Performance in Top Apartment REIT Submarkets: Supply Affecting Rent Growth

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

by Axiometrics

Conversations in the apartment industry have focused on new supply for some time now, and rightfully so, considering the 372,000 units expected for 2017 delivery is the highest total since Axiometrics started tracking the industry in 1996. Apartment REITs are a big part of the equation.

With new supply, it is important to consider not only the overall amount, but also where it is being delivered at a hyperlocal level.

Consider this – if you are an operator and new properties enter your neighborhood, this increases competition in your area. As new properties tend to offer concessions to further entice potential residents, this will likely affect rent growth performance at your property (for example, your stabilized property may have to offer concessions to compete with new product).

Apartment REITs have been seeing this recently. While performance can vastly differ on a property-to-property basis, the general trend is that REIT performance has been affected. To help highlight this impact, Axiometrics has provided an analysis on a few major REIT apartment markets and the impact of new apartment supply in a few select submarkets.


More than 3,000 new units were delivered to the Oaklawn submarket in 2016 resulting in an impressive annual inventory growth of 12.0%, according to Axiometrics’ apartment market data. This large of an increase in such a short time helps illustrate why the submarket has experienced negative annual rent growth early in 2017. As of April, annual rent growth is -0.63% in the Oaklawn submarket

The Oaklawn submarket has a heavy concentration of REIT properties, with more than 4,000 REIT units. This wave of new supply has caused performance among REIT-owned properties to slip to -0.29% as of April 2017.

Fortunately for the greater Dallas area, job growth has continued to be phenomenal (annual growth of 4.1% in 1Q17). This strong, sustained job growth likely means that although annual rent growth in the Oaklawn submarket is currently negative due to elevated supply levels, the outlook beyond 2017 is positive.

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San Francisco Bay Area

The San Francisco Bay Area has been brought up time and time again because of its apartment market’s slowing rent growth which is the byproduct of decelerating job growth, new supply and unaffordability. The San Francisco Bay Area is notorious for its sensitivity to changes in job growth as highlighted by the following example.

In 2016, roughly 1,500 units were delivered in the Northeast San Jose submarket, compared to 2,500 units in 2015. Conventional thinking would suggest that, all things equal, such a large drop in new units would result in improved performance.

But even as supply significantly pulled back in the Northeast San Jose submarket, the market-wide slowdown in annual job growth from 3.9% in 2015 to 2.7% in 2016 resulted in an incredible 900 bps drop in annual rent growth in 2016, the apartment data shows.

Supply in the Northeast San Jose submarket has been swollen for some time now however, so the impact of new supply on an area should not be discounted. Annual job growth of 2.7% in 2016 was still an admirable 150 bps above its long-term average, so the continuously high level of new supply in the metro is partially to blame for slowing rent growth.

The good news is the San Jose market has improved in early 2017, up to 1.48% in April 2017 – an improvement of 380 bps from December 2016. REIT-owned properties in the Northeast San Jose submarket have shown improving performance as well, achieving annual rent growth of 2.02% as of April 2017.

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A barrage of new supply doesn’t always spell disaster when it comes to performance. As long as a metro is able to maintain steady job growth, the impact of new supply on apartment market performance can be mitigated.

Atlanta has been somewhat of a poster child for that sentiment, as rent growth has been relatively steady considering the amount of new supply in the metro.

More than 10,200 units were delivered to the Atlanta/Fulton submarket, which includes Downtown, Buckhead and Midtown, in 2015 and 2016, more than any other submarket in the nation. These two years combined results in an inventory growth of 11.7% in the submarket, according to apartment market data.

The good news for apartment REIT properties in the submarket is that fundamentals in Atlanta are still good, although rent growth among REIT properties in the market is considerably below the market average. Annual rent growth among REIT properties in the Atlanta market was 0.0% as of April 2017. REIT performance should improve in the future once this swell of new supply is absorbed, as Atlanta continues to be a metro with strong job growth.

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Los Angeles

No other area in the nation has as many REIT apartments as the combined Los Angeles and Anaheim metros, with almost 60,000 REIT-owned units. In fact, the Marina Del Rey/Venice submarket has more REIT-owned units than any other submarket.

New supply in Los Angeles has been less of a factor than in the San Francisco Bay Area, but some submarkets were certainly subject to increasing supply numbers in 2015 and 2016. Marina Del Rey/Venice (4,118 new units, or 12.3% inventory growth) and Westlake/Downtown (3,848 new units, 6.7% inventory growth) both received ample amounts of new supply in 2015 and 2016.

The Marina Del Rey/Venice submarket slowed in 2016 from the previous year, but has experienced strengthening rent growth in early 2017. The Westlake/Downtown submarket has continued to slow in 2015 and 2016, but is still above the national average.

For a submarket with ample new supply, REIT-owned properties in the Marina Del Rey/Venice submarket have performed extremely well recently, with annual rent growth of 4.95% in April 2017. The Westlake/Downtown submarket has seen somewhat softer performance over that same time period, with annual rent growth of 2.3%, apartment data shows.

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Retail Job Growth Suffering, Threatens Apartment Market Demand Online stores cutting into employment

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

by Axiometrics

Despite many bright spots in the latest employment survey from the BLS, one sector of the economy continues to deteriorate: retail employment. But not all retailers are feeling the same pinch, and the differential job growth (or losses) across retail categories paint a complicated picture of the strength of the single-family and apartment markets.

