Regal Properties

05/14/2021

Regal Properties Closed 3 Fantastic Financings in Early May 2021

In about a 1-week period, Regal Properties’ financing team closed 3 amazing loans on 3 different property types (pictured below) with 3 different lenders.

The owner of a neighborhood retail shopping center in east San Diego County, in a refinance, pulled out approximately $7,500,000 in cash and still reduced the monthly payment by over $16,000, with a non-recourse life insurance company loan fixed for 10 years at 3.32%, with interest-only for 2 years, amortized over 30 years.

The owner of a 50-unit apartment project in North San Diego County obtained a $6,000,000 Freddie Mac agency loan, fixed for 7 years at 3.19%, with interest-only for 7 years, with a 20-year term, amortized over 30 years.

A Regal Properties’ buyer of a mixed-use commercial and residential property near downtown San Diego obtained a 61% LTV purchase money loan from a local credit union for $1,600,000, at 3.5% interest with a 12-year term, amortized over 30 years.

Need any financing???

02/25/2021

COMMERCIALREAL ESTATE INVESTOR STRATEGIES AFTER PROP 19

Under the newly passed Proposition 19 in California, property taxes on commercial real estate will now be reassessed upon any transfer from parent to child. This new consequence of death will likely lead to the sale of many inherited commercial real estate investment properties because the reassessment renders the property a less desirable investment. However, can parents still transfer such property to their children without reassessment? Possibly.

Assume, for example, the parents own an apartment building, and have two children, Colleen and Patrick. They desire to transfer their apartment building equally to Colleen and Patrick in such a way that the property is never reassessed – not when they make the transfer, not when they die, and not when Colleen and Patrick pass the property on to their children. This transfer may be possible, even after Prop 19, if done as follows:

Parents form a new Limited Liability Company called “LLC-1.” They move the apartment building into LLC-1 and give 50% of the membership interests to Colleen. Because Colleen received 50% ownership, no “transfer” occurred, and the property is not reassessed. Parents cannot include both Colleen and Patrick in LLC-1 at 50% each, because the total transfer would equal more than 50%, triggering a reassessment.

Now, parents train Colleen on how to manage the apartment building over the next year or so, waiting because they want to see how it goes being partners with Colleen and they need to avoid any possible issue with the “Step-Transaction Doctrine” that might compress all their moves into one “step” under the law. (While this doctrine does not currently apply to intra-family actions, that law will likely change due to Prop 19).

A year later, parents decide that managing the properties with Colleen was not such a good idea, so they dissolve LLC-1, with 50% of its assets (the property) going to parents and 50% going to Colleen. They need to do this to enable the next step.
Then parents wait another year while holding the property as 50/50 tenants in common with Colleen.

Now parents and Colleen form LLC-2 to hold the property, after which they give their 50% of the shares in LLC-2 to Patrick. Now Colleen and Patrick own the property and manage it together.
If parents have more than two children, they will need to repeat the process until everyone gets their cut—and no transfer exceeds 50%.

When Colleen and Patrick have kids, they will want to dissolve LLC-2 and temporarily take their halves under their own ownership.
Then they can form LLC-3 and repeat the process for the next generation.

If you do this correctly, the property will never be reassessed. And you can even stay on as manager of the LLC while you are alive. Successor managers can manage the LLC similarly to the way a trustee manages a trust.

12/17/2020

Grateful! And looking forward to helping you with the purchase, sale, leasing, financing and development of any residential or commercial real estate product type anywhere in the USA in 2021. Regal Properties is "Investing in People and Property" by donating 10% of all fees and commissions to charities -- allowing you to designate a charity to receive half of that donation.

10/13/2020

Post-Covid Retail and Industrial Opportunities and Challenges

Mall sales are down 28% year to date, and that's after a recent rally. Though the need for well-executed experiential retail in excellent locations remains, there's a lot of uncertainty about how and when consumers will be able to revisit their favorite restaurants and shopping centers. From an underwriting perspective, buyers need to assume much higher vacancies, lower rents, and significant repurposing capital expenditures in even the best retail environments. Fearful enders have retreated from financing retail. All of these factors will continue to pressure pricing downward and create distressed opportunities in retail.

