Florida Property Management

Foreign Investors in US Real Estate

2012-01-03T05:04:00.000-08:00

Investors around the world have always had great interest in properties in the United States and the reasons are clear. Not only real estate offers a safe investment with good returns but it also offers total control of the investment and it is an excellent hedge against inflation. The United States offers good economic and political stability like no other country in the world. Therefore any investor interested in real property should have in his/her portfolio real estate in the United States of America but many considerations are important when it comes to foreign investors acquiring properties in the US. Last year 72% of the foreign investors surveyed stated they will increase their investments in properties in the United States in the following 12 months, mainly in commercial real estate although the influence of foreign investment in residential properties is very high in South Florida and it is one of the reasons a real estate market recovery should be soon a reality in our area.

One of the most important aspects is the tax laws affecting foreign investment in real property. In 1986 there were many changes in the law and all foreign investors should be aware of all recent changes as well so they can establish the proper structure under which take title to properties. Can I take title under my personal name? Shall I take title under a domestic US corporation or limited liability company? Who should be the owner of that US entity, me and my family or a foreign company or trust controlled by us? Or shall I take title under an offshore company? In using offshore companies, should they be from my Country of origin or shall I use tax heaven jurisdiction?

All these questions are very important before one makes a decision to invest in properties in the United States because they will affect the operation and returns of the investment and proper planning will avoid costly mistakes.

It is crucial to analyze current US Treaties with the Country of origin. If the foreign investor’s country has a treaty with the US this will affect the type of entity and structure as well as the operation of the investment so it should be analyzed carefully taking into account possible future changes.

It is very important to analyze the income tax liability of the investment based on the chosen structure since this will affect the after tax return on the investment as well. The analysis should be of the nature to have potential estate and income tax issues in concert with the desired succession plans and investment objectives of the foreign investor.

Only property managers and brokers with the right experience in structuring investments for foreign clients have the knowledge to assist clients in analyzing real estate returns and investment objectives and are the ones that can properly orchestrate the work of other professionals such as real estate attorneys, tax attorneys and accountants to properly assist the foreign investor in optimizing portfolio operation and returns while enjoying all the benefits of a safe and sound investment in real property in the United States.

Our organization has the knowledge an skills of assisting foreign investors as well as the contacts with the right professionals to assure investment success.

Condo Inventory in Miami Florida

2011-12-03T12:56:00.001-08:00

It seems that international buyers and investors have been helping the Condo market in Miami, especially the Brickell Avenue corridor and Downtown Miami. Almost 85% of the excess inventory is gone and new projects are being planned around Brickell Ave and the Biscayne Blvd area. Prices per suqre foot have gone up from $200/sq.ft to about $300.00 to $350.00/sq.ft in some cases and new projects are being priced between $325.00 and $380.00/sq.ft.
Inventory of rental units has also decreased putting pressure on the rental market. Rents have gone up an average of 15% for condo units in this area. Looking at all areas in Miami-Dade and Broward Counties, one can see rental inventories down and rental rates going up, making more attarctive residential rental investments. The expansion on the Panama canal is fueling the local economy creating jobs to expand the Port of Miami, Port Everglades and Fort lauderdale and Miami International Airports. The Canal expansion should be done in 2014 when we may see another possitive growth of our local economy and in the meantime who knows if we approve gambling and the projects that will come with it.A positive outlook for rental properties in our area.

What is the price per square foot?