The recent demise of several well-known retailers, including Payless and The Limited — to say nothing of struggling brands like Lululemon and Urban Outfitters — might seem odd in the face of strong retail sales in general.

But while retail sales are growing, much of this gain is driven by online retailers, including Amazon, at the expense of more traditional retailers based in shopping centers or malls. Whereas all retail sales increased by 5.5% in March (compared to March 2016), non-store retail sales increased by 11.9% compared to the year prior.

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With the change in consumer spending behaviors, bankruptcies and store closings are growing. Nearly 98 million square feet of retail space was vacated due to store closings in 2016, according to JLL — the highest level since 2008. Furthermore, nine retailers have announced bankruptcies thus far in 2017 — the same number as all of 2016.

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Changes in the retail job market reflect the diverging fortunes of retail sales.

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Retail jobs grew by only 0.5% on an annualized basis in April, compared to 1.3% in January and 1.6% in April 2016. But April’s job growth numbers look rosy compared to specific retail categories like electronics and appliance stores, department stores and general merchandise stores — each of which has been losing a significant number of jobs.

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However, there is one particular retail category currently seeing excellent job growth: furniture and home furnishing stores.

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While all retail establishments increased employment levels by only 0.5% in April (compared to April 2016), furniture and home furnishing stores have increased employment levels by 3.1%.

This tells us something interesting about the state of the economy and the housing market in particular. For one, it suggests a strong single-family housing market, which means people are spending more on home-related items. So, while retail sales and employment levels are growing at a relatively slow pace, this is not indicative of a broader slowdown in the economy — or a recession.

For the apartment market, a strengthening single-family market is good news, as it points to a stronger economy in general. But the incredible numbers of jobs lost in specific retail categories threaten to depress apartment demand — particularly class B and C apartments which cater to service-sector employees.

In short, the story of retail employment in 2017 is more complicated than it initially appears. Retail sales are still growing, but most of the growth is concentrated among non-traditional retailers, such as Amazon. As a result, traditional retailers are shedding jobs (or increasing them at a slower pace), just as non-traditional retailers are adding them at a robust pace. The differential job gains across retail categories (particularly for home furnishing retailers) points to a strong economy, which should boost the apartment market. But, at the same time, fewer jobs mean less demand for apartments.

For a case study of the impact of new technologies on employment, look no further than the retail market. The consequences for apartments should become evident in the not-so-distant future.

On-Going Commissioning – Leveraging Technology to Ensure Efficient Operations

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

by John Rimer |

The two key resources that facilities seemingly always need are money and people.  However, those are often the two that are continually being stretched, as facility departments are instructed to do more with less.  This strain is growing with the exodus of the baby boomers and the consequential skilled labor shortage.  Thus, it is imperative that the facility industry leverage the inherent technology in today’s buildings to increase building efficiency and effectiveness of facility staff.

A primary tool for accomplishing such is on-going commissioning (Cx365 or OCx), which is presented along with commissioning and retro-commissioning in the related FMJ article titled “Commissioning & Retro-Commissioning – a Cost-Effective Way to Lower Utility Costs and Increase Facility Performance”.  Below are some OCx recommendations for using a building management system (BMS) to reduce energy costs.


No this is not an introductory reading course where “Mat sat on the rat…”  Rather, these abbreviations commonly refer to temperatures within an air handler that we can use to verify that sensors, dampers, and the overall air handler unit (AHU) are functioning correctly.  The return air temperature (RAT) is the air returning from the conditioned space, which should typically be in the mid to upper 70s (F).  The supply air temperature (SAT) is the desired temperature of the air leaving the air handler to satisfy the conditioned space’s demand.  Building code requires a minimum amount of outside air, measured in CFM (cubic feet per minute), be provided to a building (see ASHRAE Standard 62); thus the incoming outside air temperature (OAT) significantly impacts a building’s efficiency and is a key parameter to monitor.  The mixed air temperature (MAT) measures the resultant air temperature of combining return air with outside air; this air is then sent through the cooling coil and/or possibly heating coil (depending upon design) to create the desired SAT.  The relative differences between these various air temperatures can tell us a lot about the function of the AHU.

Virtual points can be established to compare these temperatures and alert us when the numbers do not make sense indicating a possible sensor error, damper malfunction, or other issues.  (A virtual point is a calculated point in a BMS, not a physical metered point with a sensor, which can be used to calculate and compare real or other virtual data points.)  For example, if the RAT is 77F, the OAT is 95F, and the MAT is 89F, then we are likely pulling in too much outside air, which could indicate that dampers are not opening or closing correctly.  A virtual point could be used to alert us when the MAT exceeds RAT by a specified degree or percentage; conversely, we should monitor if it is considerably lower during the heating season.

Economizer Mode

Most rooftop package units (RTU) and air handlers (AHU) are equipped with economizer dampers that allow for outside air to be used to efficiently cool a building when the OAT is lower than the desired SAT, during cooling season.  However, studies have found that over half of the economizers surveyed were not functioning correctly, with one-third of them not working at all.  Economizers can provide substantial savings when properly functioning – or they can cost us a lot of money when they are not.  Virtual points can be used to compare OAT, MAT, SAT setpoint, damper positions, and percent (or stage of) cooling.  For example, if the SAT setpoint is 65F and the OAT is 60F, the outside air dampers should be at or near 100% open.  A small amount of the return air should mix with the cooler outside air to temper it, providing a MAT of 65F.  If MAT is providing the desired SAT, then there should be no mechanical cooling occurring.  (Note, this scenario does not address dehumidification.)  Conversely, if the OAT exceeds the SAT setpoint, the outside air damper position should close to a minimum position as prescribed per ASHRAE 62.

