OT Hi Jim, RE: "How's the RE market unraveling out there?"
There was a bankruptcy in Palo Alto recently. First one I've heard about. Things appear to be getting a bit worse in local residential RE. Last year seemed to hit the middle class hard here, this year some investors and executives are impacted hard. Divorces suddenly seem to be happening these days because of people's financial stresses. Lots of pain in the system.
Commercial RE is still going down a bit, but it's beginning to flatten out a tad. I have two leases to sign this year.
My sister is in the RE commercial building industry. She started a company a few years ago where she would gain contracts on certain aspects of building a commercial building - skyscrapper too. She loaded up with as much debt as possible and was leveraged beyond belief, to the point that if it didn't work out, she'd totally bust and be a liability and create undue stress onto herself, her family and our family system. (Not quite what we need.) But the good news is, she 'happened' to tell me a larger company had given her an offer to buy her company out, an offer that she was sitting on and doing nothing about and frankly was ignoring. I got a bit involved.
While my sister has probably the best execution skillsets I've ever seen in almost any person out of any industry, she seemed a bit out of touch with the overall trends. I rattled off some scary local commercial RE statistics to her, also told her what the sq ft commercial lease prices were in terms of trends, the % vacancy rates. I told her the RE boom was probably related to the lowest interest rates in more than 30 years, and as soon as interest rates go up, less people may invest in RE which could impact RE prices, investment, and commercial RE business.
She sold her company. She did good, for her business type. She ended up closing at 1.87X revenue, which is actually remarkable for her business type (usually her business types get about 3/4X to 1X revenue.) She performed around a 10X ROI which is pretty good (though, that speaks to the high risk & amount of debt she was carrying - the more risk taken, the more return, though riskier.)
The funny thing is, she has absolutely no clue how good this is for her type of business and how good of a business person she is becoming (sans the overly high risk level of debt).
I wonder how long it'll take the RE cycle to work its way through? 5 years? That's a long time to wait it out.
Regards,
Amy J |
