Posts in category: Uncategorized

The Boston Condo Market has been on a mega rebound over the past few weeks. Downtown inventory rates have dropped significantly and prices are still climbing. Many Boston condos that we have been tracking over the past few weeks have went under agreement at full or over asking price showing the stability & possible frenzy in the 2007 Boston real estate market.

Last week we all read about the real estate frenzy going on in Manhattan right now. Is it the buyers who have been waiting for the bubble to burst over the past 18 months and now are faced to purchase now or rent for another year? Is it the low interest rates that are still active in our marketplace? What is causing this new renewal of the Boston real estate market?

New condo developments in Boston are also on the hot seat. With even more projects coming up this shows the lack of luxury condo properties or full service condos. We are glad to see more of this type of condo property being built as it is the wave of the future. The Back Bay, Beacon Hill, Brighton Allston, Charlestown, Chinatown, Fenway, Leather District, Midtown, North End, Seaport, South Boston, South End, Waterfront and the West End in Boston are all hot and downtown Boston will continue to boom.

Not surprising, some immediate suburbs like Brookline, Newton, Medford & Quincy are also picking up on this trend. Traditionally these markets don’t cater to the full service young professional, however, we are seeing all new types of luxury condominium properties popping up around the skirts of Boston also.

Company Summary

Starbucks Coffee, sometimes referred to as Fourbucks Coffee is the largest coffeehouse chain in the world. It opened its first store in 1971 in Seattle’s waterfront Pike Place Market by three partners: Jerry Baldwin, Zev Siegel, and Gordon Bowker to sell high-quality coffee beans and equipment. In 1982, Howard Schultz, the current Chairman and CEO joined the company as the Director of Marketing. He was impressed by the popularity of the espresso bars in Italy after he traveled to Milan in 1983. Back to the US, he convinced the founders of Starbucks to sell both coffee beans and espresso beverages. However, the idea was rejected so he left the company and founded Il Giornale coffee bar chain in 1985. In 1987 Howard Schultz and Il Giornale bought Starbucks with $3.8M and renamed Il Giornale coffee bars to Starbucks and turned it into the Starbucks you know today. The company went public with the symbol SBUX in June 26, 1992 at $17/share with 140 stores. Since then the stock has split 5 times. As of May 2008, SBUX is traded at about $16, down from the high of $39.43 in November 2006.

Starbucks opened the first overseas store in Tokyo, Japan in 1996. The company currently has about 16,000 stores, employs 172,000 partners, AKA employees as of September 2007 in 44 countries. It has annual sales of over $10B with most recent quarterly revenue being $2.526B. About 85% of Starbucks revenue comes from company-operated stores.

Starbucks does not franchise its operations and has no plans to franchises in foreseeable future. In North America, most stores are company-operated. You may see some Starbucks stores inside Target, major supermarkets, University campuses, Hospitals, and Airports. These stores are operated under licensing agreements to provide access to real estate which would otherwise unavailable. Starbucks receives licensee fees and royalties from these licensed locations. At these licensed retail locations, the workers are considered employees of that specific retailer, not Starbucks. As of 2008 it has 7087 company-operated stores and 4081 licensed stores in the US. Internationally it has 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is slowing down as the company plans to open 1020 US stores in 2008, less than 400 stores in 2009 down from 1800 stores in2007. In addition, it also plans to close 100 stores in 2008.

Risks to Real Estate Investors

Starbucks coffee buildings remain a popular investment for many investors. When you consider investing in a property occupied by Starbucks, you need to understand the following risks of your investment:

1. Recession-sensitivity: a hungry man can survive with a Big Mac & fries but can live without a four-buck Frappuccino. This means Starbucks is very sensitive to economy downturn as seen in 2007 and 2008 compared to Burger Kings and McDonald’s. This may be the main reason sales at stores in the US open at least a year are expected a mid single-digit percentage decline, the first drop ever. It triggers Howard Schultz to return to the CEO post. The company plans to double its marketing spending to $100M in 2008 to drum up sales. It began an aggressive coupons campaign offering free drinks every Wednesday through May 28, 2008. This may be a sign of desperation. On April 22, 2008 Starbucks cut its outlook for the year citing weak economy.

