It seems like every time I get into a ride share in Uptown Oakland these days we’re peering out the window at the looming Sears building, wondering what’s going on, talking about what it could be and what it once was. Chatting about Uber’s failure (when in Lyft of course) and waiting for that wrapper to come off. In fact I was one of the last customers to ever buy something from that old Sears store on Broadway. I can remember it so clearly, it was sometime in late 2013, I bought a crappy dishwasher after wandering the semi-barren isles, sunburned by the incandescent lighting reflecting off the checkerboard floors, pegboards already 1/2 empty. The store was eerie, empty and ominous.
First Lane Partners, then Uber, then CIM, now Square
When Lane Partners bought the nearly abandoned Sears building for $24 million later in 2014, they predicted a 12-18 month construction cycle, we were all scratching our heads. It seemed like a ton of money for a property in that location. Who would lease it? There was so much vacant retail and office in town. It was a big move at that time and required bold vision for sure. A year later Uber bought it for $123 million and pronounced they would move in and solve all of Oakland’s problems by peppering the streets with tech workers, just add scooters. It was going to be the new Twitter, a mid-market paradigm shift. Continue reading
Capital improvements vs maintenance
Tenants often request that windows or flooring be replaced and expect that this is a routine repair. There is a distinct difference between capital improvements and repairs. Generally speaking, capital improvements can be passed on to tenants, so it is important to communicate with them about the differences before under taking major jobs that may increase their rent.
Maintenance and repairs are the biggest single costs associated with apartment building ownership. Any typical semi modern apartment building has literally hundreds of moving parts and wearing out items that require constant upkeep and attention. Maintenance activities can include everything from lightbulb replacements, door closer adjustments cleaning, painting, patching and sanding surfaces, sticky doors and windows, weeding, irrigation repairs, elevator maintenance, sprinkler testing and other generally minor tasks that are performed on a frequent or ongoing basis by a handyman or owner. Continue reading
I’ve been getting a lot of calls lately from nervous investors asking about what I think about the recent attempts to repeal Costa Hawkins. For those who aren’t familiar, Costa-Hawkins Rental Housing Act enacted in 1995 is a state mandate that places limits on rent control that municipalities often establish through populace support. It prohibits cities from enacting rent control on certain types of properties such as single-family homes and condos.
Recently, I’ve been privileged to read the Realty Almanac put out by Realty Publications and First Tuesdays. Who is First Tuesdays and why the cryptic name? They are a California real estate trend resource providing news and data analysis since 1979. First Tuesdays is a holdover term referencing the foreclosure dates and times in Texas. You can read about First Tuesdays here.
The Realty Almanac is a data driven analysis of the California real estate market. While the nearly 400 pages of forecasting had on occasion put me to sleep, I ultimately dug through it all. I discovered a surprising trove of invaluable information specific to investors like myself who focus on cash flow and the spread between cap rates and interest rates. This report should be extremely helpful in making decisions about buying and selling in today’s Bay Area real estate market.
Recently I had the opportunity to see my friend Mark Lipsett from Pacific Western Bank speak about the state of the multi family market. This was put on by our trade group East Bay Rental Housing Association, EBRHA which is a fantastic resource for anyone owning income property in Alameda county.
Mark is a banker, so this was delivered through a lending lens, which is to say a relevant one based on data from his institution.
My big take aways from the talk were the following:
- Rates are up 33% since election
- Vacancy rate is up from 4.2% to 4.7%
- Construction permits are down 15% from last year
In a particularly lengthy meeting, Oakland City Council voted to impose a 90-day moratorium on all rent increases not tied to the Consumer Price Index (CPI) and capping the maximum increase at 1%. Council President Lynette Gibson McElhaney brought forth the emergency ordinance- which is based from a draft created by housing activists in March.
To say that changes to housing law in the Bay Area have been contentious would be an understatement. There has been a string of protests recently: the Oakland Business Summit , A City Council Meeting– but this is not a new sentiment. In an opinion piece, McElhaney told the East Bay Express “This proposed rent moratorium is an acknowledgment of the housing crisis, and I am committed to it being the leading edge of a slate of meaningful renter protections that will stabilize the housing of many Oakland families.” (Why she chose the East Bay Express is an interesting detail, especially considering the nature of previous coverage.) Continue reading
Pandora Media Inc. first moved to Center 21 in 2009 and has grown regularly since – and since then, many other companies have followed in the wake. According to the Oakland Chamber of Commerce, the city’s 400+ tech establishments have grown by between 4%-10% per year over the past 5 years. Tech companies also pay some of the highest wages in the city, paying an average wage of nearly $100,000 per year. The following map gives a good idea of the general proximity of the tech base.
Oakland Metropolitan Chamber of Commerce 2015 Continue reading
The price of oil has dropped sharply since the summer of 2014, settling to a 12 year low- and it prompts many questions- Will the price of oil stay low? For how long? How will markets react to stabilize?
Perhaps most telling is the recent failure of oil cartel OPEC (Organization of Petroleum Exporting Countries) to agree on new production ceilings. This means that exporters still aren’t sure how to handle the lower prices. This is due partly to the fact that demand for crude oil has stumbled in China, as it pivots away from energy-intensive industrial growth towards a more consumption-led model of development.
If you are an avid commercial real estate investor, you are probably aware, IRC Section 1031 has been considered for repeal for the past few years. Whenever you sell a business or investment property and you have a gain, you generally have to pay tax on the gain at the time of the sale. IRC section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. “Defer until you die, then let your heirs get the stepped up cost basis“, has been the motto of legions of authoritative investors for generations.
IRC 1031 has played a crucial role in creating a fluid and fast-paced marketplace, as it has given many principals the opportunity to exchange properties, where previously, financial considerations would have prevented it. Sellers working feverishly to postpone the pain of paying tax on years of gains, have been a major contributor to market momentum in our asset class, often small apartment buildings. Exchanging is an engrained part of our eco system and critical to the success of small mom and pop apartment building owners in the San Francisco Bay Area.
Write to your representative and let them know you support retaining 1031! Continue reading
Recently I had the distinct pleasure of attending a couple of events that highlighted the scale and scope of four major development projects taking place in Oakland, California.
One of the most interesting projects is one that I drive by every day along the Oakland estuary directly across from my home town, Alameda. It’s called Brooklyn Basin for obvious reasons, its similarity to Brooklyn. The $1.5 billion housing project sits on 65 acres, has over a mile of waterfront trails and is bounded by the Embarcadero, Oak Street and the estuary. It consists of 200,000 square feet of offices and store fronts, 3,100 housing units and 30 acres of parks and open space all on gorgeous waterfront. Wow, now this is something I can get excited about. Take a look at this spectacular video by Michael Sechman.
Brooklyn Basin Rendering