McGinnis Commercial Real Estate Co Blog

     The state of Delaware is working on innovative and practical ways to spur economic development in the current non-recession recession. Our statewide unemployment rate hovers around 10 percent, although I personally believe that estimate is somewhat low since it is apparent that many in the work force population have simply given up looking for work.

     Governor Jack Markell and Economic Development Office (DEDO) Director Alan Levin are doing all they can to attract employers and businesses to the First State. Successes have included Fisker Automotive for the Boxwood Road auto plant, and Petroplus Holdings negotiating for the former Valero Refinery in Delaware City. Both of these projects can be counted as major, national economic development improvements which will enhance our economic outlook.

     Both of these companies will invest heavily in their plants, thereby renewing our aging infrastructure. We all hope there are complimentary companies and industries that will locate in the state in order to service these two companies.

     Another innovation is working its way through the Legislature, and should easily become law in the coming weeks. The “Business Finder’s Tax Credit,” HB 380, enables a partnership between our statewide business community and State government. The bill reads, “The General Assembly finds and declares that the State should partner with the Delaware business community to create and develop new employment opportunities for the citizens of the State.”

     I find is refreshing that the current administration and Legislature, “…finds that existing Delaware businesses are ideally situated to encourage new businesses to relocate and bring new jobs to the State. The purpose of this subchapter shall be to create incentives for existing Delaware business firms to develop new Delaware employment opportunities by encouraging out-of-state business firms to relocate to Delaware.”

     The intent of the General Assembly is to achieve this result through the Business Finder’s Fee Tax Credit, “…which is designed to foster the recruitment efforts by Delaware businesses to relocate their suppliers, customers or other associated businesses to Delaware.”

     It is hoped, of course, that the Business Finder’s Fee Tax Credit will increase tax revenues for the state, and expand the state’s economy by expanding Delaware’s employment base. More jobs means more money, and more money means more spending, and more spending means more GDP.

     The program looks pretty simple. The “Sponsoring Firm” recruits a “New Business Firm,” and both firms are then “eligible for a tax credit equal to Five Hundred Dollars ($500.00) times the total number of Full-Time Delaware Employees of the Certified New Business Firm each tax year for three tax years from the New Business Certification Date.”

     The Sponsoring Firm shall be a business organization that certifies in a joint application pursuant to all of the other necessary rules to be developed by DEDO that it (1) is a validly organized and existing corporation, limited liability company, limited partnership, general partnership, limited liability partnership, statutory trust or sole proprietorship; (2) has been doing business in Delaware for at least three years at the time it applies for the credit; (3) has a place of business in Delaware, has a current Delaware business license issued by the Delaware Division of Revenue or other Delaware licensing agency; (4) has not entered into a rental agreement for a commercial rental unit, as defined by the Delaware Code, with the New Business Firm; (5) is not a Real Estate Agency, Real Estate Developer, or landlord, as defined by the Delaware Code, for the New Business Firm, or a Bank or other lender who provides financing for the New Business Firm to establish a Delaware business location; and (6) is not an affiliate of a New Business Firm.

     The New Business Firm shall be a business organization that certifies in a joint application pursuant to all of the other necessary rules to be developed by DEDO that it (1) is a validly organized and existing corporation, limited liability company, limited partnership, general partnership, limited liability partnership, statutory trust or sole proprietorship; (2) has been doing business for at least three years at the time it applies for the credit; (3) has a place of business outside of the state of Delaware; (4) has a current business license issued by an out-of-state agency; (5) does not have a place of business within the state of Delaware, and has not had a place of business within the state of Delaware for at least three years at the time it applies for the credit; (6) is not a tenant of a Sponsor Firm, and has not entered into a rental agreement for a commercial rental unit, as defined by the Delaware Code, with a Sponsor Firm; and (7) is not an affiliate of a Sponsor Firm.

     There are limitations, however, not to mention that we cannot broker a transaction and be eligible for the tax credit. The statute reads, “The aggregate amount of such tax credits approved for all Sponsor and New Business Firms shall not exceed $3,000,000 in any state fiscal year; and (b) The Director shall ensure that each application has the date and time of submission recorded. Credits will be awarded in chronological order based upon the date and time upon which each complete application is received by the DEDO.  If a credit award results in exceeding the $3,000,000 limitation for the fiscal year in which it is awarded, the amount by which such credit award exceeds $3,000,000 shall carry over to the succeeding fiscal year and shall receive priority for that year.” That is a lotta employees!

     While McGinnis Commercial Real Estate Company may not be eligible as a Sponsor Firm, we can certainly help the New Business Firms navigate DEDO in pursuit of their tax credit entitlements, and help that New Business Firm secure its real estate plant or offices.

