its capital cost (the price paid for the property). The rate is actually very easy to calculate. Here is a simple example:

Annual Cash Flow (Net Operating Income)/ Property Price = Capitalization Rate

For example, if a building is purchased for $1,000,000 sales price and it produces $100,000 in positive net cash flow (NOI) then:
$100,000 (NOI)/ $1,000,000 (sales price)= 0.10 (cap rate) = 10% The property's cap rate is ten percent.

Wow! That is so interesting...now what?

How will holiday retail sales affect your tenants?

After reading an article about the upcoming holiday sales predictions, I began to think how this would affect retail tenants at the local level. The article was from the site www.plainvanillashell.com. Click on the link for the full story.

http://plainvanillashell.com/article.asp?ID=8747

What can a Landlord do to protect themselves from situations where Tenants may close down or go out of business? Most answers lie in the way the leases and the guaranties have been crafted. Call Atlas Real Estate Advisors for assistance with you leases.

Holiday sales expected to slump: Predictions of gloomy season for retailers could mean great deals for consumers, especially those shopping for toys

Blanca Torres

November 2, 2007


Nov. 2--Related Link

--Poll: Are you going to spend more money this holiday season?

Just as Americans start packing their Halloween costumes, they can expect to see wreaths, mistletoe and snowy displays as retailers rush into the holiday shopping season.

This year, few stores are waiting to grab holiday dollars until the day after Thanksgiving, also known as Black Friday, which is three weeks from today and often is considered the start of the shopping season.

"Retailers have had a long time to think about a problematic holiday season," said Kit Yarrow, a consumer behavior expert and professor at Golden Gate University in San Francisco. "I don't think consumers will be able to resist some of the opportunities retailers are going to give them to spend money. It's truly a buyer's market."

Experts are predicting a gloomy holiday shopping season -- the worst in five years, some say -- but though that may be a problem for retailers, it could mean bigger and earlier deals for consumers.

The trend is especially evident in the toy sector, which has been tainted in recent months with recalls prompted by lead-contaminated products.. Wal-Mart, Toys "R" Us and KB Toys have started discounting goods and plan to offer door-buster-style sales this weekend.

"Consumers are going to get some great deals on toys," said Frank Badillo, a senior economist and retail consultant with Retail Forward Inc. "That is going to make things very rough for retailers and toymakers in terms of profit, but they are still going to move a lot of toys. It's going to be a very promotional category this holiday."

A declining housing market, rising energy costs and fear of a recession are beating down some shoppers' moods during the busiest time of year for retailers.

Steve Brown of Livermore said his concerns about the economy will cause him to spend about 25 percent less this year than last.

"Higher fuel prices, negativity about the economy ... it takes a toll on everybody's budget," he said. "This year we will proceed a little more cautiously."

About 40 percent of consumers share Brown's sentiment, according to a survey of more than 14,000 consumers by accounting and consulting firm Deloitte & Touche USA.

"The economy's impact is going to vary across the different aspects of retail," said Steve Lemelin, a Deloitte consulting regional retail sector leader based in San Francisco. "The American consumer never wants to give up on the holiday season. ... Consumers will likely limit the amount they spend on travel or things for themselves."

Other ways to borrow money

A friend of mine recently told me to view a website called www.prosper.com. It is a site set up for people to borrow up to $25,000 from groups of people. Click on the picture below for an explanation of how the site works.



It is a site worth looking into further.

Partnerships, LLCs, and S-Corps...Oh My!!!

First of all let me give the legal disclaimer. This information just touches the surface of the information that you need in order to make a decision for your business. This blog is not your attorney or your accountant or your financial advisor. Please seek legal and tax advice before moving forward with your business planning decisions.

This information is courtesy of the site www.squeezenet.com under their "handy facts" section, sub-section "business". It gives a basic description of the different types of legal business entities.

Corporation
Viewed as a legal, separate entity which can enter into contracts, incur debt, and does pay taxes separate of the owners' personal taxes. As a separate entity it offers some protection to the owners whose personal assets are considered separate of the corporation and therefore cannot be attached or accessed in the case of a suit or other settlement.

"C Corp" (or Regular Corporation) vs. "S Corp"
As described above a corporation is a separate entity recognized by federal and state law and therefore pays separate income taxes. An S Corp has liability protection much like a C Corp, but shareholders can pay income taxes in much the same way the owners/operators of a sole proprietorship or a partnership company does. As with anything dealing with "who pays which taxes" the laws and rules can be tricky. It is always a good idea to consult legal counsel when starting a new business of any kind.

Limited Liability Company (LLC)
Similar to a corporation in that the owners' have immunity from personal liability. An LLC differs from a corporation in a number of ways: it can be easier to set up and maintain from a paperwork/records standpoint, it does not pay separate income tax, and an LLC does not have stock.

