Commercial real estate differs from residential real estate investing when it comes to financing. There are small segments of residential real estate where a borrower has the ability to commit less capital using Government products. In the industry of commercial real estate everyone prefers to use someone else's money. In residential real estate the popular mistake is that the average investor will use his/her own money to invest. The use of the term syndication has become widely popular since the 1950's. Essentially it is the the use of group economics, risk and equity sharing.
In today's economy we call this Syndication. Syndication can be defined as the following;
"Real estate syndication (or property syndication) is a partnership between several investors. They combine their skills, resources, and capital to purchase and manage a property they otherwise couldn't afford. There are usually two roles in property syndication: syndicator and investor." - www.fool.com
"A syndicated loan, also known as a syndicated bank facility, is financing offered by a group of lenders—referred to as a syndicate—who work together to provide funds for a single borrower. The borrower can be a corporation, a large project, or a sovereign government." - www.investopedia.com
Real Estate and Loan Syndication can easily be defined as:
"Two or more parties gathering resources, skill, capital, knowledge to be deployed to an asset or asset class in exchange for profit, equity and/or control. " - www.lee-chandler.com
Once the group of investors or prospective group is formed. The assignment of roles, responsibility and risk are delegated. This will consist of who will be responsible for the loan, the asset, management, capital and additional resources needed. Based on the legal structure of the entity, this can take place in a operating agreement, partner agreement or trust agreement.
The coronavirus pandemic has brought disastrous effects upon America’s economic health and stability. It has prompted the necessity of quarantines and shutdowns of businesses on a national scale, resulting in unemployment figures not seen since the Great Depression and bankruptcy of many retail firms.
In the face of such a crisis, the U.S. Federal Reserve has taken bold steps in addressing the economic uncertainty and to limit the economic damage. They have lowered the federal fund rate down to a range of 0 to .25%, to lower the cost of borrowing money and therefore stimulating economic growth.
In addition, they have begun buying massive amounts of treasury and mortgage-backed securities in order to inject money into the market and bolster economic activity. In terms of lending, the fed has supported loans with low or deferred interest payments for banks, large businesses, and small businesses.
These actions have helped to mitigate some damage and is the likely reason why despite GDP declines and staggering unemployment, many investors are optimistic and see a path to recovery, resulting in stock market surges in spite of poor economic activity. Understanding the moves the fed is making in response to the crisis can offer us valuable information on the impact the institution can have on markets and predict how their actions will impact economic behavior.
Cheng, J., Skidmore, D., & Wessel, D. (2020, April 30). What's the Fed doing in response to the COVID-19 crisis? What more could it do? Retrieved May 19, 2020, from https://www.brookings.edu/research/fed-response-to-covid19/
Author: Andrew Fu
It might seem like a big forest at first! But if you think about it like a track the bread crumbs each crumb leads to the other, I’m sure it’ll be much easier. So shall we begin.
Let’s assume that you have a really big company and as big as your company is, there’s a great competitor in the same market. For some reasons and maybe a few wrong paths led to wrong decisions, your competitor will announce his bankruptcy in the couple of months.
It’s good news, agree on that!
BUT there’s a big but here. Your competitor has a few good products, the customers are still loyal to him. And you are concerned that it might all the company end with someone continuing the legacy.
So you meet up with your team, trying to figure out the available scenarios here: And after few hours of all the discussions, you got to a conclusion of 3 choices:
1. First is to buy the whole company to conquer the whole market, and it seems the ideal choice to you.
2. You can buy some stocks of the competitor company so you can effect on the decisions.
3. One member of the team came up with something called “Real estate syndication”, and in a simple way it means to buy PARTS of the company and cover PARTS of the liabilities.
And when you analyze each point of those, you reached to these results:
1. First option is so good to be true and it can’t happen, because you can’t afford to pay all of that, enough that you don’t have in this quarter this amount of liquidity. Plus liabilities tight the business.
2. Second choice is a good one but you’re thinking of possessing a certain product from the competitor's closet, and this option doesn’t give you this luxury.
3. The final one: it suits your needs.
And let’s break through what’s the meaning of real estate syndication. It means that in case you want to buy a certain company. You don’t actually buy its stock. But you buy certain assets and certain liabilities. In our example, we know that our manager is interested in a particular product from the competitor company! Also it will help in a totally different way, which is by using the technique of syndication you get rid of the competition & conquer the market.
