Trying to buy an apartment property

Recently, I made an offer on an apartment property that I found in LoopNet.

It advertised a twelve cap, a remarkably good return, and invited the viewer to "put it in escrow". I drove the property, and liked the neighborhood. I noticed the place needed work (which is what I am looking for).  I planned on buying it and fixing it up for my own investment.

I called the agent shown in the ad (in Los Angeles, about 100 miles away), introduced myself, and asked for him to send me some information. He answered his phone on speakerphone, sitting in a restaurant. He said he was in a "meeting", and that the property is in escrow.

Over the next week, I looked at other properties, and came back to the LoopNet ad. No mention of "in contract", and I drove it again and liked it, again. I wrote an offer and called the agent again. I asked him for his email or fax number, and told him I would submit an offer.

He ultimately hung up on me, refusing to listen to me or give me his contact info (only his phone number was shown on LoopNet). I was taken back; this had never happened to me in commercial real estate. I called his office manager and asked for information, including the fax number and his broker's contact info. She hung up on me.

Later I got an insulting email from him, so at least I had his email address. I sent the offer, with a nice cover letter to the seller shown in the County records, telling them about myself and my intentions with the tenants and the city, to be a good buyer and owner.

This raised an issue in my mind: what if the listing agent is blocking offers and refusing to answer questions? I found a court case:

....a 2010 case in California court, Holmes v. Summer, 188 Cal. App. 4th 1510, 116 Cal. Rptr. 3d 419 (4th Dist. 2010). The seller’s broker has a duty to disclose to a buyer, even before escrow, any conditions which might preclude transfer of title. The decision of the Court says, “although the seller's agent does not generally owe a fiduciary duty to the buyer, he or she nonetheless owes the buyer the affirmative duties of care, honesty, good faith, fair dealing and disclosure. . . as well as such other nonfiduciary duties as are otherwise imposed by law.”

I later received my offer, crossed out, and rejected by the "seller", sent back to me.

So here's what I learned: there are poor real estate agents around. Be careful with the people you hire. And I owe people a duty when I have a listing to deal fairly and honestly. And there's a difference between a commercial agent and a home salesperson who tries to represent commercial property.

Multifamily is a good investment

Forbes recently highlighted multifamily commercial real estate as a good bet for investors:

http://www.forbes.com/sites/billconerly/2014/05/19/multi-family-real-estate-forecast-2014-2020/

I was interested to read that they called multifamily construction "soaring". Here in California, the land of taxes, protestors, and fees, I don't see a lot of building. Vacancy rates in Coachella Valley are very low. 

In fact, I've written in the press about a future crisis of affordable housing for new couples, seniors, working poor, and those in transitions.

Apartment building made of shipping containers being built

I have a favorite interest in new styles of real estate, housing, and American cities. I lived in Asia for six years and came back with some new ideas about cities fitting people, not people fitting cities.

First of all, it costs too much to build real estate. Cities need to constantly reshape themselves to fit changing populations, energy costs, and work opportunities. Adaptation is crucial.

Second, they're too big. It's crazy to require people to have a car to get around. Walking, biking, and public transportation fit a considerable segment of our people (the young, the old, the poor) and shouldn't be so hard to use.

Third, I'd like more opportunity to inter-act with others. If I live on a quarter acre ranch, I'm not inter-acting with my neighbors.

So I like this idea I noticed:

http://www.jetsongreen.com/2014/10/a-shipping-container-apartment-complex-soon-in-dc.html

Peri-urban sub-markets

Even though TV and media is dominated by Los Angeles and New York, most people live in small cities in the U.S. In fact, the average person lives in a average city of 20,000 inhabitants.

If it's in a rural area (which is most of the U.S.), it serves as a market center for the surrounding population and towns. So the city population might be a small proportion of the actual number of people who shop in its stores and use its streets.

One such market center is Yucca Valley, California. It's similar to two other cities in Southern California, Blythe and Barstow.

	Barstow	Blythe	Yucca Valley
2014 Population	23,292	19,832	21,053
2013 Median Household Income	$56,865	$54,556	$56,369
2013 Total Housing Units within 2 miles of city	9,382	4,707	5,721

However, the surrounding population shops in each town, and their make-up changes the economy.