Simultaneous Heating & Cooling

Many of our HVAC systems are designed to simultaneously heat and cool – our objective is to minimize the amount it occurs.  For example on a AHU/VAV (variable air volume) system, the SAT is set to satisfy the space that is calling for cooling, while the other zones may be reheating to satisfy their respective demand.  A virtual point can be used to compare percent/stage of cooling and percent/stage of heating or number of spaces requiring reheat versus total number of zones served by that AHU/RTU.  For example, if we see that 90% of the zones are reheating, while 10% are satisfied or in cooling mode, then the 10% is dictating the cooling demand and subsequently causing simultaneous heating in the remainder of the building.  This could indicate airflow issues or sensor error; either way, situations such as this should be explored further for performance issues and energy saving opportunities.


Depending upon outside conditions and the desired SAT (and other design requirements), systems should be turned off or “locked out” to ensure that we are not cooling and heating simultaneously or running equipment and wasting energy unnecessarily.  For example, if the OAT is a percentage or certain degree above the SAT setpoint, then the boiler(s) should be disabled, unless the boilers are required for process purposes.  The lock-out can be verified by evaluating the hot water supply temperature.  Additionally the hot water pumps should be off.  Lockout of the chiller and chilled water system could be setup and monitored in a similar fashion.

Schedules and Setbacks

In retro-commissioning, it is quite common to find incorrectly set or malfunctioning schedules and setbacks.  Thus schedules and the corresponding setback (occupied, unoccupied, non-business hours) setpoints should be manually verified on a periodic basis.  The BMS can then be used to verify that the systems are not running when they supposed to be off.  For example, monitoring space temperatures, boiler and chiller operations, water flow, etc. to verify that these systems are functioning correctly in the unoccupied mode.

Many building management systems have a smart start capability where the BMS learns when to turn the building systems on so that the space is at the desired temperature by the specified occupied time.  For example, based upon outside air temperature, space temperatures, and occupied setpoint, the BMS will determine the optimum time to start up the boiler(s) so that it does not fire up too early or too late.  This can significantly reduce energy use and equipment run-time.

The occupancy sensors used in a building’s lighting system can be tied into the BMS, so that rooms can switch from unoccupied to occupied temperature settings when someone enters the room.  This can be especially useful during business hours for rooms that are not constantly occupied, such as meeting rooms and auditoriums.  Depending upon the space, you may want to allow for a delay to ensure the person(s) is staying in the room and not just passing by.


Often building’s will run their heating and cooling systems until the unoccupied setback time is reached, which is typically a few hours beyond actual business hours; for example, nighttime setback is 7PM for an 8AM to 5PM office building, resulting in unnecessarily operating building systems to maintain space temperature.  Instead of running the boiler(s) and chiller(s) until 7PM, as in the example, turn them off earlier in the day, say 2PM or 3PM, and let the building “coast” through the remainder of the occupied hours.  Buildings have thermal mass, which will help them maintain space temperatures for the waning hours of the day.  Additionally, for those buildings with chilled water and hot water systems, there is a lot of chilled/hot water running through the pipes that can often satisfy demand while coasting.

You can see this coasting period by reviewing space temperature trends; the building temperature does not typically change drastically once the heating/cooling systems are turned off, rather, they gradually drift toward the unoccupied setpoint.  Similar to the aforementioned “Smart Start”, the BMS can be used to provide a “Smart Stop” based upon outside conditions.  Note, you will need to leave the fans running during occupied hours so that the building does not feel stuffy and to meet minimum outside air requirements.

Coasting could significantly reduce energy costs, especially during peak utility hours; for example, chillers are turned off at 3PM reducing electricity costs during what is typically the highest cost per KWH (kilowatt-hour).  Additionally, during the shoulder seasons of Spring and Fall, equipment run-time can be minimized, such as firing the boiler(s) to bring the building up to temperature in the morning and then turning it off, relying on the hot water stored in the pipes to satisfy heating demand for the remainder of the day.

Delta T

Monitoring temperature differences (the delta T) between various parameters, including the ones previously discussed, can provide a lot of information regarding system performance and energy saving opportunities.  Other examples include using a virtual point(s) to compare the temperatures of adjacent spaces as deviations greater than a certain percentage or degree could indicate airflow or sensor problems, among other issues.  Monitoring the delta T between chilled water supply and return could indicate potential energy savings if the temperature difference is below a certain threshold; the same is true for heating/hot water supply and return.

Additional Tips

Successful employment of the above strategies requires that the necessary data points be in-place; thus, such points should be specified during design/installation and do not let them be value engineered out, as points are usually the first thing to get cut to reduce project costs – short-term gain, long-term loss.

Second, placement of the sensors is very important, especially for key data points, such as the outside air temperature sensor.  In fact, you may want to consider installing multiple OAT sensors, then operate off of the average.

Ensuring that the sensors are measuring and operating correctly is crucial.  You will want to make sure they are inspected and calibrated on a periodic basis.  The typical recommendation is annually, however, that frequency can be unrealistic for larger facilities with thousands of data points.  Thus you may want to consider testing and calibrating a percentage of them each year, such that all are inspected every handful of years – note, this includes sensors at the terminal units, such as VAV boxes.

Lastly, good commissioning and retro-commissioning coupled with periodic test, adjust, balance (TAB) will further ensure proper performance of building systems, occupant comfort, and efficient operations.  Click here to learn more about commissioning and retro-commissioning.


