The Dixon-Magenheimer-Sisler Report Semi-Monthly Newsletter

Rubles, Reals and Real Estate

As commercial real estate brokers we are always being asked “What do you see for the future of Miami real estate”? Simply put real estate values and prices are a function of supply and demand just like any other product in the market place. As the demand increases and the supply remains constant, prices will rise. If the supply increases with no increase in demand, prices will decline. The real question is “When will the supply outpace the demand?” What we know is that we will see an increase in supply because of new construction. Another possible factor that may increase the supply of real estate for sale will be the exchange rate between foreign currencies and the US dollar.

One major factor impacting the real estate market has been foreign investors purchasing US real estate for reasons of both flight and fright. The flight purchases are made to secure an investment in a secure economic system. Fright purchases are made because the US provides a safe, crime free physical environment to live and raise a family.

Many purchases were made prior to 2010 when the exchange rates for foreign investments was very favorable and prices here in Miami we still relatively low. A Brazilian purchaser in 2010 would need 1.5 Reals to purchase 1 US dollar. Today this same purchaser will need almost 4 Reals to purchase 1 US dollar. A Russian purchaser in 2010 would need 30 Rubles to purchase 1 US dollar and today would need at least 80 Rubles to purchase 1 US dollar.

If these foreign buyers purchased real estate such as land or residences which require annual payments for real estate taxes and maintenance, the cost today to buy the US dollar to make the payments is many times more expense in terms of the local currency. This should decrease the demand by foreign buyers to acquire non-income producing real estate.

However, consider the reverse of the exchange rate. The condo purchased for $100,000 USD in 2010 for 150,000 Reals, if sold today for $100,000 USD could be converted into 400,000 Reals. So even if the price of the condo did not increase the exchange rate would generate a profit of 400%.
The impact of this favorable exchange rate may have the effect of stimulating foreign owners to sell their US investments and exchange US dollars for the local currency. An alternative is for foreign owners to convert their residences or second-homes into rentals, driving up the supply of rentals and impacting rental rates.

While all this makes sense from a numbers perspective, there is another side to every coin. Since the increase in the exchange rates is a reflection of the economic and political conditions and many owners may decide to keep their investments in US dollars and assets, because they currently have no desire to hold their own countries currency. So until such time as foreign countries become more stable expect owners to maintain their US investments.

, , ,

Your Fair Share!

If you live in Florida and own property, you will receive a TRIM (Truth in Millage) notice in the next 4 to 6 weeks. This notice will give you an estimate of the real estate taxes that the property must pay, based upon the assessment and proposed millage rate.

The assessment (value) is established each year by the County Property Appraiser using mass appraisal techniques. The millage rate is based on funds the city and county government need to operate, divided by the total values of all real property in the County. The real estate taxes for a property is then calculated by multiplying the assessment – say $100,000 times the millage rate of say 19 mills, which is really 1.9% or .019. This equals a tax of $1,900. I sometimes think that the term millage rate is used to confuse the taxpayer. It would be much clearer if it was expressed as a percentage of value.  As in you’ll be paying about 2% of your properties value in taxes each and every year.

As a taxpayer, you are only obligated to pay your fair share. And if you think you are unfairly assessed there is something you can do about it.

Unfortunately the only part of the real estate tax equation which can be appealed is the assessment.  However you are always welcome to attend the budget hearings to find out more about that process.

After you receive the TRIM notice, there is usually a period of 25 days to file an appeal petition if you wish to protest the assessment. Then, sometime in the next 12 months there will be a hearing before a Special Magistrate to debate the assessment. As a property owner, you can file the appeal and present your arguments before the Special Magistrate. However, many property owners have found that using a professional is much more effective.

With our 30 plus years of combined knowledge of South Florida real estate valuations as estate brokers, professional appraiser, teacher and economic analysts, we are well equipped to represent property owners in the successful appeal of real estate tax assessments.

WE CAN MAKE SURE THAT YOU ARE ONLY PAYING YOUR FAIR SHARE OF REAL ESTATE TAXES.

