Week 5: Spring Break

Hey everyone, I took the past week as my spring break, so I don't have anything to report currently. Thanks for reading anyway!

Third Week (AKA Shredder?!)

Hey everyone, it looks like it's that time of week again! To be honest, I think I know what the ropes are now, but there's a long way to go before I can claim any sort of proficiency.

My work this week has mostly been looking at the largest spreadsheet known to mankind, containing 1749 different properties of a multitude of types (ranging from office and retail, to mini-warehouses and drive-thru restaurants. 1749 properties is a huge number. It takes me 30 seconds and one very-tired finger to scroll all the way down to the bottom (I know this because I timed it).  The purpose of the spreadsheet, from what I gather, is put lots of loan maturities in one place so that Churchill can follow-up with deals that are nearing their loan maturity date.

To put in simple terms, a loan maturity refers to the last payment of a loan, including interest payments (Thanks Real Estate Dictionary!). The reason loan maturity dates are important is because many people tend to need more money (for a variety of reasons) for the operation of their property, and therefore need to either ask for a new loan or refinance their existing loan. Refinancing is part of the work that Churchill specializes in. The great part about having a spreadsheet like this is that it firstly allows whoever is using it to track progress of a property (or an area!) over time, in terms of how much income the property is making, the loan amount they need (whether in the past or present), tax changes, market improvements, and so on. This spreadsheet specifically tracks deals from 2011 to 2012, which means that if each of the properties follows the typical 5-year loan time period, then the loans would be about to reach their maturity date, giving Churchill the opportunity to step in.

In a previous post, I mentioned that I was filling out a preliminary analysis for an apartment complex. Work progressed on that today, and I compared the listings of rental homes and other apartments on Zillow to get an idea for the average monthly rent and rent per square foot for the market. The reason that this is important is the apartment deal aforementioned is going to be a construction project, and lenders need reassurance. If their predicted rent per square foot is wildly different than the market rate, then they have a higher chance of losing their investment.

I've realized that many of my expectations about the professional environment were definitely influenced by the many hours I spent watching the Office and Brooklyn 99 (though the latter has less obvious effect). It's been interesting to take a look at the differences between what we see on TV and the reality of working in a professional environment:

1) Paper jams are existent, but they're not as big of a deal as they are on the Office.

2) People are so friendly! Every time I walk past the elevator to get to Churchill's office, I pass several other companies, and there's this one receptionist who I always wave at.  He has great hair; I should ask him for tips. In the first week I was here, he looked confused, but now he laughs and always waves back. Progress! (It took a lot of waving. I pass by him several times a day so I guess that helped?)

3) Even finance, in all of its glory, can get to be a bit tedious. One of the other people who works here, Chad (hi Chad!), said this to me about it: "no matter where you start out, unless you're already doing something complicated, this kind of work is what you should expect as some of the first things you will do when you get a job." I don't mind it at all (I like the freedom that comes with interning), but it's nice that I'm getting an idea for what life will be like in a few years.

4) I have a new best friend here. I'm accepting name suggestions, because Shredder is unoriginal. I'm thinking Jack the Ripper, but comment your suggestions and I might turn it into a poll!  Here's a picture:

Fig. 1: Churchill's paper shredder

I never knew I could have so much fun shredding papers. Of course, I'm trying not to be obnoxious about it and only shred things that have to be shredded and when people are out to lunch, but honestly if Churchill was trying to condition me like Pavlov, they could reward me with papers to shred.

Anyway, that's enough of things on a tangent, but as this project progresses, I'm starting to see more of the reasons why the processes I observe take place, and what that means in a bigger picture. Thanks for reading, and see you next week!

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!

First Week!

Hey everyone, sorry for the late post, but my Google account basically locked me out on Friday evening (which meant that every service associated with Google that I use was not functioning for me). 

I think my mentor, Mrs. Hammond, put it best when she stated "real estate is immensely interesting because all of the little bits of analysis come together to form a bigger picture". I spent the entire week geeking out over  how to put together all of the pieces of information that go into a loan request. A loan request is meant to present all of the information any party making a loan request for the construction or refinancing of a loan could need; there's the basics, like location, age of the building (or buildings), occupancy, and so on. It doesn't just stop there. There's lots of maps which each address a different scale (city, neighborhood, locality), demographics information, and sales comparables, among other things. That's not even the coolest part though. I filled out official employment paperwork! I have a company email! And my own desk! I can even go to the bathroom without signing out- talk about a step up from BASIS life. I've never felt adultier (I know that's not a word-let's just go with it for the time being) in my life.

It seems to me so far that I've heard most of the terms that I was hearing on a daily basis thrown around before, but I suppose I never paid enough attention to realize that each one is so much more significant than it seems at first glance. Sales comparables are literally exactly what they sound like: properties that, on the basis of price, location, and quality, are similar to the property of interest. After spending a couple hours on Friday making a map of 38 sales comparables, I learned, or rather saw, that a lot of information is necessary to make any large financial decisions, even if it takes looking at 38 different (but often very closely clustered) cases to get an idea of what you're looking for.

My work throughout the week was learning how to piece together a loan request, and as such, all of the different documents that are included have their own creation processes. Even though the loan request that I will eventually make will be for one deal (which may or may not be the apartment complex next to the light rail- things are still being negotiated and I'll know more as time goes on), I practiced by making documents for several different deals, including an industrial complex and an apartment deal. I worked on the maps for part of the week, as well as gathering previous tax information on an apartment deal. Before this, I literally had no idea what an Assessor was, much less that Maricopa County had one. Navigating his website was easy enough, but with every piece of information that I came across, I kept asking myself, "how did he manage to put all of this together in one document?" I suppose that's another question I'll be able to answer ten weeks from now.

I've also learned to be grateful for that AP Economics class I took last year impulsively (and by impulsively, I mean that I thought 13 AP exams wasn't a high enough number and I needed 2 more). I was lucky enough to know what all of the different taxes mentioned and not to be completely lost as I read the template loan request Churchill provided me with, but there were still terms that I have a very shaky idea of what they mean. I guess that leads to me to what I want to do next week, or at least what I hope to do.

Capitalization rates, among other terms,  are still a mystery to me, but so far, they haven't come up that much in my work. I promise I won't do the thing where I ignore the problem until I absolutely have to address it, but I have to read at least a few Investopedia articles before I can say that I understand everything. Next week will probably be a continuation of this week: I'll make more parts of loan requests, and, as other deals progress, there's a possibility that sometime in the near future I will be taking pictures of properties of interest to be included in the loan requests (I never thought I'd be thanking myself for taking Digital Photography during freshman year). I don't currently know what the situation is with the apartment complex I was talking about in my last post, especially as situations in these deals shift constantly, but I'll post it here as soon as I know. The takeaways from this week are:

1. Real estate involves so many minute details coming together to form a big picture, like an impressionist painting (you know, the ones with the dots. I was never great at art).

2. Google Maps is overly excited about showing me points of interest, and  I don't know enough code to overcome it, even after spending at least an hour reading up on JavaScript and trying several lines of code I found online.

3. I never thought I'd be this excited over gigantic lists of numbers and clustered points on maps.

Thanks for reading, and see you next week!