2. Calorie & Sugar: Starbucks drinks have more sugar and calorie in which consumers are more and more concerned due to explosion of obesity and diabetes epidemic in the US. For example, its Strawberries & Crème Frappuccino® Blended Crème – whip has 120 grams (over 1/4 lb) of sugar, and 750 calorie on its Venti 24 oz size. If it becomes a trend that consumers decide to cut down on the sugar drinks, or stick to low-carb diets then it will have impact on Starbucks revenue.

3. Competition: McDonald’s, Wendy’s and Dunkin Donuts now also offer espresso at lower prices to compete with Starbucks. They will capture some revenue from Starbucks, especially from cost-conscious customers. The current Starbucks prices are already pretty high; it’s very hard for Starbucks to increase the prices in the near future without affecting the traffic to its stores.

4. High-expenses business model: while Starbucks profit margin is high as it pays an average $1.42 per pound for the unroasted coffee, its business is very labor intensive just like any other foods businesses. It takes between 10-20 employees to run one store. All eligible part-time and full-time partners in the US and Canada receive benefit package consisting of stock option plan, 401k with company matching, medical, dental & vision coverage. Starbucks is voted as the 7-th best company to work for in the US in 2008 by the Fortune magazine employee’s survey. What is good for employees may not be good for the employers. These benefits are normally only available to key employees or managers in the restaurant industry. Historically, the costs of these health benefits rise faster than the rate of inflation. In the long run, they may have negative impact on Starbucks bottom line. Should Starbucks not perform well, it may be under pressure as a public company to close more stores.

5. Special-purpose building: Starbucks freestanding building is a special-purpose building designed specifically for Starbucks. Should Starbucks decide not to close or not to renew the lease, it’s hard to re-lease the property. There are few tenants out there willing to pay the high rent like Starbucks. It’s hard to use it as a fast food restaurant due to a relative small square footage. Besides, it does not have a commercial kitchen. Once vacated by Starbucks, the property value will most likely go down.

Starbucks Real Estate Operation

Starbucks divides the US & Canada into 17 real estate territories, each has its own store development office to develop the market in its territory. The developers constructed freestanding buildings about 1800 SF with drive through in a location with high visibility, heavy traffic. Once the location is approved by the territory office, Starbucks typically signs a 10 year NNN lease with 2 five year options in which landlords are responsible for roof and structure. All the leases normally have corporate guarantee which means Starbucks will continue paying rent in the event it has to close the store. The lease often has 10% rent increase every 5 years. The rent is between $1.65/SF in a store in Utah to $5.84/SF in New York. This rent survey is based on the rents at just 30 Starbucks properties, 18 of them are free standing, on the market for sale through out the US as of April 2008.

Starbucks Location with Minimal Store Closure Possibilities

During tough times, e.g. in 2008 when sales are declining Starbucks will attempt to cut costs and close underperforming stores. As a real estate investor considers investing in a Starbucks building, you don’t want to invest in a property that will be closed in the future.

Location—— 1mile——3miles——-AHI/yr—–Size (SF)—-Base rent /yr—Rent/SF/mo –Price—–Cap(%)

Ohio……………296……..2609………$88375….1613………$58,590……….. $3.03……….$868K…….6.75

Florida………..9186……55270……$68595…..1816………$75,000………..$3.44……….$1.2M………6.10

Georgia………5717……57201…..$143936….1750………$74,000………..$3.52……….$1.091……..6.75

Mississippi….188……..4923……..$77372…..1816………$112,184………$5.15……….$1.558M…..7.2

Texas………….5944…..40970…….$75043…..1752………$92,914………..$4.42……….$1,327M….7.00

Table 1: Rent Comparables for Free-standing Starbucks Buildings

Location——SBUX rent/yr—SBUX Size—SBUX rent/SF/mo—Other tenant Size—Rent/SF/mo—Difference