Demographics within a Twenty Mile Radius (not including other metro areas)
2013 Total Housing Units within 20 miles of city	15,990	9,762	66,267
2013 Employed Population 16+	13,770	6,586	48,674
Retail Consumer Spending: Retail Goods	$252,395,420	$125,670,463	$955,504,508

So the retail economy of Yucca Valley is more than four times that of Barstow, in second place:

Uncertainty about Real Estate, and About Everything Else

I noticed an article about single family home prices moderating in major markets:


http://www.marketwatch.com/story/house-prices-see-widespread-slowdown-in-july-2014-09-30

The Recovery from the Great Recession has not been as robust as many hoped. Why is that?

The world is a much crazier place than it used to be. While the U.S. is stable, and creative, and productive, the international environment has produced not one hot spot at a time (like the Cuban Missile Crisis), but dozens. Where wars used to be fought with armies in uniform, now they are fought with populations, social media, weather, economics, and diseases.

So what does that mean to an investor in real estate? Two things.

Volatility. The ups and downs are more upper and downer.

Stable economies (the U.S.) are a far better bet for investing, and real estate is a good option. Commercial real estate presents properties for businesses to use, and business in the U.S. is not going away.  Hold on to your hats, though. The investing ride is not going to be any smoother.

Office Building for Sale -- Zoning allows Residential Use

My newest listing is a 14,106 SF office building in Yucca Valley, California.

Visiting the Planning Department of Yucca Valley, I discovered that the city permits residential use of the property, including mixed use, residential care, and condominiums.

Hmm, is it a better investment as residential than as office? Maybe.

• Class C office rents in Yucca Valley appear to be under a dollar a square foot, modified gross (the landlord pays for the expenses of the building). 
• Apartment rents appear to be over a dollar per square foot.

• Vacancy for office appears to be ten percent, maybe a little higher for Class C properties.
• Vacancy for apartments in the region appear to be two percent. There are no ads for rent concessions or move-in specials.

 Changing the layout of the building from office to residential is not rocket science, but it costs money and takes time.  The property is for sale for $54 PSF, with an acre of land, so it might actually pencil out....

Medical Marijuana Dispensaries in Cathedral City -- homeowners are to be protected, apartment dwellers not so much

I was surprised to drive the dozen or so locations approved by Cathedral City for medical marijuana dispensaries. The ordinance prohibits a location within 250 feet of a home.

However, some of the locations are immediately next to apartment buildings! So, homeowners need protection, but apartment dwellers don't.

Does "Multifamily" include RV Parks?

If you're an investor, or a real estate developer, you might be interested in my listing of land in Twentynine Palms, California.

It's forty acres, zoned for multi-family (including an RV park), located next to a new casino and with a great view of the valley. See this video for more information:

Single Family Home prices plummet -- what does that mean for apartment properties?

The Desert Sun reports that prices of single family homes sold in Coachella Valley declined:

http://www.desertsun.com/story/money/real-estate/2014/07/28/coachella-valley-home-prices-dip-june/13257669/

I follow economic reporting, and recall that I have never seen a study of prices for apartment properties compared over the long term to home prices.

Here's my guess: there's no connection. Sometimes, the supply of homes and the supply of apartment units vary. Sometimes, the demand for homes and the demand for apartment units vary. Interest rates vary. Demographic patterns change over time, so some people only want an apartment and some people only want a home.

Cap rates for apartment buildings are about where they were in 2003

According to Multihousing News, recent data shows that capitalization rates are about where they were in 2003.

(All right, students, what are "cap rates"? Answer: the annual "net operating income" of a property divided by its market value, expressed in a percentage.)


http://www.multihousingnews.com/market-data/california-market-report-may-2014-additional-california-markets/1004100418.html


However, interest rates are much better: according to Freddie Mac, interest rates in 2003 were about six percent, and in 2014 they're in the low fours.

http://www.freddiemac.com/pmms/pmms30.htm

So why aren't investors snapping up apartment complexes, driving up the prices?

Apartment redevelopment opportunity for sale

If you're a contractor, you might be interested in 45 units in Cathedral City, California.

The project structures are fully built, but interiors need to be finished.

The area can support good values. There's an exclusive private school behind the property, and Adam West's house in the past (the first Batman) next to it. Neighboring properties are nice. There's a Trader Joe's, Target, and a Starbucks within walking distance.

For a vacation rental use, this is an excellent opportunity. 

Please contact Bruce Bushore at Coldwell Banker Commercial Lyle & Associates, Palm Desert, at 760 772 6400.