2010 Us Real Estate Outlook

2010 Us Real Estate Outlook

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  2010 US Real Estate Outlook <br />IGS Alternative Solutions over the past two years as been advising as placement agent The California Distressed Land Asset Fund, and has published several reports which in hind sight correctly forecasted the residential and commercial US real estate markets since 2007. For over two year Mr. Michelson indicated that housing would continue to fall in value and not reach a bottom until the price level to own a home was equivalent to rentals causing one to find buying a home compelling. In the published letters that IGS disseminated he indicated repeatedly that the second half of 2009 would be the bottom of the market and that the time to begin buying would be in 2010-2011.<br />Now that we are upon 2010 we have asked Mr. Michelson, if it too late, has the opportunity gone and past given that the markets are now stabilizing, we additionally asked him for his views on how to profit from the US Real Estate Markets in 2010. Below is the discussion which took place at IGS offices on December 1 2009<br />I first appreciate the opportunity to again discuss this with EU investors whom have actually asked this same question of me before given the level of recent reporting that suggests the housing market has stabilized and that the US has turned the corner towards an economic recovery. While I would like to be more optimistic and suggest that my previous forecast that housing would reach bottom in the second half of 2009, I believe that I was only partially right. To clarify what I mean, we the managers of CDLAF believe the overall US Real Estate markets are in fact not in recovery and still have significant issues with job losses, foreclosures, shadow inventories, and weak prospects for any significant economic recovery. The currently reported positive demand and slight uptick in pricing is as a results of the tax credits for both first time homebuyers and the extension to homeowners which will not be sustainable past the expiration in April 2010.The credit markets are far more morbid that we anticipated and the weakness in consumer spending exceeded even our own pessimistic forecast. Today we are faced with an oversupply in most property types, and as results CDLAF and its managers see no reason to consider any new developments until there is clear evidence that existing properties have returned to stabilized occupancies and rental rates. . CDLAF will focus its efforts on acquiring residential first charge mortgages purchased at substantial discounts and income properties with current cash flows after the injection of equity to reduce debt and in some cases refurbish the property. We strongly believe that proper navigation in targeting acquisitions in 2010 will result in outstanding risk adjusted returns.<br /> Investors whom want an in depth understanding about the current US markets are advised to read the just published Emerging Trend 2010 report published in joint venture by the Urban Institute and Price Waterhouse Coopers in that they more eloquently reflect the similar viewpoint which will be summarized below<br />First to plug the fund CDLAF and its managers , The three entities Spring Asset Management, Strand Companies and Three Arch investors each have 30 year of s US real estate development experience ,that combined represents over 300 past partnerships totally developments in excess of $ US 8 billion . We each have lived through three past boom-bust cycles which clearly helped us in our July 2007 predictions of a housing and commercial crash and our 2010 predictions as to how to profit now from a very dysfunctional market. We have never been on Wall Street nor had other careers The managers of this fund each have been only developing and managing real estate investments since the mid 1970’s CDLAF believe that today the US markets need to be very carefully selected with a focus on those areas that have best weathered the storm as to employment, fiscal responsibility housing inventories, foreclosures, and affordability. Exhibit 3 of the fore mention report on page 32 reflects the strength and weakness of various areas. Major Job based in-fill locations where the asset can be acquired for substantially below replacement cost and the asset has either a strong predicable cash flow or has a clean well defined ability to sell (exit), without the anticipation of significant economic growth will be the focus of our real property acquisitions. Our initial focus will be on apartments given our strength in this area as we have owned or developed over 20,000 .We intend to acquire larger projects 200+ units class B and some class C apartments where the demand is stable and the primary requirement needed is to bring the asset back into a performing property is the reduction of debt by a infusion of capital. We will typically reduce debt until we are confident of achieving a 1.25% debt service ratio, under realistic underwriting standards. Buying an asset cheap today in our opinion is not enough reason to make an acquisition in 2010. The acquisition must either be producing an income stream while we hold it for additional upside, or it must meet the requirement of having a clean exit with the ability to profit in this morbid economy. This standard requires the asset to be bought cheap enough to be able to also sell it cheap as today everyone is motivated by the perceived bargain. The other significant asset that the managers of CDLAF intends to acquire will be pools of residential first charge home loans where the discount in acquisition price offsets the lower home values and substantially reduces the level of risk . <br />In each and every asset that CDLAF acquires the test for the managers so to make a compelling case that assets are being bought at significant discounts from the cost to replace that asset as well as a business plan that requires the managers to exit the investment within 36 months form acquisition.<br />CDLAF participates in acquisitions with the sponsors and other US Investors whom have jointly been approved for bidding on structured loan assets from the failed banks formerly known as the Legacy Loan Program. The Investment managers and the sponsor will have hard equity in every asset at a minimum 10% level. As of December 1, 2009 CDLAF is bidding on its first major apartment project in Austin Texas for 1,407 units at a bid value greater than $ 120 million. The US investment mangers has committed on this acquisition 30% of the capital reflecting his commitment to this acquisition<br />CDLAF through the US Company Three Arch investment Corp 1 is approved to bid on several loan service advisors platforms by its past application to the FDIC. The majority of the acquisitions of residential loans will come from these failed banks and the FDIC will be by far the largest motivated seller of real property assets for the next 24 months. We are not going into any detail in this short communication as to the business plan or the anticipated returns projected by the sponsor this letter was intended to answer the questions as originally suggested in our offices that we believed was important ,,,, is it too late to participate in the anticipate recovery in US real estate investments . The answer is clearly a resounding no. We agree with the conclusion of the report cited, that 2010 will be the worst time in over 30 years to sell commercial real estate. That being said we also believe that investors clearly should allocate to this sector in 2010. Skillful guidance will be rewarded, in this time of economic turbulence<br />IGS Group has information available for investors whom desire to join these very experienced managers in 2010. The offering has been adjusted to allow for a minimum size of $ 2,500,000 (US) and like many funds has lowered the fee structure, for a better alignment towards the investor’s interest. <br />Please contact your IGS representative as Mr. Michelson currently in London is taking meeting,,,,,,<br />