Industrial is the inverse of retail. Industrial buildings have benefited from the demise of retail centers. Because retail spending has shifted online e-commerce, companies need warehouses to store, distribute and return their products. Tenant demand and investor demand should keep this sector healthy, even in a recessionary environment. Covid has converted many older folks to online shoppers while confined at home. Many of these last holdouts are likely to become permanent online shoppers. Non-stores share of total retail sales jumped to 15% and 19% from April to May 2020. This is up from 10% in 2010, and this trend should continue to benefit the industrial sector.

09/10/2020

TOP 15 REASONS TO INVEST IN SAN DIEGO REAL ESTATE

1. Most diverse high-tech sector in the nation” - Milken Institute
2. “Best place in America to launch a startup” - Forbes Magazine
3. “Most attractive metro in U.S. for relocation” – APA Survey
4. “Top U.S. travel destination” – Money Magazine
5. Ranked 2nd “safest city” in the U.S. with populations over 500,000
6. 266 days of sunshine with an average temperature of 70 degrees
7. Over 70 miles of beautiful southern California coastline
8. Six major universities, including UCSD ranked top 20 in the world
9. Expected population growth through 2024 at 3.3% (> than 4x the metro and national average)
10. Two international airports, two major seaports, and three land border crossings
11. Over 120 breweries
12. Second shortest mean travel time to work
13. More than 34 million visitors per year
14. Ranked 3rd in life science and 6th in high-tech jobs
15. Home to the largest concentration of uniformed military personnel in the world

07/31/2020

“No hair salon, veterinarian, grocer, or sandwich shop will be able to bear the burden of the perpetual increase, especially not today when most are trying to stay afloat. It will trickle down significantly, increasing the cost of everything we buy.”
VOTE NO on PROP 15

Commercial properties are currently under the protection of Prop 13, but a new ballot measure seeks to divide the tax policy.

06/18/2020

AS HOMEOWNERSHIP DECLINES, DEMAND FOR RENTAL HOUSING WILL INCREASE FOR THE NEXT 5 YEARS

A drop in homeownership rates will fuel a significant increase in demand for rental housing over the next five years, according to a study released by apartment properties acquisition and management company Middleburg Communities.

The June 11 report projects a decline in U.S. homeownership to 62.1%, the lowest rate in more than 20 years, before a partial recovery to 63.6% in 2025. Depending on the effects of the recession, the demand for rental housing will increase somewhere between 33% and 49% over that time period, the report concludes.

“While this shift is unlikely to cause rapidly rising rates in the near-term, it will contribute to the resilience of the rental housing industry through the current downturn,” the report said.

The analysis points to changing demographics playing a role in the changing demands. Married households are more likely to own homes, and their numbers are declining.

The numbers of households with incomes of more than $120,000 is expected to drop while those with incomes of less than $30,000 are projected to increase. “We do not claim to know the precise trajectory that household incomes will take over the next five years,” the report said. “However, with 19 million jobs lost as of this writing, the direction of household incomes in the near future is clearly negative.”

Demographics alone are a “weak” explanation for homeownership shifts, according to the report. Student loan debt, inability to make a down payment, tightened lending standards, high rents and a shift in preferences play a role, too.

03/08/2020

CORONAVIRUS IMPACTS COMMERCIAL REAL ESTATE

As we predicted, the coronavirus sparked a meteoric drop in the stock market last week, including a more than 4,000-point plunge in the Dow. The question now is how much of that contagion will spill over to impact commercial real estate?

So far, CRE capital markets have been less reactionary than the stock market. Lenders have widened spreads to reflect the volatility and heightened risks, but capital is still flowing. For example, CMBS spreads have widened about 15-20 basis points at the AAA rated level in the past week and nearly 80 basis points on BBB-deals. Despite wider spreads, the collapse of the 10-year treasury yield to a new record low of 1.1% at the start of March means all-in lending rates are about the same as they were three weeks ago. Meanwhile, the Federal Reserve intervened with a rare emergency interest rate cut, dropping the benchmark U.S. interest rate by half a percentage point to 1.25%.