IS A REAL ESTATE INVESTMENT AS GOOD AS A FINANCIAL BOND?

IS A REAL ESTATE INVESTMENT AS GOOD AS A FINANCIAL BOND?

In the April 9th issue of the Wall Street Journal there is a very thought provoking headline;  “New Era, In Bonds; Zero Yield or Less” Tradeweb shows a  government-bond yield for Switzerland of (-1.0%) …yes negative 1% per year.  This means if you invest $100,000 for five years you will receive back $95,000.  This is in part a result of the ECB  European Central Bank charging commercial banks to keep money on deposit.  Banks and Lenders are unable to invest their deposits at a rate greater than the cost of maintaining deposits.

The intended better result for an investor is to own investment real estate.  Even with a nominal annual income, this investment should over a 5 year period appreciate, not depreciate in value.  For example, consider the purchase of a residential condo unit.  If the purchase price is $200,000 and is financed with a loan of $150,000 at 4% interest for 30 years the annual loan cost is $8,593 or $716 per month.  If the real estate taxes and condo fees are an additional $600 per month the total expenses for a 5 year holding period would be $78,960.  If the apartment is rented for $1,000 per month the net cost will be ($78,960-$72,000 =  -$6,960) over the 5 year period.

If the value of the apartment appreciates only 2% per year the value in 5 years will be $220,000.  The investment returns 4.6% per year.  If the apartment appreciates at 4% per year the value in 5 years will be $240,000.  The investment will then return 11% per year.

Sale Price in 5 Years $220,000 $240,000
Less: Sales Costs (8%) $  17,600 $19,200
Net Proceeds $202,400 $220,800
Less:  Income loss $    6,960 $    6,960
Less: Mortgage Balance $135,670 $135,670
Profit end of 5 years $  59,770 $ 78,170
     
Purchase Price $200,000 $200,000
Less: Original Mortgage $150,000 $150,000
Cash Investment $  50,000 $  50,000
Profit $   9,770 $  28,170
Yield over 5 years  20%     56%
or Per Year  4.0%   11.2%

 

This return is not without some aggravation and risk.  You will need to rent the apartment and collect rent each month, pay the condo fees, mortgage payments and real estate taxes.  An additional risk you have are increasing expenses and periods of vacancy.

 

But when you consider the alternatives of investing in a savings at rates below ¼ of 1% or less, the risk may justify the effort.  This explains the interest by investors in purchasing condo unit and other types of simple investments.

 

WHAT CAN ALL THE WAREHOUSES CONTAIN?

Last week at the Commercial Industrial Association of South Florida presentation on “The rEvolution of the Industrial Market”, the inventory of industrial warehouse space in Miami-Dade was estimated at 200 million square feet. As in my last newsletter, I like to relate this to something I can imagine.

The shipping industry uses a standard shipping container with a length of 40’, a width of 8’, and a height of 9.5’. Therefore, a container would occupy 320 square feet of floor space and has a volume of 3,040 cubic feet. If the South Florida market contains 200,000,000 square feet of floor space with say 20% used for loading and access – then 200,000,000 minus 40,000,000 = 160,000,000 SF. And if each container requires 320 SF of floor space, then the South Florida Industrial Market could store 500,000 cargo containers, if single stacked.

If 500,000 containers were in a line, they would stretch for (500,000 X 40’) = 20,000,000 feet or over 3,700 miles. This is greater than the distance from Miami to Vancouver , Canada. Another way to imagine this many containers is their cubic capacity. A 50” TV can be shipped in a box occupping (5’X1’X3’) or 15 cubic feet. If a 40’ shipping container has a 3,040 cubic foot capacity, each could hold 200 TV’s. Therefore, 500,000 containers could hold 100,000,000 TV’s.

Now I realize that this is over the top, and the net floor space is actually much less, but still – 200,000,000 SF of industrial space can contain a very large quantity of goods for local consumption, trans-shipment or used for local manufacturing.

As real estate brokers, we are always trying to understand the supply and demand for real estate products and its impact on prices. The way we do this is to measure things in a different way.

