Monday, June 15, 2009

Uncertainty Running Rampant

Posted by: Scott Shanks, SIOR
Senior Vice President Office Properties Group
775 336 4671

During his career, Scott has worked with clients such as: Barnes & Noble, GM, Merck Pharmaceutical, Henry Schein, Home Depot and Ahold to facilitate their real estate needs.

Not a day goes by that something observed in the media does not cause uncertainty at some level. In general this is not some new or strange phenomena, but the unsettling issue is the levels at which we see it; government, jobs, housing, oil, banking, commercial, manufacturing…and the list goes on. Until we stabilize in the broad base of sectors, we will continue to see the large gyrations that the financial and real estate markets go through weekly. I believe that this is the largest challenge that the current administration is facing, which is simply getting everything to the point that we can start to see some semblance of normalcy in the market place. Good luck!

Monday, June 8, 2009

Diversifying your portfolio with Commercial Real Estate

Chris Shanks :: Investment Properties Group
Posted by: Chris Shanks
Investment Analyst
775 336 4620

Chris is responsible for analyzing, valuing and marketing properties for the NAI Alliance Investments Team. He is also involved in the disposition and acquisition of investment properties for clients.

Diversification, it’s one of the prominent terms associated with investment portfolios. We are beaten over the head with this word almost every time the word portfolio is mentioned. With all of the air time the word gets you would think that everybody would firmly grasp the concept and know how to apply it to their current portfolio right? The answer may surprise you.

Many people interpret diversification as the act of adding an asset to their existing portfolio that is in a different class, or sector, than the assets they currently own. On the surface that assumption makes sense, but many times those assets can end up performing exactly the same as some of the assets they already own i.e. they have a high correlation coefficient. To truly understand diversification you have to know how to interpret correlation coefficients and more importantly the modern portfolio theory and the capital asset pricing model (CAPM). Since that is a whole other topic and concept I’ll spare the in-depth analysis and get to the overall point. The optimal diversification of a portfolio is achieved by adding assets that increase the portfolio return without adding any additional portfolio risk. That usually translates to assets with low correlation coefficients with respect to the portfolio and a majority of their risk being diversifiable. So what does this all mean to a real estate investor?

Since it is nearly impossible to create a standard deviation for an individual commercial real estate asset we have to turn to the REIT world to get our data for an apples to apples analysis. I used the NAREIT Equity REITs Index’s monthly returns going back to 1972. I compared that data to the monthly returns of the Dow Jones Industrial Average and the Standard & Poor’s 500. Below is the correlation table for their historical returns.
As we can see the correlation coefficient for the ^DJI and ^GSPC is close to 1, which means that their returns almost mirror one another, as we’d expect. The 0.54 and 0.56 coefficients that they share with the Equity REIT means that if you were to combine either of them with the Equity REIT you would be able to diversify out some of the individual asset risk that each possesses as a standalone asset. The ultimate goal is to have the maximum return for your specific risk threshold. Adding commercial real estate to a portfolio is one of the ways to reach that frontier. One of the services we offer is helping clients determine the right price to pay for a commercial property that will create an optimal return for the risks they will be incurring.

Wednesday, June 3, 2009

Lenders Forced to Listen

Posted by: Ryan C. Judson
Land Specialist
775 336 4641

Ryan C. Judson works at NAI Alliance as an associate for the Land Department. His responsibilities include market data mining, researching and tracking distressed properties, and analyzing off-market vacant land opportunities. Ryan received his Bachelor’s of Science in the Business Administration Real Estate Program from San Diego State University in December of 2007. Shortly after moving to Reno in 2008, Ryan obtained his Nevada Real Estate License while working for NAI Alliance and now assists in the acquisitions and sales of vacant land in the Northern Nevada area.

With the number of foreclosures at an all time high, and speculation that the banks are holding onto excess inventory in order to prevent further price drops, the return future for new home developments remains on shaky ground. But, a recent state law, signed by Gov. Jim Gibbons, which takes effect in July, would allow homeowner-occupants facing foreclosures to demand a sit-down mediation with the lenders, overseen by an attorney or a retired judge. At a cost of up to $200, it may be worth it for many who want to save their homes but are having trouble getting their lender’s ear. One component of the law forces the lenders to produce promissory notes, and a deed of trust, showing that the money is owed and that their bank has security on the loan. For some banks, where the note has been sold to a third party or has been taken over by another financial institution, this law could pose a significant threat. It could allow for the mediators to greatly reduce the amount of the loan, allowing the current homeowner the ability to stay put in their house. To read the full article from the Las Vegas Sun, click here.

There is no doubt that for those who are willing to pay the $200 and go through this process that it will in some way slow down the foreclosure process. However, it will remain to be seen whether this new law will actually help these homeowners stay in their houses long enough for the market to return, or if it is just delaying the inevitable.