Sole Proprietorship
This is by far the easiest type of business to set up but also the one that puts your personal assets at greatest exposure. Essentially, in a sole proprietorship, the business owner and the business are one and the same. The business owner and the business pay the same income taxes. By the same token though, if the business is sued or has some other ruling against it, the business owner's personal assets, whether they were used as part of the business or not, can be attached and appropriated to pay damages or debt. This is where, if you're not cautious, you can lose "the shirt off your back."

Partnership
A partnership is similar to a sole proprietorship in as far as personal liability and taxes go. The difference is that there is more than one owner. There are different types of partnerships. For example, a limited partnership (LLP) consists of a general partner who has management authority etc., and a limited partner who has perhaps given money or property (some financial asset) to the business but is not involved in the day-to-day running of the business. An LLP is a very complex arrangement, it is only allowed in some states and is limited to professionals such as doctors and lawyers who would not want to share in each others' liability but need some of the benefits a company can offer as opposed to private practice.

I hope you find this information useful.

Athens commissioners already preparing restrictions for medical offices

Recently an article came out in the Athens Banner Herald regarding proposed restrictions for future medical space to be built along Prince Avenue. (Here is the link for the article http://www.onlineathens.com/stories/100907/opinion_20071009024.shtml ). The commissioners of Clarke County have discussed adding a size restriction for future medical offices to be built along the Prince corridor by adding a size restriction to make Prince Avenue more "pedestrian friendly".

Does keeping a building small (less than 10,000 SF) make the area more pedestrian friendly? I think the answer is no. Scott Weinberg, a planning commissioner, threw in his two cents by approaching the process through design standards. I think this is a far better option than size restrictions. All of us can think of ugly little buildings and big beautiful buildings. I happen to own an office in The Georgian Hotel that is gorgeous and in one of the most pedestrian friendly parts of the Southeast. I think that the Commission and Planning Commission need to do some serious homework regarding the future of the medical industry before they restrict away at random. The medical industry is establishing partnerships between previously unlikely co-owners. The commission may regulate away some excellent medical facilities that may allow Athens become the other end of the bio-science research corridor that it desires to be.

Don't get me wrong, well thought out design standards give areas character and can make a town beautiful i.e. Charleston, Savannah, Madison, just to name a few that are close by, but it is through creativity, variety, and thoughtful design that buildings are built for posterity.

Bars for Sale in Downtown Athens

It is fairly common as a commercial real estate agent to receive quite a few calls regarding people wanting to open a bar in the Downtown Athens area. Very few brokers know this market or even want the hassle of learning it. It is even harder to get a straight answer about what is actually available in the area. That is where we come in.

A new phenomenon has recently occurred where owners of the Bars in Athens, GA have begun to sell their businesses. Some of the prices garnered for these bars is astounding with asking prices quoted in the hundreds of thousands of dollars.

How does one value a bar for sale in Downtown Athens? It is not simply the typical process of valuing Profit and Loss statements used to analyze the business. Other issues that are less tangible have come into play. How long is the lease? Is it below market value? Where is the bar located? How strong is the business with the college students? Does it have an outdoor area for smoking to counter balance the issues associated with the smoking ban? Believe it or not there is a multiple of Net Operting Income or Gross Profits to determine the bar's value. Give us a call if you are interested in purchasing a bar in downtown Athens. We are happy to be your advisors in the process.

Benefits of Seller Financing

Often times one will see a commercial real estate opportunity that offers Seller Financing. The question is then asked by the Purchaser, "what is the benefit of Seller Financing if I still have to pay the same price?" To answer this we will have to walk through two financing scenarios: one that involves a "conventional financing" process and one that involves seller financing.

Example One: Purchaser has $50,000 in which to invest in commercial real estate. She has located a property that is for sale for $300,000. Purchaser has talked to several lenders and has discovered a lender that will loan her 90% of the purchase price at 8% over a 20 year amortization. The payments for the loan are $2,258 per month. The purchaser must come up with the other 10% or $30,000. Closing costs are estimated to be approximately $5,000. The Purchaser would like to make some improvements in order to attract a tenant. She finds a contractors who estimates that the improvements should cost about $6,000. The purchaser only has 4 months to find a tenant before her remaining $9,000 has run out! This does not allow her much flexibility.

Example Two: Another Purchaser has the same $50,000 in which to invest in commercial real estate. He is looking at a different property which is also $300,000. He talks to the same lender who offers the same loan terms of 90% of the purchase price at 8% interest to be amortized over a 20 year period. The Purchaser will still have $5000 in closing costs and $6000 in improvements. This purchaser then approaches the Seller of the property and asks if the Seller will finance the remaining $30,000 of the price at 10% interest over 5 years. The Seller would like to receive the additional money from the interest and agrees. This is an additional monthly payment of $637.00 per month. Although this Purchaser will have a monthly note of $2895.00 for the first 5 years, this purchaser still has $39,000 in cash in which to cover expenses or 13 and 1/2 months of mortgage payments. Big Difference!!!

The extra cash on hand can cover anything from mortgage payments to repairs to the purchase of other properties. Always ask if the Seller would be interested in owner financing. It may benefit both of you.