Friday, February 17, 2017

Second Week (AKA I know more things now)



Hey everyone! So the second week of my time at Churchill has come to a close, and I think I love it even more. I made my own breakfast on Friday morning (which means I cracked an egg over a pan and panicked internally as I watched it cook) and have increased my amount of adultness (this still isn't a word). Here's some proof of my being-an-adult (I will settle on a term for this eventually):



Fig. 1: My desk
I've got two computer screens. I never knew how helpful having two was until I had them. Anyway. After finishing two weeks, I've learned the following:

1) Capitalization rates, to put in the simplest way possible, are basically the rate of return on a real estate investment. They help interested parties understand the future value of a property, given that they choose to invest in that property. 

2) It's really hard not to go have Taco Bell for lunch every day. 

3) Making a loan request is a longer process than I previously thought.

This week, I filled out two more parts of a loan request: rent rolls and operating history. I worked mostly on a deal for an office building in Scottsdale and a retail center in Sun City. With regard to the office building, I've seen that there are so many things that go into the creation of a sales comparable list; it's not sales price, but actually price per square foot, that counts. We have to look at over square footage, number of parking spaces (who knew that parking spaces were that important? Actually, I guess I did, given the amount of struggle we've seen with the parking lot at the old campus), land space, type of building (there's regular office building, but in this specific case, there are also flex buildings, which, as far as I understand, include warehouse space), number of floors, sale date, and probably more that I can't name off the top of my head. Sales comparables are meant to provide a basis for expectations in the sale of a property of interest, like whether they're getting a good deal and what they could see as time passes.

As for the retail center, I've learned that rent, while important, isn't the only thing that goes into calculating the profits and costs of operating a property. There's the obvious utilities and maintenance, but there's also taxes, security, insurance, and much more. Negotiations often have to be made between tenants and landlords as to who has to pay what. However, every cost seems to be variable so far (which explains why, if we take a look at economic market curves, we never really take into account average fixed cost. It doesn't matter that much, because I have not seen a single cost that hasn't changed over time), including rent. There's an entire separate spreadsheet to be filled out that accounts for increases in rent over time (also known as Bumps). Taxes change based on location and period of time, and it seems that market conditions play a small role in the amount of taxes paid. For the retail center, I saw that taxes were lower in 2008, around the time of the recession, as compared to a year ago, when the real estate market was doing much better. 

In a nutshell, nothing is really static. As I continue to gain an understanding of all of the different factors of real estate (and how Churchill is essentially a one-stop shop for all of the information a lender or a borrower could possibly need), I can also see how market conditions and economic principles serve as a foundation for so many aspects. 

Thanks for reading, and see you next week!


26 comments:

  1. Hey Tanmyaa! I love your sense of humor and your approach towards adulthood. I think what you're doing is really fascinating so keep it up :). Also, how many aspects are there to a loan request and usually how long does it take to file one?

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    1. Hi Ameya! From what I've seen, it takes about a month or so to put together a loan request (although I'll have to double check). Based on the sample loan request they gave me, a loan request usually includes information on the property, tax history, information on the neighboring area and the city, location, demographics of the area, and expected market conditions (and what that'll mean for future value and profit). Thanks!

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  2. Hi Tanmyaa,

    Great work on week 2 and nice job integrating Econ terms into your explanation! You mentioned how taxes play a role in compiling a sales comparable list. How has location affected the desirability of each property? Furthermore, which specific company are you assisting that wants to rent the office building?
    P.S I like the picture- you look very official.

    Best of Luck,
    Gabby W.

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    1. Hi Gabby! For every type of property (ie. retail, office building, industrial etc), cities are divided into different submarkets. For example, the office building that I mentioned is located in the Scottsdale Airpark submarket, but there is no such thing as a Scottsdale Airpark submarket for retail. Each submarket has an average tax rate, average profit amount, and average cost. Location is important in that if you are in a better location, like closer to major highways or in an area with better quality buildings, you are more likely to have to pay higher taxes but also make more profit based on rent.

      Because of my non-disclosure agreement, I am unable to say what company wants the office building, but I also don't really know. I know more about the actual property and its sales comps than I do about the interested parties.

      Thanks!

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  3. If you don't like the word adultness, how about adultitide? Adulation? Adultery? Probably not that last one. Anyways, I'm very disappointed that Capitalization rates have nothing to do with grammar. Reading all of this information about the firm's real estate knowledge has made me wonder how Churchill went about acquiring the building you're working in. As a real estate firm, do they want the best building, or do they want a different building so they can sell someone else the best building?