2011-09-10T13:04:00.000-07:00

Most of the time this is a question most investors and buyers ask when considering purchasing commercial real estate. With construction and replacement costs being more and less the same throughout the nation (in most cases cost of materials and labor do not differ that much)and some influence by the local demand and supply, one may think there should not be a great difference from one location to the other. In fact replacement cost has an influence on the cost of an existing building. Furthermore, local demand and supply will put pressure on how much buildings are trading per square foot in a specific area. There are other factors such as environmental conditions and property characteristics and condition or physical obsolescence if present. But in commercial/investment real estate the most important factor to determine the actual value of a building is how much the asset can produce, either in income for an investor or use value for a user. When an investor looks at acquiring income producing properties, an income approach to value will have more weight than any other method such as comparison sales or reproduction cost and appraisers use it all the time. This is why you can see that recently a 15,000 sq ft shopping center in good condition with a large expected economic life sold in Broward County Florida for $3,525,000.00 or $235.00 per square foot and a retail space totalling 15,000 sq ft, in a very similar condition, sold on Broadway, New York City for $136,550,000.00 or $9,103.33 per square foot. Although it is very important to know replacement costs, recent sales, property and location conditions, all comes down to the internal rate of return of the investment over a specific holding period and the question is more how much it produces rather than what is the cost per square foot. One an analysis is performed on a specific real estate investment and the results make sense for the investor, then all other conditions should be analyzed, future growth in the area, future supply, future demand from users of this property type, demographic and market forces, government plans, environmental hazards and property condition to determine when and how much capital improvements will be required and how much reserves for replacements should be put aside. When we blend all these factors into our investment and financial analysis, if we achieve the required return for our investment criteria, we will move and purchase the property, most of the time not paying too much attention to what is the price per square foot.

Property Management Trust Accounts

2011-07-30T12:07:00.000-07:00

Misuse of trust accounts is the number one reason why property management companies are audited. That’s why it’s vital that the proper trust fund accounts are established as needed, and used properly.
Improperly using trust accounts that were established to maintain owner funds and tenant security deposits can result in stiff penalties, such as license suspension or revocation. Improper tracking or usage of tenant security deposits can also result in the management company being responsible for the cost of damages incurred while the property was occupied.
Trust accounts are traditionally used as a method to keep tenant deposits and rent payments separate from operating capital. For example, in both California and Arizona, rent payments must be placed into a trust account no later than three business days after the funds have been received.
Funds placed in the trust account can only be withdrawn by the broker or broker-officer whose name the account is established under. Brokers are not allowed to tap into these funds except for trust related items. To complicate matters, many states currently require that security deposits be kept in a trust account, with some state statutes requiring that the deposit be in a separate trust account, while others allow them to be placed with the owner’s trust account. For instance, in Arizona, brokers must maintain a separate account for all tenant security deposits. Note that in most states, security deposits received on broker-owned properties do not have to be deposited into a separate trust account, but it’s always wise to check your own state’s requirement.
In recent years, some states have implemented new laws requiring property managers and owners to specify in the management contract exactly how trust accounts will be used. Even if your state has statutes specific to the use of trust accounts, it’s best to spell out any specifics in the management contract.
The Department of Real Estate in each state has its own set of established rules and regulations governing the proper and improper usage of trust accounts, and it’s wise to get yourself up to speed on these regulations.
While your state’s department of real estate will continue to perform audits, if your management company has followed the statutes, and maintained ‘good accounting practices,’ you should be able to sail through any audit that your property management company may be subjected to. (Source propertymanagement.com)

New Accounting Rules Affecting Tenants & Landlords

2011-02-06T08:31:00.000-08:00

The Financial Accounting Standards Board and International Accounting Standards Board have been working on a project to modify how leases are reported by tenants. Currently the standards require that tenants evaluate leases to determine if they are capital or operating leases. Capital leases are recorded as Assets and related Liabilities on the company's Balance Sheet. Operating leases are expensed as the lease term passes and future lease obligations are disclosed in the footnotes to the financial statements. Most real estate leases are recorded as operating leases. The new rules will require that all leases are recorded as a right to use Asset and lease related liability, calculated using the present value of all lease payments. These "Assets" will be amortized over the life of the lease and lease obligations will be reduced as lease payments are made with an interest component to take into account time value of money. We see many possible implications of this new rule. No question these new rules will affect the company's Debt/Equity ratio, maybe forcing a company to shorten the length of its leases to meet its covenants. A shorter lease will require only a fraction of the debt to be recognized in the balance sheet. Under the rule renewal options must be included if it is likely the option the option will be exercised. Landlords also have to change the way they report leases. For leases with significant risk and benefits associated with, they will have to record a liability for the obligation to provide space and an asset for the rents to be received. For all other leases landlords will have to use the derecognition approach, meaning they will have to record a lease receivable for the future rents and a residual asset representing the lessor's right to the underlying asset at the end of the lease term. Like with the case of a tenant, the term of the lease would require auditor's judgement and must be re-evaluated at each reporting date. These new rules will affect, landlord's and tenant's, leasing decisions in the future. Commercial real estate entities must contact their accountant and business advisors regarding these changes. It is our opinion that the proposed standard will create an incentive for shorter leases, creating more volatility and affecting property values. It may also create situations where tenants may be better off purchasing rather than leasing space. All these changes and their possible effects must be discussed with a Certified Public Accountant before making any decisions.