California…….$30096……..1248 SF…..$2.01……………………1245 SF……………..$2.50………….-19%

Kansas……….$43200……..1600 SF….$2.25…………………….1600 SF………………$1.33………….68%

Utah……………$38568……..1950 SF…..$1.65…………………….1200 SF……………..$1.86…………-11%

New Mexico..$92004………2000 SF….$3.83…………………….2500 SF……………..$1.92…………100%

New York…….$125004……1785 SF….$5.84…………………….2819 SF………………$2.75…………112%

Table 2: Rent Difference in Multi-tenant Starbucks Retail Centers

Since Starbucks does not release sales revenue for a particular location, you just need to make an educated guess. Based on annual revenue and numbers of stored operated by Starbucks, the average annual revenue per store is about $1M. In addition, if the annual rent to revenue ratio is less than 10% there is a good chance the location is profitable. For example if the base rent for the Starbucks in Ohio is $58,590 then the annual revenue should be more than $585,590. Besides picking a store at a good location (refer to the article titled “What ‘Location’ Means in Commercial Real Estate” by this author), and the cap rate you should consider the following:

1. Densely-populated area: more people mean more customers size and thus more revenue. The Starbucks in FL, GA and TX on Table 1 are more promising. Note: the author tries to be sensitive by not disclosing the exact locations.

2. Low-rent: the Starbucks in MS pays $112,184 for base rent. To be reasonably profitable it needs to have annual revenue of $1.12M. However, since there are only 188 people within 1 mile and 4923 residents within 3 miles radius from the store, it’s less likely the store ever achieves that revenue. Besides Starbucks pays $5.15/SF which is very high compared to just $3.52/SF in a fast growing, high income, densely-populated in GA where there are 57,201 residents within 3 miles radius and Average Household Income (AHI) of over $143K/year. It’s hard to understand how the Starbucks in MS could be an irreplaceable location in an area with just 188 people within 1 mile radius from the property! While offering the highest 7.2% cap, this property appears to be a good investment but it actually has the highest risk of underperforming and could be closed down in the future. Alternatively, Starbucks could attempt to renegotiate the lease with lower rent during tough times. While Starbucks has not asked for rent reductions yet, it is not surprised if Starbucks will do so to improve its bottom line in the future. In either case, the property value will go down.

3. Rent premium: while most Starbucks properties are freestanding in which it occupies 100%, you may see a Starbucks in a small multi-unit strip center with a few other tenants. It normally occupies the end unit with drive through and thus is expected to pay a premium compared to the adjacent unit. However, most of the time Starbucks pays substantially higher rent. For example, in Table 2 it pays $5.84/SF compared to just $2.75/SF by a tenant in the unit next door in a center in New York or 112% higher. In this strip center should the rent for the unit occupied by Starbucks be reduced (due to closure or lease renegotiation) the value of the center will be reduced substantially. You certainly don’t want to invest in this property.

WARNING! If you are serious about buying a home in 2010, you might not have much time left! With recession of 2007-2009 fading into history, buyers are returning to the real estate market in droves. However, what most of the buyers don’t realize is that there are many forces working against them that might make it difficult to find real bargains comes spring and summer. Here are five main forces shaping up the market early this year, and you better pay attention to them:

1. Under the provisions of the massive stimulus package designed to support the housing market, the Fed has been buying mortgage securities for over a year in order to maintain liquidity in the housing market, which also artificially supported the rates at sub-5% level. However, this part of the stimulus ER is winding down by March, and it’s already driving the rates higher in anticipation of the program grand finale. What does it mean for the mortgage market? It means that comes March or April, you will not find rates in low or mid-5% any more. The consensus of most economists and finance journalists is that we will have 6% mortgages by the summer time. What it means for you? Have your loan approved and lock the rate no later than Mid-February!

2. With “normal market” demand for mortgage backed securities still very low, the lenders will tighten their underwriting guidelines even more. The preview of this was demonstrated in December of 2009, when following FNMA and Freddy all lenders increased credit score requirements for prime mortgages by 20 to 40 points, FHA followed them with the increase of the minimum score from 595 to 620, and some lenders made 640 as a minimum score for FHA or any other government-backed loans. Comes summer, the credit system most probably will tighten even more, as the banks will have a much smaller market to sell their loans to, which will force them to pick only cream of the crop borrowers to bet on. If you are not one of them, you might need to have at least 25-30% down, ratios below 30% and 750 score in order to have any chance for a home loan.