Real estate syndication is a really good way to enrich your company, except to play this card in a good way. You need to have a big team of geniuses to do the math and research for you.
Finally let’s summarize what we have learned so far:
- Real estate syndication is about buying a company asset & liability not its stocks.
- Real estate syndication guarantee to keep your equity power on top and also push new blood to your company.
- It helps to expand your company as well.
I hope you get this big concept in its simple shape!
Author: Rewan Eman
In California, Governor Gavin Newsom has proposed a moratorium that would effectively delay rental payments until the tenant can pay for it after May 31st given that their income has been detrimentally affected by the coronavirus. This poses the question, what long term economic impacts will this have on homeowners, investors, tenants, and buyers? At first it may seem sensible just to push back the rental payment, but there are some negative externalities. Not only this, it is hard to say whether the moratorium will change things in the short run, because people will not be making more than they were making before the devastating coronavirus, possibly even less.
With this moratorium, investors and landlords are effectively reaping no profit from low interest which discourages allocation of funding into investment. Not to mention the aggregate demand and supply is continuing to fall, spelling further declines in interest rates which should deter investors until the end of the health crisis when aggregate demand bounces back. One thing I would like to point out is that when aggregate demand does bounce back in the long run and we reach the same output as we had before the crisis, the prices will actually be lower than they were before. Here is a graph depicting aggregate demand and supply of the economy in the midst of the health crisis.
While the Real GDP and output is the same, the lower price equilibrium affects homeowner and investor outlooks on prospective property. In theory, with lower price and low interest rates investors would once again be encouraged to put their money into homes as opposed to a period of moratorium where rental properties and interest are essentially showing no growth nor yield. With regards to tenants, this drop in price only comes in the long run, and with just a 2 month moratorium delay the write off payments would be just as high or even higher than the price before the health prices started. Sadly many people will not be employed by the end of the 2 month delay, so it seems like a disaster in the short run. However during the moratorium, landlords are actually hit hard too because they are effectively forced to bear the brunt of the pandemic’s blow, being liable for all expenses in regards to their property and workers they hire. This would result in them laying off workers, forfeiting property, and missing obligations, risking foreclosure.
Author: Jerry Liu
Since open houses are not allowed in most states, real estate agents are trying to find a way to keep their business going. Thanks to technology, real estate owners are doing virtual tours so buyers can take a look at the house. “Some are making a video conference walking through the house, while others are taking 360-degree pictures” (Fuscaldo, 2020). 3D tours increased by 408% last month compared to February.
This is a good initiative from real estate owners and could help to sell or rent some properties; however, most of the people will still want to visit the house before buying. There is a simple reason for this, and it is that the person recording the video of the house could have hidden some space of the house that it is not in good condition. Also, you do not have the chance to see the neighborhood or other aspects of the house, like the closets or ceiling.
Some people already bought their house by virtual tour and there are positive and negative comments. One virtual homeowner stated that he has no regrets and that it wasn’t stressful at all (Miranda, 2020). On the other hand, others stated that after buying they realized that the neighborhood was really noisy, or that the house had a strange smell and it was because the ceiling had mold, which they did not see in the online virtual tour. As we can see, buying a house online has a risk, but if you are in a hurry or you feel confident, it is a good option and it could save you a lot of time and stress.
Fuscaldo, D. (2020, April 30). A New York real estate agent's advice for buying or selling a home during the coronavirus crisis. Retrieved from https://www.businessinsider.com/real-estate-agents-advice-for-buying-selling-home-during-coronavirus-2020-4
Miranda, L. (2020, April 9). House hunting in a pandemic: Virtual open houses and drive-thru closings. Retrieved from https://www.nbcnews.com/business/consumer/house-hunting-pandemic-virtual-open-houses-drive-thru-closings-n1179436
Author: Sebastián Colla
The spread of Covid-19 has put the world at a halt. Lockdowns and closings of businesses have forced many people out of work and put the world in a state of economic uncertainty. Thus, the entire real estate and commercial finance industry are left to wonder if people are able to pay their rents.