By Tom Dixon

Weird Signs and Indicators

We use signs and indicators in our daily lives to tell us what to expect. For real estate business decisions, there are some very interesting and also odd indicators that reflect the current business climate that can give indications of future trends.

If you were interested in investing in a restaurant, wouldn’t it be nice to know how well this restaurant and others in the area were doing. My wife and I were having dinner in Coconut Grove and in strolled “The Flower Guy”. Every night, he goes into every restaurant, singing opera songs and selling fresh roses. If you want to know how business is doing, you might just ask “The Flower Guy”.

We have an office in a highrise office building, and every day I see “The UPS Man” delivering packages to our floor. If you what to know general business trends, you could ask the “UPS Man”. He knows by the volume of packages how the economy is doing. In fact, UPS must make decisions on the future of the economy so they have enough trucks and drivers, but not too many.

Many years ago a friend of mine said he could predict the amount of new home construction before anyone. He just had to ask “The Survey Stake Man”. This is the man who cuts the wooden stakes used by surveyors to lay out subdivisions and new homes. The first thing a builder has to do to start building is have the site surveyed and lay out the foundations. As the demand for survey stakes changes, we can expect a change in new home construction.

If you were investing in a hotel or motel, wouldn’t it be great to be able to verify the occupancy for the past several months to see how well this hotel is doing compared to the competition ? Just ask “The Linen Man”. He picks up the soiled linen and delivers the clean linen. He knows exactly how much business his clients are doing each week. Or you could ask “The Bakery Man”. He delivers fresh bread and rolls each day. Hotels are only going to order enough baked goods for their daily guests.

A quick way to check up on the operation of an office building or shopping center is to track the number of cars in the parking lots. If the lot is empty, it could mean a shortage of tenants or customers. On the other hand, if the parking lot is full, it might suggest this is a good place to help tenants relocate to larger spaces. Or you could ask “The Parking Attendant”, he can tell you if the number of visitors has changed and also the occupancy level in the parking garage.

If you want to know the status of real estate sales activity, just ask the “Sign Man”. As the economy cools down, real estate prices don’t generally decline, but the amount of sales activities do decline, with a resulting decrease in the demand for new “For Sale” signs. Although I asked my “Sign Man” if there was a change in the number of signs he painted, he said that the number of signs was the same but oftentimes, signs were for the same companies. This is a indication of companies merging with others.

These and other indicators can help you make real estate and business decisions based on very direct local market indicators.

Call us – we know how to read the signs and indicators of the real estate market.

All You Need

ALL YOU NEED IS THE ENGLISH LANGUAGE AND A DEBIT CARD
If you enjoy traveling and speak the English language, the world is yours. We have traveled to many countries including Spain, Italy and most recently – Greece. Everywhere we traveled, English is the universal language. Our son Andrew went on his honeymoon to South Korea and Japan and again, English speakers were everywhere.

Another traveling concern is obtaining cash. The travel books suggest going to the country and get local currency at an ATM machine. But somehow, this always makes me nervous – what if my card is rejected, stolen or damaged. After making sure the card company knows where I will be using the card and by taking a different card as a precaution, we had no trouble getting Euros at an ATM on our last trip. Contrast this to 15 years ago before ATM machines when each European country had a different currency which made understanding the value of the currency very difficult.

This started me thinking how lucky we are to speak the universal language. But why is English the universal language? Could it be because so many Hollywood movies are in English? Maybe it’s because of computers; most computer programs are written first for English language users. When we English speakers have trouble understanding how to use a computer, just imagine how hard it is if you don’t speak the language. Then there is Google, Wikipedia and all the other information sources for which we use English as the base language. Not just what you can see, the code (HTML) behind it uses English words as a base.