Retailers and Lower Rents

2011-01-23T10:29:00.000-08:00

The United States Retail Sector showed signs of stability during the third quarter of 2010, according to information from REIS Inc. and notes from the Journal of Property Management of IREM. With a 10.9% vacancy rate at neighborhood and community centers and a positive net absorption of 300,000 square feet, the market still have opportunities for certain retailers who want to take advantage of lower rents and vacancies resulting from the recession by opening new stores and extending leases at favorable terms, according to data collected by CoStar Group. Mall have shown losses of 13.6% in rent while lifestyle centers showed 12.1%, according also to data collected by CoStar Group. These centers are most likely to be after those retailers businesses, looking for dcicounted rates. Kohls is one of the retailers taking advantage of lower rents to opoen new stores. It opened 30 stores in 2010 (21 in the third quarter) and plans to open 40 new stores in 2011. Many of the new stores will take over vacated space by Lowes and Wal-Mart. Electronic retailer HHGREGG also plans to take advanatage of market conditions opening new stores and his presence and expansion in South Florida is already a reality. Pittsburg based, Dick's Sporting Goods Inc. has similar plans.

The Flexibility of leasing office space

2011-01-19T15:00:00.000-08:00

For many firms, renting office space might work out better than purchasing an office condominium unit. Thus, a company that is growing rapidly may require additional space every few years. This type of company might do better with short term leases or with a long term lease containing options to acquire additional space in the building at specified future dates. A condominium office building can be expected to have infrequent turnovers, and obtaining additional space may be difficult, although some condominiums use a right of first refusal requiring unit owners selling or leasing units to offer them to the other unit owners. An office tenant can move out at the end of the lease without worrying about disposing of the leased premises. The key is flexibility when you expect growth. In the Medical field, doctors and dentists do not usually experience the kind of growth that requires the same flexibility so in these cases an office condominium may work better, taking some advantages of ownership. The same is true for other professionals. Therefore the success of some professional office condominium projects. For these doctors or professionals owning may have better financial and/or tax advantages, making it a lot more attractive than leasing.

Real Estate Market in 2010

2010-03-13T06:41:00.000-08:00

With high Federal Government spending, either if you agree with this policy or not, there is no doubt that at this pace increases in the Federal Deficit will continue to be one of the major problems of our economy. If the results of this policy will have a positive effect in the economy or not, it has to be seen. High unemployment is also a problem. Florida's unemployment rate increased to just over 11% and there is no non-government job creation which continues to be a problem. Another important factor is that commercial real estate debt since 2004 has reached 2.2 trillion dollars and almost all real estate acquired or refinanced between 2006 and 2008 has lost all the equity. 600 billion of debt will mature between 2010 and 2011 and the CMBS market continues to be absent as a source of refinancing. Banks, who hold most of the debt, are underwriting under more stringent guidelines so the ability to finance real estate in the next two years is not going to be there.

Some economists expect the economy to bottom sometime in mid 2010 and this may be an statistical recovery year but nothing else.

On the residential real estate market the financing problems still persists and even FHA has tightened its underwriting guidelines making it more difficult for Buyers to qualify for mortgage loans. This tend to lower the absorption rate on the market, therefore inventory will remain high for a longer period of time and construction will remain weak, another problem for jobs and the economy.

For the residential and commercial property owner now is the time to look for professional asset and property managers who can really improve the operation of the properties and long term value. Now is the time to implement resident and tenant retention programs and develop lease work out agreements, avoid falling into a deferred maintenance situation, decrease operating costs and increase income. Not an easy task but professional experienced asset and property managers are trained to deal with this task and every property owner should be thinking about hiring the right people and using the right amount of resources.