Most buildings have building management systems which should allow the discussed OCx strategies to be employed.  Leveraging these “smart” systems will equip facility departments to better utilize staff, extend equipment life, and lower utility costs.  Let’s work smarter…

Why are so many 1031 investors choosing to 1031 exchange into Delaware Statutory Trust (DST) properties?

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Dwight Kay | Kay Properties & Investments

KPI Blog header

From eliminating the struggles of property management to owning investment grade real estate, the potential benefits of opting to 1031 exchange into DST properties are many. At Kay Properties and Investments, we’re specialists in the DST 1031 exchange marketplace, and provide our clients with superior, knowledgeable advice to help them make informed decisions about their investments. We also are careful to help our investors understand the risks and disadvantages of real estate and DST properties.

Understanding Delaware Statutory Trust Real Estate

Real Estate investors all over the country are choosing 1031 exchanges into DST offerings as a way to defer their capital gains tax, diversify their real estate portfolio, increase the possibility of increasing their cash flow and much more. But what is a DST 1031 Property exactly? With a minimum investment of $100,000, DST 1031 properties give investors more leeway to spread their proceeds into multiple properties. Some call this similar to 1031 exchanging into a REIT however, a REIT is not like kind for a 1031 exchange and yet a DST is. With the DST we are able to create a broadly diversified portfolio of between 1-50 properties for our investors. Understanding the current DST properties for sale and how to construct a quality portfolio for our clients is what we do best. Contact us today to learn how we can help you with a free consultation. ( or

Types of DST Listings

The types of DST 1031 properties available can vary greatly, with the common properties being triple net (NNN) leased single tenant retail, apartment communities, medical properties, office properties and all-cash/debt-free properties. With a NNN leased property, tenants are typically responsible for taxes, maintenance and insurance, potentially leaving the investor with less responsibility in terms of property management and costs and a “net” amount of rent each month.

At Kay Properties we typically have access to 15-30 different DST listings from many of the DST sponsor companies in the industry as well as our own proprietary Kay Properties client exclusive DSTs just for our clients. If you’re interested in learning more about how 1031 exchanging into Delaware Statutory Trust properties could potentially work for you, give us a call today! 1(855) 466-5927

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This website contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, Colorado Financial Services Corporation and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment. Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes, therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of Colorado Financial Service Corporation, Member FINRA / SIPC. Kay Properties and Investments, LLC and Colorado Financial Service Corporation are separate entities. OSJ Address: 304 Inverness Way S, Ste 355, Centennial, Colorado. Kay Properties & Investments, LLC, is registered to sell securities in all 50 states. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than $5 million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.

BEWARE. Fed Rate Hike Could Burst Bubbles

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Kathy Fettke |


The Federal Reserve followed through on its latest promise to raise interest rates. Fed Chief Janet Yellen announced a quarter point hike in the federal funds rate Wednesday. But the increase has little to do with the ripple effect on mortgages and consumer loans, and more to do with a message from the Fed about the economy.

This is the first rate hike of 2017 and the third since December of 2015 when the cycle of monetary tightening began after the Great Recession. The first rate hike brought the overnight lending rate a quarter percent off zero. The second rate hike three months ago, raised it another quarter point. The latest increase brought it to a range of 0.75% to 1%, which is still quite low historically.

Consumer loans may notch up a bit because of the rate hike but economists say with so much talk about the increase, many lenders have already priced it in. And some economists say the hike has more to do with Yellen’s desire to portray the economy as “healthy” than it does with monetary policy.

She said during a press briefing: “We have confidence in the robustness of the economy and its resilience to shocks.” And that: “It’s performed well over the past several years. We’ve created, since the trough in employment after the financial crisis, around 16 million jobs.”

Raising the Fed Fund rate is supposed to correspond with a robust economy. Increases are meant to keep inflation in check. If economic growth and inflation are rising too quickly, a rate hike helps slow them down as it tightens the money supply.

Core inflation is about 1.9% right now. Up slightly from the previous forecast and right in the 2% range that the Federal Reserve has been targeting.

But there are big questions about U.S. economic growth.

If you focus on the stock market, you might think the economy has been advancing rapidly. Wall Street has been on a bull run since President Trump was elected with the Dow hitting over 21,000 for the first time ever.

There’s also been a steady increase in jobs with unemployment dropping from the double digits during the recession to under 4.7% right now. That’s giving consumers confidence about the economy, despite flat wages. The February report on consumer confidence says it hit a 15-year-high of 114.8.

But what some economists are pointing out is the troubling lack of economic growth. Chief investment strategist at Clarity Financial, Lance Roberts, wrote in a blog, that: “Outside of inflated asset prices, there is little evidence of real economic growth.” And that’s one thing that Janet Yellen said a rate hike would be tied to — economic growth.

The gross domestic product, or GDP, is our economic report card. And the Atlanta Fed just downgraded the first-quarter GDP to just .8%. That’s well off the 2% that Janet Yellen said is needed for a rate hike, leaving some economists wondering why the central bank went ahead and approved the increase.

Just weeks ago, the GDP was closer to the central banks rate hike comfort zone, at 2.3%. It also increased to 3.4% briefly last month after positive news about manufacturing and construction spending. But when disappointing data on retail sales and consumer prices came out a few days ago, the Atlanta Fed lowered its estimate to the .8% level.