3. Unnoticed to the buyers, the Government passed a number of new laws in the last two years, of course all of them were done under highly publicized slogans of helping Joe the Consumer. In reality, these new laws practically eliminated a mortgage broker as a viable player in the market place. The government blamed the brokers for pushing “creative” mortgage products onto uneducated consumers who couldn’t afford to pay for them, however the reality is that the brokers were only selling products pushed to the public by BANKS! Truth is that the brokers don’t offer their own products, brokers don’t participate in the meetings of the banks’ boards of directors who decide which financial products to offer to the public, brokers only sell what the banks offer if the public demands it. In 2006 the brokers were responsible for 60% of all loans originated in this country, by the first quarter of 2010 – less than 5%! Why should you be concerned about it? Very simple: while enjoying practically unlimited access to billions and trillions of your taxpayer dollars, the banks succeeded in eliminating the only serious market force that kept their mortgage rates competitive in the last decade. With brokers gone, all loan origination now goes to retail banks with their “friendly and knowledgeable” staff who doesn’t give a rat if you buy their mortgage today at 7% or not, because they are on salary paid for by your savings deposits and unfair bank fees, and because your only alternative is to go to a retail branch of another bank, where you will face just as much competence and desire to lower rates as at the first branch. Consider this: The banks quietly managed to monopolize a market worth $10-15 TRILLION DOLLARS, and their profits (spread between your mortgage rate and the current Fed Rate, which is a 0%) per loan are the highest they’ve been in history! Now, did you get a thank you postcard from your bank’s CEO last year for helping the banks out with some free money?

4. Home buyer tax credit program winds down in April too. You must be in escrow by April 30th and close the escrow no later than June, which means that in March/April we will see crowds of late-comers last-minute shoppers trying to take advantage of the program and the inventory of homes, especially in 200-400K price range will be under serious pressure from the buyers, just like we saw in October and November of 2009, before it became known that the tax credit program will be extended. This time it is different – there will be no more extensions. This was the final extension, and those who missed an opportunity to take advantage of this program because there was no inventory on the market, will try to buy something this time around.

5. Traditionally, March is the first month of the official buying season in San Diego. In my 10-year spreadsheet, March sales represent an average of 30-50% increase in the number of closed sales over February of the same year! Believe me that this year will be no different. However, those who wake up late and start shopping for a house in March will face a much tougher competition and will be forced to bid up on properties beyond what they will reasonably appraise for, which will force the buyers to increase their downpayment or get discouraged and end up on the sidelines again.

Housing market has been battered enough to the point where even the bitter pessimists started talking about a turnaround. Some are still talking about some massive “shadow inventory” of homes that the banks are supposedly holding back to avoid the market collapse and that when it finally comes, the market will tank, however, this talk has been perpetuated since late 2008 and nobody knows when and if this inventory will ever enter the market. Today the banks can dump four or five-times more inventory on the market, where home attract 10-30 offers in the first week, and the buyers will just swallow them and move on.

So, what should you do now in order to take advantage of the situation in what’s left of the true bargain hunting season?

1. Get your loan pre-qualified right now, don’t wait for that tax refund to hit your bank account. If you need to borrow money from the relatives for the downpayment, do it, you can pay it back with the tax credit money, with your tax refund, or do their laundry for the next 30 years, but get your loan fully approved at the highest possible amount and have it available when you are making offers. Nobody seriously looks at your offers today unless you can attach a solid loan approval together with a proof of funds for downpayment.

2. Make sure you have a clear idea what you are looking for and make sure it’s realistic. Don’t ask your agent to send you everything from Bonsal to San Ysidro in 100K to 800K range and expect to work with that agent. Sit down with your agent, outline the areas, types of properties you will target, maximum monthly payments including HOA, Mello Roos, property taxes, home insurance, utility bills and anything else that will become your monthly responsibility. Knowing what you want helps you achieve just that four-times faster!

3. Use technology to your advantage. There are many real estate websites that allow you to set up an automated search page and to receive listings that match your criteria the minute the listings hit the market, or with any other regularity of your choice. Such automated tools allow you to gain an “unfair advantage” over majority of other non-technically savvy buyers and realtors: if you are the first one to know about the listings, you have the advantage of making your offers before everybody else.