While we were on a small cruise ship in Greece, it was interesting that some of the crew were from Greece and spoke Greek and English and other crew were from Ukraine and spoke Ukrainian and English but not Greek. Because of this communication among the crew was English to English, again English being the common language.
Now of course, English is not the perfect language and can be confusing and there are certain words that are clearer in other languages. For example, in English “hot” can mean it will burn you and also that it is hot on the tongue “spicy”. Whereas, Spanish has two words for hot: “caliente” for when it will burn you, but “picante” if it’s hot and spicy in the mouth.

So although English may be the universal language, it’s very helpful to know other languages both because they can clarify your meaning and add spice to your world.

Call us if you would like to add spice to your real estate investments.

By Tom Dixon

A Unique Sale

3660 William AveLast week I sold a home in Coconut Grove which is unlike any other: it is the first certified Fortified Construction and Energy Star home built in Miami-Dade County. The developers and sellers, Rochester Builders Inc., set out to build an affordable product with a construction standard that goes far beyond what is called for in Florida. They wanted to make the home energy efficient as well. They achieved their goal and I found them a lucky buyer.

The Insurance Institute For Business & Home Safety, or IBHS, is the independent, non-profit organization that designates the Fortified Home certificates. There are three levels of designation: Bronze, Silver and Gold. Gold represents the highest standard for disaster protection, which the developers received. The methods and materials employed in the construction of the home ensure the utmost protection from hurricanes and other potential disasters. The Environmental Protection Agency designated the property a high Energy Star rating due to its energy-efficient appliances, lighting, heating, cooling, and ventilation systems. These ratings are not just accolades; they also translate into thousands of dollars in savings for the homeowner due to lower home insurance and utility costs.

Selling the house involved a three-month process from the day I got the listing to the day it closed.  I used various methods and tools including listing it on the MLS, advertising it on our website, speaking with the pastor of the neighborhood church to get the word out to the community, as well as doing a mass mail-out through the Postal Service. The challenge was to inform the public of a unique product that had not been available before in this market. And that is exactly what I did.

As my broker, Tom Dixon, says “being a real estate agent is about problem solving”, it is about finding unique solutions to unique issues. The combination of our various methods prompted a lot of activity and interest in the house and it came down to choosing the right buyer.

So if you have a unique real estate problem or simply need representation in the sale or purchase of a property, give us a call and we will find you a solution.

Roger Lopez
Dixon Commercial Real Estate
roger@dixoncommercialre.com
305.443.4966

 

 

 

 

 

A Strange Discovery

As commercial real estate brokers, when we list a property for sale, the first step is to properly identify the property’s address, legal description and owner’s name.

When we market the property, we may include a location map, aerial photos, copy of the plat showing the recorded information about the site,  a legal description, a survey and exhibits from the office of the Property Appraiser.

On the surface, this seems very simple; a property has an address and this tells you where the property is located on a map.  But it is not quite this simple. In the process of listing a 3.3 acre site, with industrial zoning located near the Airport Expressway and NW 27th Avenue in Miami-Dade County, we encountered a strange situation.

Usually, the address is confirmed by a review of the legal description and plat.  However, in Miami-Dade, because of the 90 year age of some plats, the information on the plat is different from the information at the site.  For the property we are selling, the plat shows the west edge of the property being  NW 29th Avenue, but maps and other exhibits show the western  boundary as being NW 30th Avenue.   One of the buildings has a listed address of 2990 NW 40th Street,  but according to the original plat, it should be addressed as 2890 SW 40th Street.

We don’t know how this happened, but further investigation found that in this part of Miami-Dade, some avenues on maps are missing.  For example, there is NW 27th Avenue with the next avenue to the west being not NW 28th Avenue  -which you would expect – but NW 29th Avenue.  NW 28th Avenue is missing or skipped.

Another example is found in old plats in the Brickell area of Miami. These old plats show what is now SW 8th Street being listed in the original plat recorded in 1901 as SW 20th Street.  An apartment developer friend turned this to his advantage.   He built an apartment on what is now known as SW 15th Road in Brickell and when looking for a name, saw that the original name for SW 15th Road was Broadway.  So he named his building “One Broadway”.