Roberts says that charts show a rate hike at a time like this could actually push us into another recession. He told Market Watch that raising interest rates from ultra low levels at a time of slow economic growth could impact spending and that charts show this type of situation has lead to recessions in the past within three to nine months.

Nobel Prize-winning economist Robert Schiller is also warning people that Wall Street exuberance has gone overboard. He told Bloomberg that traders are captivated by President Trump’s bold plans to slash regulations, cut taxes, and “turbo-charge” the economy with an infrastructure building-boom.

He warns that when situations like this have happened in the past, it hasn’t ended well for the investors. Think dot-com bust and housing meltdown. Both experienced sharp drops in the stock market.

Schiller says investors are shoveling money into the market with the hope that President Trump will make good on his campaign promises. But they are also ignoring the enormous amount of uncertainty associated with getting those new policies through Congress and the legal system.

The Trump Administration is proposing some extreme budget cuts that may not sit well with some of his own constituents. A preliminary budget was introduced that slashes $54 billion from most federal agencies including the EPA, HUD, and Health & Human Services. That money will then be spent on defense. There’s also the affect of the Obamacare repeal. Depending on how many people lost their healthcare coverage, there could be a lot of unhappy voters. And if this political turmoil jostles the stock market, we could see a reversal that could happen quickly, and without mercy.

There has never been a slow letting out of air from a bubble. It usually bursts.

Kendrick Wakeman, the CEO of financial technology and investment analytics firm FinMason, told CNBC that investors are in for a rude awakening. He says no one knows when the stock market correction is coming. But, he says on average, the stock market crashes every eight to 10 years. And when it does, the average loss is about 42%.

He told CNBC that stock market investors need to ask themselves: “Would you hang yourself in the closet if the market crashed and you lost 35 percent?”

I have been warning investors for over a year now that a recession is coming. I’m sure some people think I’m crazy since the stock market has made significant gains since I gave this warning.

But remember, the same thing happened before the Great Recession and the Great Depression. In January of 2008, Ben Bernanke, the Chairman of the Fed said, “The Federal Reserve is not currently forecasting a recession.” 9 months laterin September of 2008, Lehman Brothers collapsed and the financial markets worldwide came tumbling down.

The Federal Reserve is supposed to be in charge of regulating the economy. It’s terrifying that they couldn’t see that recession coming… and even more frightening that they may have seen it coming, but didn’t warn us.

Be extremely defensive in your investing strategies today. Make financial decisions as if it were 2006. People who were prepared fared very well during the subsequent recession.

Rising interest rates can be the exact prick needed to pop the stock market bubble. That may be the very reason the Fed is raising rates – to slow down the irrational exuberance that taking the bubble to new heights.

A slowdown could turn into a meltdown, depending on how big that bubble has become.

How would a slow down in stocks affect real estate?

1. Cities that are more dependent on stock market fluctuations would be more affected by a stock market crash (SF, NY, Seattle).

2. Mortgage interest rates would decline if there were a correction in the stock market as more investors flock to the safety of bonds – which are more tied to the 10 year Treasury bond market.

3. Commercial real estate would get hammered while landlords could fare well as more people are forced to rent, driving rents up.

Now would be a very good time to “cash out” and sell your high priced assets while the market is hot. You can exchange those properties for low-priced, high cash flow properties in recession-proof markets.

If you have concerns about your portfolio or would like to speak with one of our investment counselors about how to find out which markets are best for investing today, visit

Kathy is an active real estate investor, licensed Realtor, certified coach, and former mortgage broker. She specializes in helping people build multi-million dollar real estate portfolios through creative finance and planning. With a passion for researching and sharing the most important facts on real estate and economics, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best seller, Retire Rich with Rentals, and is host of The Real Wealth Show – which is a featured podcast on iTunes with listeners in 27 different countries.

L.A. Soft Story Ordinance and Implications for Condominium/Apartment Owners

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By: Dilip Khatri, PhD, SE | Principal Khatri International Inc.

earthquake property

Los Angeles is on the “Ring of Fire”.  The Ring of Fire circles the perimeter of the Pacific Ocean refers to areas of the high seismic activity because of multiple tectonic plates that have been moving/grinding against each other for millions of years.  It’s no surprise that we are in the center of seismic activity with total unpredictability.  The Earthquake risk element affects every aspect of life in Southern California, most notably our buildings where we live, work, and entertain, because it poses a threat to our very existence.

The Soft Story Ordinance, passed by the City of Los Angeles in 2016, encompasses residential and commercial buildings (4 or more units) that have a weak story line which leads to potential catastrophic circumstances:  The entire upper level may collapse on the weak first story.  In order to minimize this structural calamity, the Soft Story Ordinance requires building owners to upgrade/fix/enhance their buildings to reduce this risk.


Figure 1

Figure 1 demonstrates this principle and shows the collapse mechanism.  It’s no different from having a heavy object on “stilts”.  A lateral force applied to the upper floors will cause the structure to tip over.  The objective of the Ordinance is not to save the building/property.  Rather, the prime and single goal is to save the People inside the building.  Many property owners don’t realize this objective, and its important to be clear that the Ordinance is not trying to save property values, it’s main object is Life Safety.

The L.A. Ordinance officially affects approximately 14,000 buildings but that number is changing because new buildings are being added to the list, and other Cities in Los Angeles County are decidedly passing similar Ordinances.


