All Forum Posts by: Christopher Telles

I come up with NOI of $79,268 [($6,464 + 1,500 * 12) - (8,400 + 4,900 + 3,000) not including CAM or management.

@6%  - $1,321,133

@7.5% -  $1,056,906

Directly from the Starbucks website:

http://www.starbucks.com/business/landlord-faq/con...

Look them up on their website and call, repeatedly. Better yet, find their email and send them the site info too. Look for them on LinkedIn and send an Inmail.

If all else fails, call in a professional commercial broker. Its what we do!

The first place to start is to determine how long of a lease term the tenant is willing to execute. The longer the better, and a 20 or 25 year lease is what you should target, with market rental increases, because this will line up with financing for two loan cycles. Ten years would be the minimum you would want to consider.

Its likely the tenant will want a longer term lease, maybe even longer than 25 years, since they are the one's building the building. 

Then determine how much money you can contribute towards purchasing the land. With this information in hand then go start talking with lenders.

Two things to think about;

(i) In most circumstances a lender will require +/- 50% equity in the real estate before lending. 

(ii) The tenant, or the tenants lender, may require a subordination clause which would make your ability to finance the land very difficult.

There is a plethora of information on building a new self storage facility when doing a Google search.

@Jason Green is right about municipality use or moritorium restrictions. 

Another matter is financing. The facility will experience substantial vacancy for up to 2-3  years.

Self storage can be a highly lucrative property, planning though for non real estate matters e.g. Marketing, business management, and related is key.

@Arlen Chou experience in previous markets is not "anecdotal observations" its base on real time experience. When you're the one writing the checks, and perhaps even losing money, its real. There's nothing anecdotal about it.

The Chinese currency is about to explode, this is not a matter of if, its simply a matter of when. This is not anecdotal, its macro economics. The Chinese banks are on the cusp of failure right now. They're only open for business because the state is pumping liquidity into their banking system.

The state line says loan defaults are at 1.5%, non anecdotal reporting confirms they're actually at 20%. It is common for the state of China to under report economic metrics to advantage their currency. 

The Chinese financial system cannot support loan defaults of this magnitude. The state can kick the can a bit further through liquidity measures, as they continue to do, but their financial system will need to reset.

What does this imminent Chinese financial crisis mean? It means the reset, based on the current leverage in Chinese banks, will be above $3 Trillion (yes, with a "T"). There will be a loss of over $3Trillion in the Chinese banking system, likely even larger.

Will this effect US real estate? Hell yes, and Europe, and South America, and everywhere in between. I won't say it will throw us into a recession, if it doesn't it will be a catalyst for slower GDP growth. As it is GDP is barely keeping up with inflation. The only savior to fending off recession will be a stronger dollar.

The US real estate markets will experience adjustment, its a natural component of a cyclical industry. How you play those adjustments is where money is made and lost.

Ever the optimist, I'll look for opportunity through a clear set of lenses.  

@Arlen Chou The land was east of Patterson. As mentioned it was then, and perhaps even now, an outlier development.

That's a great question, I've never looked at the valuation after selling our position, but in the end it doesn't matter. Everyone who was involved in that project me, my partners, our capital sources, and the buyer all made good money on that deal. I have't been affiliated with that project for many, many years. 

The buyer completed the master plan and built residential, and commercial to support the new neighborhoods. 

@Account Closed basing what on one bad deal. I was simply agreeing with the OP that the area is highly dependent on the technology industry.

My deal wasn't bad, we ended up doing very well on it financially. It didn't, however, run the course we wanted it to run. Had we been able to execute to plan we would have made at least 10x on the project.

No, can't say that I know of a Ruby Hills. I'm not from the Bay area, but over the years I've bought several projects in the region.

@Arlen Chou @Leslie Pappas I would agree with Leslie here. In 1998 I had +/- 3,000 acres of land under contract as we mapped it out into a master planned development to support the overflow of workers who could no longer afford to buy homes in the tech areas of South SF, Silicon Valley, and parts of San Jose. 

As we worked the project the capital markets shut down from the Long Term Capital Hedge Fund implosion. Then by the time there was capital there was no longer an employee market from tech to support this outlayer project (think Inland Empire to Los Angeles comparison).

Three major Bay area submarkets would have supported this (not to mention Santa Clarita) and not one lender would touch this based on the state of the tech industry, alone.

We were lucky to flip out of the project to a substantial home builder who had excess capital capacity.

The entire region is heavily dependent on the technology industry. 

Just this morning I posted this... Looking for a new way to search for multifamily

03/31/16 Update

Interestingly, I reread this post today as someone had voted on my previous answer. Yesterday, a well known VC firm put out an article on the slowing state of the 'layoffs' in Q1 2016 in Silicon Valley. The 1st quarter of this year tech companies where forced to reevaluate their businesses either do to a shortage of new investor dollars flowing into companies or as a result of pure survival until the climate of tech investment changes.

The Bay area and Silicon Valley have seen their worlds begin to change since the beginning of the 4th quarter 2015. Its been reported in spades that tech investments have slowed, and as a result, as indicated above companies have begun to lay off workers, and hiring has slowed considerably. This has been followed in early 2016 with the technology companies in SF and Silicon Valley having to continue to lay off some of their high salaried tech workforce.

Nothing of catastrophic proportions in the present. However, its something to watch going forward into 2016 and beyond. Should the temperature of investors continue to cool, and or our national economy begin to falter then this area may experience pricing adjustments at a rate more advanced than other areas. 

One final thought, for whoever is interested in macro themes: The thing to watch for on a global basis is the state of the Chinese currency. If China's Yuan is further devalued then then cat will be out of the bag and two things are sure to happen (i) China's banks will be on the precipice of failure. Without continued support and capital contributions from the Chinese state they will go to zero (ii) The fallout will be global with many industrialized nations being pushed into recessionary conditions (iii) real estate will feel the impact of Chinese financial markets destabilization. 

I would advise property owners in the Bay area to watch these conditions carefully. If you're sitting on gains you might consider taking them off the table. If your investments are highly leveraged you might want to deleverage or absent the ability to do so sell your investments before the market resets and prices on real estate begin to fall.

This isn't written in the view of pessimism. These are economic realities which may or may not impact real estate.

Disclosure: I do not own real estate in the Bay area, and have no intention on buying any soon.