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    1. Hey Trey! I think I'm going start using adultitude. I like it!

      You know, I do know that Churchill is a tenant in the building they operate out of, and I can ask about how they got there in the first place and let you know next week. I think they want the best building for their needs, but I'll have to see what they think. Thanks for the great question!

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  4. Hey Tanmyaa,

    Looks like you are getting the terminology down for the job! You sound super professional!

    It sounds like you are super busy and there's a ton of paper work. Really interesting about the comparable list too. Not surprising that taxes are going up. I'm sure all potential buyers consider that! The double computer is really impressive. How do you find out if a property is designated retail or not?

    Keep up the good work!

    Jakob Krygier

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    1. Hi Jakob! The County Assessor is the one that designates properties as retail (or the other types), and usually, any time that someone wants to start a construction project, they obtain a zoning permit that is based on what their intended purpose for the end result is. Thanks!

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  5. Hi Tanmyaa,
    I wish I had two computer screens! My mom uses two computer screens when she does her work and it is really efficient. I have a question about capitalization rates, are they like the crystal ball of property value? How are you able to determine the value of a property in the future, and how far into the future are you able to predict, one year, five years, ten years, or more?

    Before this blog, I never thought I would be learning about real estate, and you are making it very interesting!

    -- Kenneth H.

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    1. Hi Kenneth! Capitalization rates, from my understanding, are a pretty good indicator of property value, but they certainly aren't the only (or, necessarily, the best) indicators. Capitalization rates are calculated by taking the current net operating income (the income after paying taxes and other dues) and dividing it by the current market value. It serves as a predictor usually for the coming year, and based on market predictions for the upcoming next years, it can be altered to serve for future years. The extent to which you can use them to predict for the future depends on what you predict the market of the future to be. Thanks!

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  7. I'm glad to hear from you again and that I'm glad that everything is going so well, and I hope to hear more about the city's planning. Also what is the process of getting a license from the city?

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    1. Thanks Mateo! I don't really know what the process is, but I can definitely take a look into it. So far, my work hasn't involved the construction aspect of real estate, but I think it might soon. I'll keep you updated!

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  8. Nice work on week 2 and approach to becoming an adult. Never thought I would actually enjoy reading about real estate. It is surprisingly interesting to me. Also, thanks for letting me know that nothing is really static in this industry.

    Can't wait to hear more next week!!

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  9. Hey Tanmyaa! I appreciate your school references that make this adult experience all the more relatable to me. I don't have any questions at the moment, but I'm definitely looking forward to next week's post.

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    1. Hi Brian! Thanks for reading anyway, and if you think of any questions, you can always go ahead and ask.

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  10. Hey Tanmyaa!! I am honestly really impressed by yoru level of dedication to what you want to pursue. My only question is how long does it usually take for a real estate agent and a client to have an offical agreement in regards to real estate price--Ismail Hamed 10

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    1. Hi Ismael! Price is usually determined by market value, as well as a few other factors, and it's one of the first factors decided upon. It depends on the deal, but it seems to me that it usually takes about a month to decide. Thanks for the question!

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  11. Hi Tanmyaa! I really love how well you're explaining the financial terms that you mention in your blog so far. How much variation is there between different cities/towns and their financial regulations? Is there some kind of a centralized database you can look through to find information about property taxes and similar regulatory policies, or do you have to find all of that on a case-by-case basis?

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    1. Hey Grady! There are several centralized databases, depending on whether the information of interest is considered public or private. Tax history and legal things, like zoning, are considered to be public and can be found on the Maricopa County Assessor's (or Treasurer's) websites. Sales comparables are usually compared based on more private information, like sales pricing and whatnot, so I had to look at information provided by a private company, CoStar, for that. Thanks!

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  12. Hi Tanmyaa! I'm glad to see you learned a lot this week. Were you just shadowing and absorbing all the adult-y-ness as well as filing, or are there other things going on on your two very cool monitors?

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    1. Hi Mimi! Most days, I arrive in the morning and they give me things to work on, whether it's making sales comps lists, maps, or rent rolls. I both shadow and actively contribute to the progression of deals. Thanks!

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  13. Hi Tanmyaa! I love your enthusiasm for your work and how you always have an intro that draws us in. It's always exciting to read your weekly posts. I don't have any questions right now but I am looking forward to read more.

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  14. Hi Tanmyaa! It seems like you've been really busy with your project, and I really enjoyed the 3 "life lessons" you learned. I look forward to next week's post!

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