Figure 2

There are several engineering options available to resolve this dangerous condition.  At least five repair options are to be considered:

  • New Steel Moment Frames
  • Strengthening existing Steel Moment Frames
  • Strengthening existing Wood Shear Walls
  • New Wood Shear Walls
  • New Steel Flagpole Columns

Figures 2 and 3 show a few schematics of a Steel Moment Frame and Wood Shear Wall.
My advice to owners is to look at each of these options and evaluate the “best choice” from an economic feasibility standpoint.


Figure 3

Each property is unique and requires personal attention of a structural engineer and contractor. It’s definitely not a “one size fits all” scenario.  Look around, shop around, and do some diligence before you commit to a specific solution/vendor approach.  The time lines for compliance are 7 Years from the date of notice, 2 Years for plans and permits.  If you are interested to learn more about the Soft Story Ordinance, this author has produced an online video for your reference:

Dr. Khatri has 31 years of civil engineering experience involving land development, subdivision, commercial, residential, multi-family, industrial, and educational facilities. Design, construction, and overall management of major infrastructure improvements comprising sewer, water, storm drain, flood control, and grading design.


Written by Buildings Maintenance & Management Magazine on . Posted in Blog


Surviving California’s Hostile Business Environment, The Soft Story Ordinance,
Property Taxes, Legal Issues & Other Seminars – Admission is Free

ExpoPhotos_PressReleasePASADENA (March 3) — Commercial and residential property owners, managers and investors can learn what’s new in financing, strategies and products at the 5th Annual Income Property Expo at Pasadena Convention Center, 300 E. Green Street, Pasadena, CA 91101 on March 14, from 9:00 a.m. to 4:00 p.m. Admission is free.

“This event offers experts, resources and strategies for cost-effective management and maintenance of rental, multifamily and commercial properties,” said Paul Smith, producer. Howard Jarvis Taxpayers Assoc. president Jon Coupal will discuss surviving the hostile business environment, plus experts seminars on the seismic retrofit ordinance, market analysis, rent control, landlord/tenant and property law and more will be held including:

  • Kathy Fettke, Real Wealth Network
  • Jon Coupal, Howard Jarvis Taxpayers Association
  • Dilip Khatri, PhD, P.E., S.E., Khatri International Structural & Civil Engineers
  • Robert “Rusty” Tweed, Tweed Financial Services
  • Tony Watson, Robert Hall & Associates
  • Elizabeth Harris, Exeter 1031 Exchange Services, LLC
  • Dennis P. Block, Law Firm of Dennis P. Block & Associates
  • Gene Guarino, Residential Assisted Living Academy
  • Steven Duringer, Duringer Law Firm
  • Brian Gordon & Vince Medina, Lotus Property Services, Inc.
  • Mike Brennan, Brennan Law Firm

Nearly 100 vendors will showcase the latest in building products, services, materials, energy systems and maintenance. The expo also features all-day networking with industry professionals and sponsors including Apartment Management Magazine, Real Wealth Network, Chase Bank, Robert Hall & Associates, Exeter 1031 Exchange, Duringer Law Group, Tweed Financial Services, Khatri Structural and Civil Engineers, Provident Bank, HD Supply, CIC Tenant Screening, and The Howard Jarvis Taxpayers Association.

Admission is free. Seminar seating is limited. For information, please contact Jordan Smith at (800) 931-6666
or email Pre-register at

RED FLAG WARNING for Commercial Property Owners – a $45B Problem

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Kathy Fettke |
Commercial Building

This may be the year that billions of dollars in commercial mortgages go belly up. These loans were financed in 2007 and are maturing this year. That means some commercial property owners will be faced with huge balloon payments and for some, a major headache to pay them off.

The Federal Reserve stated in its semiannual Monetary Policy Report to Congress on Tuesday that commercial property prices were becoming a “growing concern.”

Specifically, the report said, “”Commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels,”

While commercial property debt remains small compared to the overall economy the report said that the rising “valuation pressures may leave some smaller banks vulnerable to a sizable CRE price decline.”

According to Reuters, commercial real estate loans by U.S. banks surpassed their pre-financial crisis levels in September 2015, and at last reading for January stood at a record $1.97 trillion. Small banks hold nearly two-thirds of that total, some $1.22 trillion.

Commercial property values in the U.S. have more than doubled from their 2009 low, according to Green Street Advisors’ Commercial Property Price Index. Things started slow down in 2016, with just a 3% rise in values.

And this all comes at a time when there’s also a concern about a tidal wave of commercial loans that will come due this year. Lending standards in 2007 were lax and real estate investors jumped in with both feet, taking on huge amounts of debt in that red-hot market. Back then it was difficult to see anything but skyrocketing real estate market.

Then, the impossible happened. The residential real estate bubble burst, and property valuations plummeted back to earth, and even below the water line. We know now that many homeowners lost their property because they couldn’t make the payments or because banks simply failed.

This is the year we could begin to see the same fall-out on their commercial loans.

While commercial property in the most populated metro areas like New York City and San Francisco are seeing record high prices for real property,  the real-estate recovery has been a little lopsided.

There are many U.S. markets where valuations have not caught up yet. It’s those landlords who might have trouble refinancing their monster balloon payments, and if they can’t refinance because they are underwater on the loans, they might have to sell at a loss.

Bloomberg says that prices for suburban office buildings are still 4.8% below their peak compared to Manhatten skyscrapers that have surged 50% higher than they were at their previous peak. So when it comes time to refinance loans for buildings that aren’t worth as much, lenders may want landlords to cough up the difference… and that may not be easy to do.

