Tracking the great return: Real estate and the investment case in late 2021.

News broke in late July that Apple was pushing back its ‘return to the office’ expectations by at least a month. CEO Tim Cook had previously flagged September as a likely date for the majority of its office-based staff to resume in-person, on-site work – based largely on the availability of the vaccinations.

Now Bloomberg – citing unnamed sources – says the technology giant is feeling less confident in this push to return as many in the US remain unvaccinated and new variants continue to plague health services.

This is a blow to the “return to the office” rhetoric which has dominated the news in recent months and may have knock-on effects for the commercial real estate (CRE) industry – in terms of development planning, new builds, and investor sentiment.

Mask up orders

This decision is informed by government mandates, according to the sources. Drawing from the New York Times stats, Bisnow writes: “The average number of new daily coronavirus cases in California, where Apple is headquartered, has tripled in the past two weeks”. In addition, they report, Cupertino – Apple’s ‘home city’ – and the Santa Clara County in which it sits has issued a statement calling for the return to mandatory mask-wearing.

The county’s collective statement reads: “[we] recommend that everyone, regardless of vaccination status, wear masks indoors in public places as an extra precautionary measure for those who are fully vaccinated, and to ensure easy verification that all unvaccinated people are masked in those settings.”

Markets react

This, as well as news on the effect of the Delta variant of Covid-19, has seemingly subdued sentiment on the markets, with the S&P500 taking a knock – dropping the most it has in two months, according to an additional Bloomberg report.

Despite this, many real estate investment trusts (REITs) and related investment vehicles are rallying. A contributor on the Nasdaq website takes a look at this counter-intuitive trend, pointing out that: “Vanguard Real Estate Index Fund ETF Shares (VNQ) added about 24.1% this year compared with 16.1% gains in the SPDR S&P 500 ETF (SPY)”.  They argue that inflation, housing price increases, “booming cloud business” are among the factors underpinning this resilience.

High yields

Finally, the relatively high yields of real estate are setting them apart from other investments, writing: “The benchmark U.S. 10-year Treasury yield was 1.38% on Jul 1. Against such a low-yield backdrop, dividends offered by real estate ETFs are quite sturdy.”


Tools of The Trade – Analyzing Investment Deals


By Alec Pacella, CCIM
Managing Partner at NAI Daus
(216) 455-0925
Twitter @dausyouknow

I always appreciate when readers of this column take the time to reach out to me. Sometimes I know the person and sometimes I don’t but regardless, it is certainly always a delight to hear your comments. Last month, while at a real estate event, I was engaged in a discussion by a reader. This particular individual had one pressing question. No, they didn’t want to know about my favorite ‘80s-era supercar (512 Testarossa) or how my Aunt Norma made her lasagna (old Italian women never reveal their exact recipe). This avid reader simply wanted to know what software I used to analyze investment deals. Simple question, not so simple answer – but it was asked so I’m obligated to answer.

Financial calculator
Although technically not software, it is an invaluable tool. I’m partial to the Hewlett Packard 10B but there are many alternatives available from calculator giants such as Texas Instruments and Sharp. Financial calculators have a few significant benefits. They are very powerful and capable of performing all sorts of financial calculations in seconds. Despite this power, they are very affordable. Most cost less than $50 and iPhone and Android emulator apps are available for even less. And they are extremely portable. Calculators can be stashed in the pocket of a sport coat, purse or briefcase and used quickly and easily in a variety of settings. If you are using an app on your phone, there is an even greater chance of having this powerful tool at your fingertips. However, all of this portability and affordability comes at a cost – namely, functionality. While determining the IRR of a series of cash flows will take just seconds, determining that series of cash flows will involve countless calculations, probably with a good dose of old fashion pencil and paper thrown in. And good luck if someone asks you to email the analysis to them.