4. Make offers, more offers and some more offers! In sub-$300,000 price range in most areas of San Diego it takes now 20-30 offers before you get one accepted, so be patient, but also smart about it. Make offers on realistic listings, where you have a better chance of getting your offer accepted. If you have an FHA loan, don’t go after “investor flip” listings, FHA won’t allow it for 90 days after their original purchase date. Don’t make offers on short sale listings, where the listing agent sends ALL offers to the lender and waits for six months for the lender to accept one offer, which turns the process into a prolonged auction. Don’t subject yourself to some REO listings if the REO listing broker insists on seeing my buyers’ first-borne child, DNA tests and pre-approval by the lender of the listing broker’s choice BEFORE they will even look at your offer. (By the way, whenever the REO agent is asking for the pre-approval by their lender, understand that it’s done solely to facilitate a sales pitch by that lender, so complain about it to California Department of Real Estate, tell them that in your opinion it is against the spirit of California AB957 “Buyer’s Choice Act” of 2009, especially if you already have your pre-approval from another lender in place! If you end up putting 20 offers on REO listings, does it mean that you have to get pre-approved by 20 lenders BEFORE you even know if your offer is going to be accepted? Sounds ridiculous, doesn’t it?)

5. Be creative! If you can’t get what you want directly, look for other ways of achieving the same results. Consider buying a fixer upper and using a rehab loan to do the repairs, consider buying a smaller house and they adding square footage to your desired size of home, consider new construction, lease-options, seller carry-backs or other creative ways of getting in the house. Become familiar with these creative strategies, they may be your ticket to homeownership today.

This is not the time to procrastinate and wait for your April tax refund before you start shopping for a house. Act now, and take advantage of the last several months of the BEST time to buy a house in the last several decades!

When you do a short sale, the lender most likely will order a BPO.

BPO stands for Brokers Price Opinion and is a process by which a realtor

appointed by the lender, comes out to evaluate the property and give his “opinion”

on what the value of the property is. So the lender sends a realtor out to the

property and it’s your job to influence the BPO to come down as low as you can.

This is the whole key to a successful short sale. This is why you want the lender to

contact you, so you can meet the realtor at the front door and influence their

BPO to come in as low as possible. To build your case, the first thing you

should do is show up with a list of repairs and estimates for the property. If you

have to go get a contractor to bid a job or repair, go get one. The higher the quote,

the better. This is good evidence. The second thing you should do is show up with

a list of comps in the area that are low. Most real estate agents appreciate you

doing some of their work for them. Provide them with the lowest comps you can

find and they will decide if they want to use them or not.

When you meet the realtor on the property steps, just tell him you are the buyer and

doing a short sale on the house. Then you will proceed to walk the realtor

through the property. When you are walking through the property make sure you

point any and every repair or problem with the property. Again, you are trying to

make the value of the home come in as low as possible. If you are dealing with a

nice house with minor cosmetics, you may really have to search for problems.

Then call him the next morning to see if he was able to get the price you wanted. Sometimes they will tell you sometimes they won’t. Just ask to find out. If they won’t tell you, call the bank. Many times they will tell you. You really have no control over this process. You can encourage the BPO to come in low, but this does not always mean they will come in low.

If there is someone living in the property, you may want to ask them to leave when

the realtor comes out to do a BPO. If they can’t, just tell them to stay out

of the way. Explain to them you will be trying to make the house value look as low

as possible. They may not understand why, just tell them it is the only way to save

their house. Also, tell them not to worry about cleaning up at all, leave it the way it

is. This is the one time your house can be a mess. You need to make the value of

the property look as low as possible.

If the loan on the property is FHA or VA, they will not take less than 82% of the BPO.

