Monthly Archives: September 2011

ROGUE CAMPERS ARE DRIVING AWAY TENANTS

 

 

Something new has been added to the industrial areas of Los Angeles. Campers and trailer homes are dotting the industrial streets and unfortunately they are becoming an eyesore and a nuisance. But more importantly they are driving tenants away from properties where the campers are parking. I have experienced this first hand.

Not that I am unsympathetic. Recently I talked with the owners of a couple of the better looking trailer homes. They were parked in front of a building that I am leasing where I took a few of the pictures you see. One of the drivers approached me and asked if I could help him out with money for a meal. When I told him that his presence drove away one of my tenants he started to describe his misfortune. Meanwhile one of the other drivers also came over.

Both were well spoken and told similar stories. They went from being homeowners and regular employees to being homeless and forced to live on the street. In fact they thought by living in a dilapidated camper they were better than most of their homeless peers.  At one point,  they parked in Venice where they could also enjoy a better climate. But they like many others in the border between Compton and Gardena were driven from the Beach Cities to an area where they are not bothered as often.

I explained that we had one of my buildings on Avalon leased but when the executives from Seoul came to see the space, he was immediately concerned that security for the project would be jeopardized by the rogue campers.  It didn't help when we saw someone preparing his meal on a grill he had dragged on the sidewalk. Based on what this executive said,  it wasn't just the security issue but the sheer indignation of how America lets it poor live on the streets. And to have the employees see it on a daily basis was too discouraging for morale.

I started to see these campers parking on the streets about three years ago. Just driving around the County Strip I counted 40 in a few block radius. I can't say directly that crime has increased because of the campers but there has been a noticeable uptick in building vandalism. The most obvious is power being stripped from buildings

I'm not sure what is legal because in many cities overnight parking is prohibited. My guess is that occasionally the police come around to enforce the law but the campers just move to another spot and park as long as they can.  It's hard to be angry at the destitute when they are just trying to get by. And after the past few years I know many other people who are on a slow descent down the economic ladder. Luckily they are just not as unfortunate.

But when the campers are causing me to lose deals for my owner customers I would like to see that something is done. Perhaps the County or State has property where the campers can park? Meanwhile Homeless Services can also provide food, medical care, and a shower. Just driving them away does not seem to be a solution because the campers will park somewhere else. I'm going to ask County officials tonight at a local meeting and will report their response.

BUYING SIGNALS ARE ON

 


Date


1 Mo


3 Mo


6 Mo


1 Yr


2 Yr


3 Yr


5 Yr


7 Yr


10 Yr


20 Yr


30 Yr


09/01/11


0.02


0.02


0.05


0.10


0.19


0.31


0.90


1.49


2.15


3.10


3.51


09/02/11


0.02


0.02


0.05


0.10


0.20


0.33


0.88


1.41


2.02


2.92


3.32


09/06/11


0.02


0.02


0.07


0.13


0.21


0.33


0.88


1.40


1.98


2.86


3.26


09/07/11


0.00


0.02


0.06


0.11


0.21


0.34


0.92


1.45


2.05


2.96


3.36


09/08/11


0.01


0.02


0.07


0.12


0.19


0.33


0.88


1.41


2.00


2.92


3.32


09/09/11


0.00


0.01


0.05


0.11


0.17


0.31


0.81


1.34


1.93


2.86


3.26


09/12/11


0.01


0.01


0.05


0.11


0.21


0.35


0.87


1.38


1.94


2.84


3.24


09/13/11


0.00


0.01


0.05


0.10


0.21


0.35


0.89


1.42


2.00


2.92


3.32


 

(Daily Treasury Yield Curve Rates)

Can we be reaching a golden age of purchasing real estate? Mortgage rates are falling close to the inflation rate.  10 year T's are under 2%. The 20 year is under 3%. Mortgage money can be had at 4.5% to 5%. The Fed may be announcing a policy to lower long term rates even further under the program Operation Twist. Inflation for the past 12 months has been 3.6%.

If this dynamic hold true,  property owners could receive positive real returns just by holding property. There have been other times like this in the past. Some of the old building owners in the area talk about the mid 1960's where borrowing rates were  still low and inflation was ramping up due to the Vietnam War.  

A simpler way to see the benefits of purchasing is when mortgage payments are close to paying rent. For investors, positive leverage is a good buying sign. That is when cap rates exceed the mortgage interest rate. Both cases are occurring today.

The second trend is excellent values or as some say, low prices.  A value investor buys when sentiment is the worst.  Looking at Califonia today, it's bad and still getting worse. Individual owners are parting with crown jewels they have amassed over a lifetime. U.S. manufacturers continue to shed domestic operations for growth overseas. This negative sentiment also shows in low rents some owners are willing to accept in order to keep a property leased. When pessimism rules, it's the best time to buy.

One final condition that makes purchasing a consideration is that there is  leasing activity. It's still clearly a tenant's market and there is  a range of building choices and negotiation options. But unlike the post Lehman period, companies are sizing up opportunities and moving.

Selection needs to be done carefully.  Low interest rates can cause inflated sale prices because some buyers purchase for financial reasons and not necessarily for market fundamentals. Using historical cap rates will prevent paying too much.  Additionally, in this market, buyers should spend the additional time looking for better sites. Searching for good purchases is still an arduous process.

Realistically, absorption is relatively weak and rents, at least for most typical properties, are still at a low. Additionally, we could be at the cusp of another global financial meltdown. We have already gone through one round of optimism during this recession only to be let down by worsening economic conditions earlier this year. But for being in the middle of a nasty recession there is a fair degree of leasing activity and bankable tenants.

When the Fed is begging to lend money and doing everything possible to get the rates down, those buyers who can fill buildings either by market knowledge or their own businesses should watch the signals. Very low interest rates, continued fear, and a semblance of leasing activity gives a contrarian enough ingredients to make deals.