As unemployment is on the rise, homeowners are worried about how they are going to afford their rent and expenses. Luckily for them, the government has ordered a “ $2.2 trillion stimulus package including the possibility of forbearance on federally backed mortgages and placed a nationwide moratorium on foreclosures for homes” (Panfil and Robustelli “Renters are desperate for more help” 2020).
Though the stimulus may be helpful temporarily, it still leaves room for uncertainty in the long run.
Additionally, many tenants are forced to close their businesses, yet still have to endure rent expenses. With no profit coming in, they are forced to ask landlords for rent relief.
The effects of Covid-19 have directly impacted businesses and homeowners. The U.S. Government is taking initiatives and doing their best to help, but it simply is not enough. The future of the commercial and real estate sector remains to be uncertain, as the pandemic continues to halt economic activity.
Author: Elysa Ng
Across the globe, the Coronavirus has created a staggering effect on different segments of the economy.
Due to the pandemic--interest rates, bond yields, and real estate have all undergone a massive change within the past three months.
A year ago, mortgage rates were flying securely above 4.0%. However, since March 3rd, the federal reserve has implemented a multitude of different strategies to “keep money flowing through the financial system” causing a chain reaction that has resulted in the cut of interest rates (Lewis "What the New Coronavirus Means for Your Home Loan and Mortgage Rates" 2020).
According to Mortgage News Daily, the interest rates have fallen to a record low of 3.09% (DianaOlick "Mortgage rates just hit another record low" 2020).
In addition to the interest rates reaching their all-time low, bond yields have cohesively followed. As the Federal Reserve reduces the interest rates at which banks borrow money, the rates for bond yields decrease. Therefore, causing most investors to see a negative return.
The low-interest rates that have fruited from the pandemic also have had an interesting effect on the real estate market. While the interest rates continue to fall, more consumers consider purchasing properties. Which in result, increases the demand and prices in the real estate market.
The pandemic has ultimately caused significant changes within multiple sectors of the economy. Interest rates, bonds, and real estate have all taken on a startling change during COVID-19 and may continue to see more change as the pandemic continues.
Author: Ethan Nguyen
At the core of corporate accounting are three major financial statements: the income statement, the balance sheet and the statement of cash flows. Together, these statements can provide valuable insights into a company’s financial standing, allowing managers, investors and lenders to assess how efficiently they are operating. Before exploring the interconnected relationship between these statements, it’s important to understand their stand-alone functions.
The income statement provides an overview of a company’s net income for a given period by displaying revenue and subtracting expenses from it. Expenses can be broken down to three levels: direct, indirect, and capital expenditures. Direct expenses, often referred to as Cost of Goods Sold (COGS), represents the total costs directly associated with producing goods/ services for the given period. Indirect expenses are all costs indirectly associated with revenue generation for the company, including administrative salaries, office rent and utilities. Capital expenditures include long-term expenses associated with upgrading or maintaining assets, and may include the acquisition of new land, buildings, or equipment. This breakdown of revenue, expenses and ultimately income allows for analysis of how much a company is profiting and how that compares to costs incurred.
The balance sheet on one side lists the assets of a company, and on the other lists liabilities and equity. Assets, or the resources controlled by a company, can include cash, inventory and property. Liabilities, or a company’s financial obligations, can include rent, wages and loans. Equity consists of shareholders’ initial investment plus their retained earnings. In other words, if shareholders were to sell all the shares in a company, the payout would be equivalent to total equity. All together, the worth of assets must be equal to liabilities plus equity. The balance sheet can be analyzed to determine a company’s value and to assess how significant their debt is.
Statement of Cash Flows
The Statement of Cash Flows provides a more detailed look at the cash entering and leaving a company. Cash activities can be broken down to three levels: cash from operating activities, investing activities, and financing activities. The cash associated with operating activities is that which directly relates to the company’s goods and services, such as receipts from sales, employee payroll and the purchase of materials for manufacturing. The cash associated with investing activities is that which involves the purchase or sale of investments, including property, equipment and stock in other companies. The cash associated with investing activities is that which directly relates to the company’s liabilities or equity, such as dividends to shareholders, a loan from a bank and cash from investors. The Statement of Cash Flows can be analyzed to determine how much cash a company generates, how far along they are in growth and their liquidity.