The idea is not to dispose of properties now in the worst market ever but to weather the storm and have an excellent asset in the next cycle. To the contrary, now is the time to purchase properties and enhance portfolios. yes, there is lack of financing, but there are opportunities out there that are too good to be missed. We are about to see institutional investors to come into the market to take advantage of these opportunities. With some financial engineering good deals can be structured. We see sectors like multifamily, medical, senior housing and services as the best areas to recover and with great future. Also, some areas in the economy are doing great and are great prospects for growth. Energy and renewal energy, waste management, senior services, medical and life sciences, green technology and environmental companies, are sectors with great growth.

In our local Florida area, we think distribution warehouses and anything having to do with logistics, medical, senior services and multifamily are the sectors we see with great possibilities.

Our summary is, get good asset and property managers to handle your portfolios and properly allocate resources, invest in new real estate opportunities to the extend of your possibilities and focus on the growing sectors. We see this as a moment in time where great fortunes are to be made again in real estate.

The right Roof

2010-02-27T19:06:00.001-08:00

Roof materials and its condition affect the value of a property today and the forecast of replacement budgets having an effect in income producing property performance. Asphalt or composite shingles are probably one of the more economical and usually last between 15 to 20 years unless you go for the architectural shingles with a three dimensional look that are more expensive but can last up to 40 years.
Clay or concrete tiles used primarly in residential applications look best in Spanish or Mediterrenean homes and can last up to 50 years.
Metal roofs are among the most expensive, especially those made of copper, but are one of the most durable choices, lasting up to 100 years. On the downside they can be noisy when it rains but they are efective for commercial applications.
New polymer products have come on the market recently for their durability, light weight and fire resistance. Also choices of green materials used more in commercial properties.
Concrete roofs are the best option, especially in areas like South Florida where there is always a risk of windstroms and hurricanes but must have excellent waterproofing,especially in flat areas and may ad in some cases too much weight to the structure, increasing the cost of building.
Common to all roof types is good maintenance taking care of a problem as soon as it is detected.
Now, a new product that can be incorporated into roofing systems, especially with asphalt shingles, are solar shingles, less expensive than solar panels, easy to install and provide a cost effective solution with energency efficiency in mind. Dow Chemical will soon release this product called the Power House Solar Shingle.
As insurance cost rises and during this economic downturn when construction prices have come down significantly, many developers and investors are looking at building with concrete roofs for the long term benefit of the property.

Miami Industrial Real Estate Market

2010-01-05T20:26:00.000-08:00

Availabity rate surpasses 14% as vacancy rate reaches 12% and gross rents fell to $5.00/sq.ft per year in Miami-Dade County. Companies downsizing and holding on expansion plans as the economy continues to worsen in many aspects. Construction stopped months ago and new projects are empty waiting for demand for new space to come back.
Until the local economy starts to recover slowly by the end of 2010 and if international markets keep their strengh in trading with US exports, we may see this market to start to recover by the end of 2011 but the process will be slow.

Tenant Screening and Foreclosure crises

2009-09-08T20:58:00.000-07:00

During these difficult economic times and especially with the current number of properties under forecloaure, it is difficult to underwrite a tenant application based on credit scores or credit history. We at Florida Property Management Services,Inc. are taking another approach to evaluating tenant applications. Of course credit is important but many families and individuals may have credit problems and face foreclosure due to circumstances beyond anybody's control. Many good prospective tenants are going to be people that faced foreclosure just few months before applying for residency at your property or complex. Bad credit due to foreclosure can be compensated with stable employment and sound analisys of income to rent ratios. Also an important aspect is to look close at credit cards and other revolving accounts. One may face foreclosure due to living beyond one's means but a responsible person keeps his/her obligations up to date, paying revolving lines on time. Paying your credit cards and installment loans on time, having a decent rent to income ratio and a stable job, more than compensate the fact of having a foreclosure on your record and may open the door to rent at any desired complex or any specific property.