Microsoft Excel
I use Excel more than any other tool, as it offers many significant advantages. At the top of the list is flexibility. Excel can handle anything from a single-tenant cap rate analysis to a multi-tenant discounted cash flow analysis to a tenant occupancy costs analysis. In many ways, the software is only limited by the underlying skills of the user. Financial calculations, such as IRR, NPV and loan functions are inherent. It’s easy to build templates that can be used and re-used without having to re-create the proverbial wheel each time. And it’s universal, so I can send the analysis to someone without worrying about them having difficulty in opening the file. Click here to continue reading entire article.

Understanding Third-Party Service Provider Contract Agreements for Property Management

PropertyMgtContracts-16By Ira Krumholz
President of NAI Daus Property Management
Twitter @IraKrumholz

One of the primary duties of a property management firm is to ensure that a real estate asset is being properly maintained.

While some firms are set up to complete the majority of these services in house, most will use third-party service providers to perform at least some of these tasks. Therefore, the contract between the management company and the service provider becomes a critical document. This month, we are going to review some of the key components that any property management service contract should include.
One of the most important things actually isn’t a component at all, it’s the document. While nearly all service providers will have a standard document associated with their specific business, we recommend that the property manager not only have a standard document of their own reviewed by counsel, but push to use this with all of the service providers. In doing so, this will ensure that the most important components are included and enforceable. As with any negotiation, leverage is the key here – whoever has more leverage will usually be able to influence whose form is used. However, this is one of the items to which we try to strongly adhere.
There are five basic components that should be included. The first is the very reason the agreement exists – general guidelines and performance. This outlines the nature of the work or services that are to be completed, how it will be done, where it will be done and for whom it will be done. Think of this as the summary of a book, as it provides an overview of the agreement.
The second component details the ex-act scope of services to be completed. This section outlines the specific service needs of the property and expectations of the provider. For example, a snow removal contract will include under what conditions that snow and ice will be removed, what areas will be plowed or shoveled, when they will be treated and other requirements. The more specific this section is, the less chance there is for misunderstandings to occur, so be sure that this component is detailed and precise. Click here to download entire article.

A Taxing Situation – Appealing Property Taxes.

NAI Daus_Vol 2_No 2_HR-3

By Ira Krumholz
President of NAI Daus Property Management

A few months ago, most property owners received a letter from their county auditor that revealed their new 2015 re-assessment. Every six years, the Ohio Revised Code requires each county to reappraise all of their respective taxing parcels. These reappraisals are updated every three years, a triennial update. In 2015, all of the parcels in Cuyahoga, Lake, Lorain and Portage counties were updated. Mistakes can sometimes happen, especially considering these four counties include the re-assessment of approximately 800,000 parcels. In this month’s column, we are going to discuss some nuances associated with the appeal process, as not every property owner may agree with the new value that was determined as a result of this re-assessment.

Considering most of the readers of this column are likely to be very familiar with the legal aspects of a tax appeal, the focus of this column will be on real estate related aspects. These generally fall into a few categories – true market value, timing and sale comparables being among the primary topics.

True Market Value (Valuation)
These days, it is commonplace for the property owner and the taxing district to each engage the services of a real estate professional to provide an appraisal or opinion of value for a property. There are many different types of value, but for taxing purposes, the goal is to determine the true market value. This is the price that a property would achieve in a competitive and open market under all conditions associated with a fair sale. Although this seems straight forward to determine, for many properties it can be anything but. For example, suppose a property is located at a very busy intersection in a desirable community. It includes a small, older building occupied by a barber shop situated on a two-acre lot. The property was valued at $200,000 but upon re-assessment, the new value is estimated to be four times greater than the former value. Further, assume that one of the properties located at the opposite corner has a similar size lot and transferred within the last couple years. The existing structure was torn down and replaced with a new drug store and the transfer price for that parcel was $1.5 million. This is a classic example of a dramatic difference between value-in-use and true market value. There is no way that a small, older barber shop could quadruple in value. However, the market data certainly suggests that the value of the underlying real estate has clearly increased. That is the goal of an appraisal or opinion of value – to determine the true market value. Click here for to read entire article.