The most important variable for the economy and commercial real estate markets is the level of fear associated with the coronavirus and how people respond. The consumer is now about 70% of the economy in the U.S., so if people decide to stay home and stop traveling, going to hotels, movies, shopping malls, restaurants, events and the like, it is going to have a negative impact on the economy.

The biggest direct impact is being felt in the hotel sector and especially those hotel brands with international exposure. The impact on this industry could easily result in some debt defaults. The industrial and apartment sectors seem less vulnerable.

Past history has shown that market uncertainty tends to push investors to the sidelines. It is unclear how long that pullback may last as investors wait for more clarity and reevaluate investment strategies. The coronavirus could trigger more defensive investing strategies and an emphasis on needs-based real estate, such as housing and healthcare.

For now, interest rates are likely to remain near record lows with the possibility that the Federal Reserve could move to cut rates again to prop up the economy. The 10-year in the bond market is keeping interest rates incredibly low, so this could be a good time for owners and investors to take advantage of that by using debt and leverage.

02/17/2020

SIDE EFFECT OF CORONA VIRUS: The Great Stock Market Crash and Recession of 2020

A deep economic recession, triggered by a stock market crash, looms over 2020 for 2 reasons: (1) the stock market has not factored into pricing the impact of the Corona virus, and (2) diminished corporate stock buybacks during falling earnings are leaving the market unsupported and employees vulnerable to massive layoffs.

Although stocks have thus far resisted Corona virus concerns, commodities have not. The demand for oil has collapsed following the outbreak, and the price is trailing. China is the world’s second largest oil consumer, and the country-wide lock-downs have caused a 20% decline in demand for oil. Copper prices, another traditional economic barometer, have also fallen due to China’s reduced demand. With hundreds of millions of people quarantined, and massive company shutdowns by the Chinese government, the Chinese economy appears headed toward a wall.

Thanks to the low-interest rate policy of the Federal Reserve and the massive corporate tax cuts by the current administration, corporations have incurred record amounts of debt used primarily to buy back their shares and to bonus executives instead of investing in their core business and increasing wages. This excessive demand has pushed stocks to record highs despite falling earnings for several consecutive quarters. However, these buybacks at artificially inflated prices have largely ceased now, causing stock prices to lose their support. Corporate executives coping with falling earnings and huge debt will soon be faced with a choice of not repaying the debt, minimizing their own bonuses, or massive employee layoffs. You can probably guess which option they will choose.

01/16/2020

Nobody can beat Regal Properties' CRE financing!

JUST FUNDED
Neighborhood Shopping Center Loan in Visalia, CA!
$5,730,000 Loan
3.85% Fixed for 10 years
Interest-only for 10 years
30-year amortization
Non-recourse!

12/09/2019

OVER LEVERAGED? Corporations vs Commercial Real Estate

Many corporations continue to binge on cheap debt to inflate their stock prices — enriching their current executives and shareholders at the expense of future growth and earnings. However, when interest rates inevitably rise and/or earnings fall, stock prices will plummet and workers (i.e. consumers) will be fired so those companies can continue paying the interest to avoid default on their debt. This explains why the Fed keeps dropping the rates despite full employment and a seemingly robust economy. This time around commercial real estate has not become over leveraged. Nor has excessive inventory development occurred in most product types in the majority of U.S. metro areas. Any increases in property valuations are now primarily reflective of increasing property income through rising, but not excessive, rent increases. Property value increases resulting from CAP rate compression have ceased in most areas of the country. Since 2005, commercial loan-to-value ratios have dropped from about 71% to about 62% on average, while average debt-service coverage ratios have increased from approximately 1.53% to 1.73% — meaning lenders are requiring borrowers to have more cash flow relative to the underlying debt payments.

10/03/2019

https://product.costar.com/home/news/shared/1733298482?utm_source=costar&utm_medium=email&utm_campaign=1&utm_content=p7

Online retailer Amazon has reportedly signed leases to open grocery stores in major cities such as Los Angeles, Chicago and Philadelphia and could expand its cashierless Amazon Go outlets to movie theaters and ballparks to try to attract more customers.