Usually you can expect the BPO to be in the range of 80-90% of the

repaired value. So if you have a house that is worth $120,000 after repairs, the BPO

you would guess to be about $98,000 to $108,000. Then multiply that amount by

82% and this should give you a good estimate of what to offer. If it is not a VA/FHA

loan, then you can offer whatever you want. It is a good idea to start low, just in

case your BPO comes back lower than you thought, you can always raise the offer. It

is an educated guess to find out what the BPO will be. If it comes back

high not in your favor, sometimes you can call the loss mitigation department and

tell them the BPO is way to high. Many times they will work with you and

order another BPO. Whatever you do, don’t ever give up. If they don’t accept it,

negotiate with them some more. Ask them what they are looking for, or what they

are trying to get. Sometimes they will tell you, sometimes they won’t. Be

persistence. Be patient. Ask, ask, ask. Part of being successful in this business is

how you negotiate. You don’t ever want to be rude to them, but let them know

where you stand. Make them aware of what’s happening to the property.

I’ve had my fair share of screw-ups and betrayals.

Jeez, I make it sound like a Shakespeare play; but truth be told, people will always be hesitant to hand over their cash. And if they think they can get away without paying you, they’ll be sure to try it (unless they’re moral people).

When I first started copywriting, I offered my services for free. This is just one of the many options open to copywriters looking to make a name for themselves. I saw it as a great opportunity to get in with the bigger names in Internet Marketing and get myself on the radars of some of the top guys and girls in the business.

I worked my way up, starting with little-known IM’ers, with small-time info products. I got some great results. from 0 to 5% in a weekend; 10% conversion rates on sales letters in the real-estate niche, 42% and 70% converting sales letters and more. It was GOOD.

But it wasn’t all gravy. There were problems. The few times I made an agreement with some prospects about some form of reimbursement or reward for high-performance copy went unanswered.

I’ve been ignored, blocked, argued with, and more.

I even had one businesswoman ask me for some copy (on the recommendation from a close business friend of mine), with a small fee agreement of $100 (this was awhile ago now – I realise that’s a menial fee now). She paid me $50 up front (a 50% upfront fee), and after having received the copy from me, proceeded to run off into the sunset, without so much as a look of remorse or guilt. 50 bucks; I work my ass off for someone, and they run off for 50 dollars?

Wow.

It’s pretty unbelievable, I know. Granted, I’m younger than most copywriters. I was naive at the beginning, and you learn a lot from making mistakes. And boy, have I learned this lesson.

Now, you’re going to get screwed over at some point in your career – there’s no two ways about that, no matter how many safeguards you use. I still get shafted from time to time, simply because I have too much faith in people. I’m a trusting guy, and I let people get away with murder.

But after having been screwed over again recently, I’ve decided to become a bit more ruthless with my client choice. And along with that, I’ve got some lessons for you from my experience:

1.) Don’t work for someone unless they’re willing to pay you SOMETHING upfront. It shows a commitment by the client if they’re willing to put some money on the line; if they don’t, they’re not sure they’re going to make money from the product (meaning you won’t get paid). If they’re willing to risk a bit of cash on a product, it shows a solid faith in their business and product(s).

2.) Set up a clear agreement with the client. Make sure both parties are clear on what the project is, and what’s been agreed. The last thing you want is a client who suddenly needs another landing page doing (and expects you to work for no extra money). It protects you primarily, but it also protects your client.

3.) If you can, fill out and sign a contract. Bob Bly provides a great template in his book “Copywriter’s Toolkit” along with other materials. A contract enforces a legally-binding agreement between both parties. And if your client suddenly up and disappears with your work, you can use the contract to get paid what you deserve.

Note: You may need to have some finances for this, since it may cost you some money to go to court and such.

4.) Keep possession of all property rights until the full payment has been made. What this means is, everything you write is instantly your property. No one has rights to copy your work unless you have explicitly given them permission to do so.

Only hand over rights to your copy once you’ve been fully paid. You could include this in the contract if you decide to write one up to keep things simple. At the very least, you can threaten troublesome clients with a copyright notice and have them take down your copy until they pay you.

There are other safeguards, but these are my first port of call. Protect yourself, and bear in mind the risks of being a freelancer. Another obvious tip is to choose clients who seem like they’d be loyal and trustworthy clients. Sure, there’s still a risk of them being douchebags and ripping you off, but if you start with judging them by character, and then enforce the safeguards I’ve suggested, you’ll minimise the risk of you not getting your fee.

So go get paid.