Archive for March, 2010
Buying or leasing office space is a much different situation than buying or leasing a home. Over the past couple years, corporate real estatewas doing really well as businesses were booming and filling up their space quickly. However, with the economy now businesses are consolidating and getting rid of space, so things have changed significantly.
For people managing corporate real estate or handling office leasing they are going to be in for much tougher negotiations. Rental rates are at a much lower rate than they were a few years ago and companies may be less inclined to sign a long-term contract. Companies are doing everything they can to explore cost-cutting measures. Even the simple office supplies that weren’t a big deal to purchase in the past may now need management approval.
This type of leasing climate is especially good for those companies who know they are going to weather this economic downturn just fine. Yes, there are a few out there still making money. These companies can take advantage of the lower rates and the many incentives that are being provided. If they can take advantage of a longer term lease they may end up saving a lot of money. Tenants are looking for the best deal when they look for office space and landlords are really going to the extra mile to lock them in.
Lease negotiations are in the tenant’s court right now. With discounted rent or even free rent for a period of time, this is a good time to be searching for office space. Landlords that are struggling to find tenants may offer a variety of great deals such as paying for the space to be renovated or providing the options for additional build-outs on the property. Further, landlords are offering much more flexibility with the term of the lease. In good markets, landlords might be especially stringent when it comes to lease terms and getting out of a lease early. However, now they are much more willing to talk about ending leases early, which may be a cost savings to tenants paying for unnecessary space. Tenants are also setting leases with shorter renewal options to allow for better positioning when the market does improve. While they may be cutting costs now, most companies are looking forward to a day when they can get back to normal, hire more employees and re-fill up that space they just vacated.
Even though the economy has many wishing for jobs, grumbling about unemployment or afraid for the days to come, it also holds a lot of cost savings measures of which business should take advantage. With the better lease rates, more flexibility in negotiation and the incredible incentives on the table, it is a no brainer for companies to take advantage and save some money. We won’t always be in a recession; companies won’t always be struggling to fill their office space. However, right now, for both landlords and tenants it is a very different market. And, while tomorrow may change things for the better. Today, companies should stop and look at the many ways they can make choices today to improve their financial picture tomorrow, especially when it comes to their office space.
Despite a recent slowdown, the U.S. real estate market continues to be a popular investment destination for foreign investors. Attracted by a desirable return on investment, many foreign nations continue to invest heavily in the U.S. residential and commercial real estate markets. In fact, in 2005, foreign investment in U.S. real estate reached 1.83 trillion.
To evaluate the impact of foreign investment on the U.S. real estate market, the National Association of Realtors (NAR) produced a 2006 report entitled ‘Foreign Investment in U.S. Real Estate: Current Trends and Historical Perspective.’ The report provides insights into the trends in foreign real estate investment, its impact on the U.S. economy, and the major countries that participate in U.S. real estate investment. Below are some highlights from the NAR report.
According to the U.S. Department of Commerce, the top seven countries that had significant holdings in U.S. real estate as of 2005 were:
Germany – 13 %
Latin America – 13 %
Australia – 11 %
Japan -10 %
United Kingdom – 10 %
Canada – 6 %
Netherlands – 6 %
The U.S. economy is wide open to foreign investors. Both investors and Americans significantly benefit from all this foreign investment. The NAR study estimates that without foreign investments in the securities market, the long-term lending rates would be four percentage points higher than the current rate, which would adversely impact the U.S. real estate market.
Foreign direct investment into the U.S. not only creates more jobs but also contributes to the demand for U.S. real estate. In fact, foreign investment may be responsible for creating two million U.S. jobs by the end of 2006, which further bolsters the demand for U.S. real estate.
Permanent and temporary immigration of foreign-born workers into the U.S. further bolsters the demand for real estate. According to the Joint Center for Housing Studies at Harvard University, 1.2 million net immigrants are expected to arrive in the United States annually. This immigration pattern is expected to offset the decrease in housing demand by post baby-boomer generations.
In summary, the impact of foreign investment and immigration into the U.S. will continue to play a major role in the U.S. real estate market.
People want to have their own house. It is a common aspiration. But in today’s extremely tight credit market (think US financial bailout), a potential home buyer may not be able to obtain financing from a traditional bank or a mortgage company. In this case, a buyer may choose to purchase real property through a land contract.
A land contract sometimes known as a “contract for deed”, “trust deed” or an “installment sale agreement” is a contract between a buyer and a seller of a real property wherein the seller provides financing to purchase the property for an agreed-upon purchase price and the buyer repays the “loan” in installments. The seller holds the title or the deed to the property until the buyer completes all payments stated in the contract.
Purchasing a property by way of a land contract can prove beneficial to the buyer. He/She does not have to contend with hefty down payments, credit requirements or other tedious bank financing prerequisites. Initial costs incurred with a land contract are also significantly lower than those through bank financing. Likewise, the seller does not have to wait for lengthy bank processes. Furthermore, property sold via a land contract can be priced higher than if sold through bank financing. Since the buyer is not obligated to pay a large down payment, the seller can ask for a higher price or a higher interest rate enabling the latter to realize a considerable profit.
Under a land contract, the buyer and the seller enter into an agreement that stipulates that the seller shall only transfer the legal title of the real property until all agreed-upon payments have been paid in full. During the duration of the contract, the seller allows the buyer to occupy/use the property for purposes other than legal ownership provided the buyer is not in default. In most land contracts, the purchase price is typically paid with a modest down payment and then periodic installments for a set period of time. At the end of the course of the payments, the buyer pays off the balance with a balloon or lump sum payment. When the full purchase price inclusive of any interest has been paid, the seller tenders the legal title to the property to the buyer.
If the buyer defaults on his/her regular installment payments or fails to make full payment at the end of the land contract, the seller may re-possess the property. The buyer loses any payments made including the down payment and equity through his/her periodic payments. Money and time spent on improvements on the property will all go to waste. Thereafter, the seller is not required to transfer the deed to the buyer.
On the other hand, if the seller owes a mortgage on the property and has not settled the entire loan prior to the buyer’s final payment at the end of the contract, the latter may be forced to pay off the mortgage to prevent foreclosure on the property thereby losing his investment. Aside from mortgage on the property, there can also be back taxes or other liens that the seller owes.