Another strange artery is “Coral Way”.   It starts out as SW 13th Street, then becomes SW 3rd Avenue, then SW 22nd  Street, and in Coral Gables, becomes Miracle Mile. After it goes west past Coral Gables, it becomes SW 24th Street.

We don’t always have the correct address but we know how to find the right property for our buyers. 

-Tom Dixon

Everybody Is Looking For Something That Doesn’t Exist

It is amazing how many students from my Commercial Brokerage class call and say they have an investor with $5,000,000 looking to purchase a commercial property showing a return of 10% on the investment. Or they ask do I know of any triple net lease properties with national credit tenants for sale with a return of 8%. In the real estate market today these types of properties are just not available for these kinds of return on investment.

Traditionally, real estate investors have been seeking investments with returns in the range of 8% to 10%. However, with the very, very low interest rates on savings deposits sellers are less willing to sell their properties in this market. Their position is that if they sell their property the net amount to reinvest after income taxes will not yield the same income as the property they now own.

The income properties which do come on the market are being sold because of issues with the property or issues with the owners of the property. Issues with the property could be it needs to be improved, re-marketed, has lost tenants or the market area has changed. Issues with the ownership could be partnership disagreements, lack of capital to improve the property, mortgage finances, a desire to reduce management responsibility or ownership is seeking to change/diversify investments.

This leads to a strange market condition in which the availability of properties for sale have returns on investment lower that the market is willing to accept “prices are too high” and buyers with expectations which cannot be obtained “investment returns are too low”.

Over time buyers become more willing to accept a lower return and are willing to pay higher prices. I guess you could call this price creep. We see this when we buy gasoline. Three years ago the price of $3.00/gallon was too high and we were aware of the this high price. Today the price is approaching $4.00/gallon and we just accept that this is the cost of driving.

Therefore, as the overall real estate market improves buyers must become more willing to pay a higher price if they want to invest.

A Different Way To Measure Things

As a real estate broker, when some one calls about a For Sale sign, I’m always asked, “What is the asking Price?” Usually, they expect a price based on cash to the seller. But lately my thinking has changed. Maybe the answer to this question should be, “It will cost you $$$ per month to own this property.”

This brings up the very interesting concept of price vs. value. Price is the measurement in dollars of something, whereas value is the actual benefit of your purchase. Let me give you an example. When I was a kid, my dad, an Air Force Colonel, enjoyed having a rum cocktail after a hard day at the base. I remember his explanation of how he had developed a system of converting price into value. Back then, he could purchase a bottle of rum for $5.00, and this bottle provided a benefit. Then when he went to buy a pair of shoes, he would compare the benefit or value of a pair of shoes priced at $10, converted to the benefit of two bottles of rum. So, when he went to buy something for $100, it translated to a value greater than 20 bottles of rum. (Needless to say, back in those times, he did not buy a lot of things for $100.)

This way of thinking about measurements applies to a lot of situations. A cruise ship is not 600 long, it can be better described as being as long as two football fields. A building is not 1,250’ tall, but is described as being as tall as the Empire State Building. When we travel by air, the trip is not described as being 1,000 miles, but as a trip of 3 hours. Think about the things we consume. Coca-Cola ads never show the price, it shows the benefit of satisfying your thirst.

Another way to measure something is to describe the cost or benefit in terms that are more understandable. For example, comparing the mileage of one car to another. Let’s say you drive a car 20,000 miles per year. If one car gets 20 miles per gallon and another gets 25 per gallon, what does this really mean? Over a distance of 20,000 miles, this will be an additional 200 gallons of gas. At $4.00 per gallon, this will be $800 more per year for the car with the lower mileage/gallon. Maybe this is the reason more expensive, super-economical cars with fewer creature comforts are not as popular as we think they should be.

Then there is the strange benefit of ownership satisfaction. Consider the difference in the price of watches. They all do the same thing, with the same degree of accuracy; yet sell from $20 to $20,000. There must be an emotional benefit of possessing a watch costing $20,000. The price is $20,000 – but for someone to buy the watch – they must receive a benefit equal to or greater than $20,000.

Call us we know how to measure the difference between price and value.