Data can be pulled from each of the financial statements to calculate various financial ratios that indicate how efficient a company’s operations are. This interconnection of the income statement, balance sheet and statement of cash flows is valuable for understanding, as it sets the foundation for various financial practices including accounting, investment, and financial services.
Averkamp, H. (n.d.). What is a capital expenditure versus a revenue expenditure? AccountingCoach, Retrieved May 15, 2020, from https://www.accountingcoach.com/blog/capital-expenditure-revenue-expenditure
Hayes, A. (2020, April 20). Balance Sheet. Investopedia, Retrieved May 15, 2020, from https://www.investopedia.com/terms/b/balancesheet.asp
Kennon, J. (2019, November 15). How to Read Balance Sheet Assets, Liabilities, and Shareholder Equity. The Balance, Retrieved May 15, 2020, from https://www.thebalance.com/assets-liabilities-shareholder-equity-explained-357267
Majaski, C. (2020, April 10). The Difference Between an Operating Expense vs. a Capital Expense. Investopedia, Retrieved May 15, 2020, from https://www.investopedia.com/ask/answers/042415/what-difference-between-operating-expense-and-capital-expense.asp
Murphy, C. B. (2020, January 29). Understanding the Cash Flow Statement. Investopedia, Retrieved May 15, 2020, from https://www.investopedia.com/investing/what-is-a-cash-flow-statement/
Three Types of Cash Flow Activities. (n.d.). Saylor Academy, Retrieved May 15, 2020, from https://saylordotorg.github.io/text_managerial-accounting/s16-02-three-types-of-cash-flow-activ.html
Wilkinson, J. (2019, March 22). Shareholders' Equity Definition: Shareholders' Equity Example. The Strategic CFO, Retrieved May 15, 2020, from https://strategiccfo.com/shareholders-equity-definition/
Author: Arielle M. Hinrichs
The initial question that may come to mind is what on earth is a Family Office? The second is similar to the first in “why would I care about a Family Office?”
The reason you should care about a Family Office is because this is what allows the Rich to become Wealthy and stay wealthy in the process. In a simple definition a Family Office Manager, Facilitates and adds wealth for the betterment of a family. For example, Paris Hilton is known to be in the tabloids causing chaos. But have you wondered how the Hilton family maintains their wealth?
No, it’s not from their hotel ventures or the escapades of Paris. Instead it is a dedicated team called the Hilton Family office, whose sole purpose is to add assets and growth to the war chest of the Hiltons year after year and quarter after quarter. Most of these family offices perform acquisitions and corporate takeovers in the dark so that they public is never aware.
Pretty neat right?
Every family office is different just like every family is different.
“But, as one U.S. Supreme Court justice said about pornography, you might not be able to define it but you know it when you see it.”
The same can be said in reference to a family office. The goal is to grow the wealth year after year so that they family or heirs are not responsible to handle these demands.
What makes a Family Office different from what the average American worker uses on wall street?
Well… it’s pretty simple. The average american does not have someone who has their back when it comes to investing. As a matter of fact, the average American does not even have a fiduciary.
The beauty with a family office is that it is a team of bright top graduates from highly sought after Ivy League universities. Not only are these people the best at what they do, they’re also compensated proportionally. The best part of it all is that in the event that a member of the Family Office team loses revenue or wealth for the family … they are personally responsible with their own personal assets…. TALK ABOUT PUTTING IT ALL ON THE LINE!
Yes.. these professionals are responsible for the money that they manage all the way to jail and bankruptcy.
The average American simply does not have people like this on their side, they would not know where to begin to receive that type of expertise or assistance to grow their wealth.
In order to start your own family office you must have a minimum of $50,000,000 in liquid cash reserves.
These same family office representatives are the reason why people are able to get in on IPO’s before you hear about it, local developments before it hits the newspapers and political swings that push our economy.
How do I know this???
Well one of my mentors is a manager of a Family Office.
Believe it or not the average American does not have an excess of $50,000,000 to start a Family Office in order to advance their family forward for generations to come. However I can give you an unfair advantage by letting you know some of the tricks to the trade I’ve learned from Mentor.
Building wealth takes time, often obtaining asset values of $2-$3,000,000 added to your portfolio can take as little as two years. The key to this is the understanding of assets vs. liabilities and how liquid and non-liquid assets play their individual role.