Borrowers may also have to pay higher interest rates, or they may run into lenders who are now pickier about what the buildings they are willing to finance. Bloomberg writes that lenders may not be eager to finance retail properties, especially malls, as e-commerce takes a bite out of their sales.

Lenders may also have to retain a 5% stake in any loans they make to comply with the risk retention rule under the Dodd-Frank Act. That prevents them from making risky loans and selling 100% of the risk. It also makes banks more selective about the loans they grant.

The fate of the Dodd-Frank Act is uncertain however. President Trump has signed an executive order to begin the unraveling of those regulations and the risk retention rule is sure to be reviewed. But those changes won’t happen over night and maybe not in time.

So just how hard will commercial property owners get hit?

Bloomberg says the delinquency rate is expected to hit 5.75% this year,  after several years of declines. Because these mortgages are packed into bonds, there could be more bondholder losses as well.

According to Bloomberg, banks sold $250 billion worth of commercial mortgage-backed securities to institutional investors in 2007. But not all of them are maturing this year because many have already been refinanced or the properties sold. Property owners with less desirable properties and weak financials have already defaulted.

Using data from Morningstar, Bloomberg says the amount of debt that will actually come due this year now stands at about $90 billion dollars. From there, Morningstar is estimating about “half” of those remaining loans will run into refinancing roadblocks!

For people faced with this situation, it’s critical to have a back-up plan. You shouldn’t wait until the last minute or you might end up losing your property. It’s best to start working now on refinancing, or selling the property before you run out of time.

If you are looking for commercial investments, be careful about paying too much and accepting low cap rates. If you just wait a bit, you could find much better deals.

And all this is happening just as the economy is in a major shift. Baby boomers are turning 65 at a clip of 10,000 per day. Their spending habits will change and that will affect commercial property. Plus, technology and innovation is quickly making some industries obsolete practically overnight.

A commercial builder asked me if we’d like to finance the construction of an auto dealership in Sacramento, “because the auto industry has been booming.”

After researching it a bit, I told him that yes, it has been booming, but only because of easy financing. But this is the year that many leases will be returned to car dealers and we could very well see a huge glut in cars for sale. My daughter needs a new car and I told her to wait just a bit longer as we could see some steep discounts this summer.

Never base your decisions on the way things have been. In 2005, Fed Chair Ben Bernanke said, ”We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize…”

Bernanke was dead wrong, and made the fatal mistake of not taking into consideration massive debts from easy lending that couldn’t be repaid. We are seeing some of the same debt issues today, just not in residential mortgages.

We expect to see some bargains in the commercial property world over the coming year. If you’d like to be first to know about those, join the network to get on the VIP investor list.

Kathy is an active real estate investor, licensed Realtor, certified coach, and former mortgage broker. She specializes in helping people build multi-million dollar real estate portfolios through creative finance and planning. With a passion for researching and sharing the most important facts on real estate and economics, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best seller, Retire Rich with Rentals, and is host of The Real Wealth Show – which is a featured podcast on iTunes with listeners in 27 different countries.

How to Save on Facility and Construction Project Costs

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Corey Lee Wilson

FM Building Cost

In an era of ever shrinking budgets where “doing more with less” is the common denominator for all major cost scenarios—there is a relatively new design-build construction delivery method that can save public and private owners substantial costs on their construction projects. It’s more appropriate for owners and facility managers who are not familiar with design-build projects or may be intimidated by a new team dynamic.

It’s called Bridging and is a hybrid of the Design-Bid-Build and Design-Build contract delivery methods and retains the elements of each that are most advantageous to the Owner and eliminates those that work against the Owner’s best interests. For the last two decades Design-Build has become increasing popular with Owners, Architects, and Contractors vs. the traditional Design-Bid-Build process due to the typical 6% savings on construction costs as well as helping to deliver projects as much as 33% faster than the traditional Design-Bid-Build process.

With the significant benefits of the typical Design-Build contract delivery method well documented in the public and private building sectors—why aren’t more Owners using it?

In the typical Design-Build contract delivery method, the primary team players are the Owner and the Design-Build Contractor (DBC). However, unless the Owner has experience with this contract delivery method—they may be less able to control and manage the DBC as they are more likely to be controlled and/or managed by them. That’s not what we call “being in the driver’s seat” is it?

Moreover, on typical Design-Build projects the design professional is directly under contract with the DBC, and the Owner as such, does not have an “independent” design professional like an Architect acting as its agent. Additionally, the cost of preparing designs sufficient to submit cost proposals in a Design-Build competition may limit the field of interested Design-Build Contractor teams that the Owner can select from.

One approach to address these issues and to help ease the Owner into the Design-Build process is for the Owner to retain an independent Architect, Engineer, or Program Manager to prepare preliminary designs and stay on board during the construction phase to review pay applications, review the work, and certify the completion date. This process is known as “bridging”…

As its name implies, Bridging helps protect the Owner and increases their control by including a third team player and partner, technically referred to as the Owner Design Consultant (ODC). The ODC acts as the Owner’s consultant, protecting and guiding them through the Design-Build process and also ensuring that the Owner’s key design components and performance indicators are included in the final design by the DBC. This third team player (also known as a “Bridging Architect” or “Design Architect” in addition to the “ODC”) is the key to Bridging’s success.

So how can Bridging help save even more time and costs than typical Design-Build contract delivery methods are already doing?

• By allowing Owners to obtain a highly enforceable fixed price for construction projects in about half the time and half the at-risk cost compared to the traditional Design-Bid-Build method. The price obtained by the Bridging method at this earlier point, is more enforceable than a price obtained later by either the CM-at-Risk, GMP, or Competitive Bid contract delivery methods.

• By greatly reducing the Owner’s exposure to construction risks including contractor initiated change orders, claims, and delays/disputes in resolving flaws in the design or construction discovered after occupancy. For Owners and Facility Directors familiar with the Design-Bid-Build process, they know from experience this method’s shortcomings that can often turn a construction project into what they painfully describe as the Design-Bid-Build-Litigation process!

• By shortening the construction time even further on most projects due to the Design-Build Contractor’s more intensive planning and input during the preparation of the final drawings and specifications.

• By reducing final overall costs and improving quality at the same time on most projects. In particular, as much as 40% to 60% of the design costs are eliminated now that the DBC completes the bulk of the design documents (instead of the Architect) utilizing the most cost effective construction systems and efficient methods available that they know best.

• By accomplishing these benefits without any loss of opportunity for creativity, control of the design, control of design details or loss of quality of engineering or construction.

• By overcoming the primary disadvantage and concern that inexperienced Owners have when deciding to utilize the Design-Build contract delivery method (mainly, they are often unable to communicate and/or control the final design parameters which result in construction disputes and change orders between the two parties)—the Bridging method now provides Owners with a safer and more practical means of using the Design-Build contract method so they can reap all of the cost and time saving benefits this contract delivery method affords them while also improving their risk management.

So why aren’t more Owners using the Bridging method so they can take advantage of all the benefits of a Design-Build contract delivery method?

The reason why most Owners are not using it is that they are not yet familiar with or are intimidated by the Design-Build contract delivery method. And because they are not using Design-Build, have never heard of Bridging, or aware of the advantages of both—many Owners are missing out on the potential cost savings and benefits that Bridging can provide them—provided it’s implemented and used properly.

In summary, by properly utilizing the Bridging method for Design-Build construction projects, Public and Private Agencies and Owners and Facility Managers of all types can efficiently and effectively cut construction costs, improve their bottom line, and do more with less. Does this method sound like a must have construction management tool in your tool chest of cost saving measures that could help satisfy board members, improve your balance sheet, and secure much needed construction funding?

If so and you would like to learn more about the many benefits of the Bridging method and Design-Build construction, please contact Corey Lee Wilson at CLW Enterprises at 951-735-2646 or visit their website at

Taxes, Fees, Charges and Assessments: What Difference Does It Make?

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Jon Coupal


What’s the difference between a tax and fee? There is no easy answer and the political class likes it that way. In fact, they would prefer that the public remain confused to the point of apathy.

The political class, of course, consists of elected officials, bureaucrats and their special interest allies who are to the Capitol what insider traders are to Wall Street. Working in lockstep, their approach to increasing the take from taxpayers was best outlined by Jean Baptiste Colbert, Minister of Finance under Louis XIV of France: The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.

But taxpayers are not defenseless because they have approved three constitutional amendments defining – and limiting – taxes and fees. These include Propositions 13 (1978), Proposition 218 (1996) also known as the Right to Vote on Taxes Act, and Proposition 26 (2010) which provides comprehensive definitions of taxes and fees. All three provide effective weapons against an insatiable government ever in search of more revenue.

However, to protect themselves, taxpayers must be knowledgeable, alert and ready to fearlessly protect and exercise their rights.

Therefore, while most taxpayers don’t have a law degree, here are some basics about the difference between a “tax” and a “fee.” There are very few legal limitations on “taxes.” About the only way a tax could be unconstitutional is if it impaired a fundamental right (a “poll” tax on the right to vote) or if it singled out some group for discriminatory purposes. But fees are different. A fee is a charge for something that confers a benefit to the fee-payer that is not available to those who do not pay the fee. A classic example is a charge for entering a state campground.

Until the passage of Proposition 26 in 2010, the legislature could approve fees with a simple majority vote. But in 2011, the Legislature approved, with a simple majority, charging 850,000 rural homeowners an annual “fire fee” of $150. The “fee” was not accompanied by any additional benefit or service, clearly making it a tax requiring a two-thirds vote of the Legislature. This issue is currently being litigated by taxpayers, but it is a classic example of the dishonest ends to which tax raisers are willing to go to wring ever more money from taxpayers.

Moreover, the political class has a habit of pursuing taxes that are not apparent to the general public. Almost any tax on business fits into this category. As Howard Jarvis liked to say, businesses do not pay taxes, “we do.”

As part of Obamacare, the federal government imposed a tax scheme designed to stop employers from offering top quality health plans. Backers of the Affordable Care Act included a 40 percent tax on providers of what were derisively described as “Cadillac” plans.  As these plans disappear, the uninformed will assume that it is their employer who is responsible, when, in fact, it is government.

Here, in California, a major hidden tax is cap-and-trade legislation, not approved with a two-thirds vote, that compels companies to buy carbon credits. Of course, these costs are passed on and drivers feel the impact every time they fill up with gasoline that costs, by the most conservative estimates, an additional 12 cents per gallon with more increases on the horizon. Unaware of the impact of cap-and-trade, many motorists may mistakenly assume that the high cost of gas is entirely due to the petroleum companies.

This is why taxpayers are closely watching a case just argued before the Sacramento appeals court, where opponents argue that cap-and-trade charges amount to an unconstitutional tax. The court is expected to render a decision within 90 days but, regardless of the outcome, the loser is likely to appeal to the California Supreme Court.

CoupalPubPhoto2Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.  

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