     It is important for all business firms, not only the New Business Firms envisioned under the new legislation, to locate and secure the real estate location and facilities that enable that firm to efficiently transact its business and be as profitable as it can. It is important for all new business firms to find a real estate broker who knows the market as well as McGinnis Commercial Real Estate Company. And is important for any business to have a real estate broker who can navigate through the great number of rules, regulations, statutes and ordinances that face all new businesses at the state and local governments.

     McGinnis Commercial Real Estate Company can handle of your commercial real estate needs, including sales, leasing, managing, and developing properties.

Since the credit crisis of 2008, financing for real estate acquisitions has been squeezed tightly as banks struggle to contain risk amid falling real estate prices. The end is not yet in sight.

Interest rates are very low, as the Fed continues to motivate the loanable funds market. As the price of money, or the interest rate, declines, the demand for money should increase. Taken another way, with the availability of low interest rates, big-ticket purchases, such as real estate, should be attractive. Except that loanable funds are not being made available.

There are a variety of reasons why the nation’s economy took the big hit in 2008. Gary Hindes of Deltec Asset Management suggests that the Securities Exchange Commission is at least partly to blame. Apparently, the SEC in early 2004 allowed the investment banking community, which until then had net capital rules permitting a maximum leverage ratio of 12 to 1, to effectively operate without a maximum leverage ratio. Hindes contends the larger investment banks went to 30 and 40 to 1 leverage.

The concept of leverage is important when borrowing, or lending money. The more leverage a debtor employs, the more risk the creditor assumes. So if a creditor wants to limit risk, the leverage ratio, or loan to value ratio, is reduced. For example, in purchasing a home, mortgage insurance is typically required for loan to value ratios of 80 percent or more. The lenders have determined that borrowers purchasing homes with less than 20 percent equity or downpayment are more likely to default than borrowers with more than 20 percent equity.

To the Hindes’ point, when the SEC allowed investment banks to exceed loan to value ratios of 91.5 percent to leverage ratios of 96 percent to 98 percent, they assumed a lot of risk. Their asset value needed fall only three or four percent, and there was no debt coverage at all.

While it is true that real estate purchasers can purchase properties with three and five percent downpayment under certain conditions, and there is the obvious risk of default associated with the minimal equity invested, the idea was that the property would appreciate, thereby spreading the loan to value ratio out, and reducing that risk.

So people were buying real estate at ever – increasing prices, with minimal downpayment and with exotic loans like interest – only or adjustable – rate, and the investment banks were buying these mortgages and re-selling them to investors at ever – increasing leverage ratios. The fees and commissions and profits were astounding, and the cycle kept spiraling at ever – increasing numbers.

Of course, this market provided loanable funds. Borrowers signed mortgages, underwriters sold the mortgages, investment banks bought the mortgages and then sold securities collateralized by those mortgages, and pension funds and countries and small local banks bought those securities. And the money filtered its way back to the street to be lent again.

The famous bubble burst, however, due to a number of factors. Case studies indicate that household debt to income ratios rose to 135 percent by 2007. Obviously, debt that exceeds income is a problem about to crash. The adjustable rate mortgages, and the interest – only mortgages written in 2005 and 2006, and earlier, came due. With the excessive debt burden, people put their properties on the market for sale in order to escape.

When enough people put their properties on the market, the bubble burst, and everything tumbled thereafter. Unemployment rose, further increasing debt to income ratios. Mortgage defaults in the subprime market rose. The subprime market, or the Alt-A market, are exotic loans mentioned above. But defaults were not concentrated in the subprime market; defaults occurred in the fixed rate and conventional markets, as well.

With the higher default rates, the secondary market because frightened, and the securitization of the mortgage market dried up. And a huge pool of loanable funds dried up with it.

While there are more factors to the credit crisis and current economic conditions than these few discussed, these factors are relevant to the current state of lending in today’s market. Financing real estate today is difficult because of the lack of loanable funds, and because of the total aversion to risk exhibited by lenders. Finally, there is the high unemployment rate.

Lending standards have reverted to the pre-bubble conditions that existed prior to the Clinton Administration, when the borrower’s source of income had to be verified, when actual downpayment monies had to be invested, when higher loan to value ratios resulted in higher interest rates and higher mortgage insurance premiums, and when lenders had less confidence in the price appreciation of the real estate market.

So while financing is available, it is difficult to obtain. Many local lenders are still trying to recover from huge loan defaults in the commercial real estate market. When the residential market crashed, many half – built subdivisions stopped absorbing, and ultimately defaulted, leaving lenders with real estate to dispose of, known as Real Estate Owned, or REO. Loan Loss Reserve accounts increased, further reducing the amount of loanable funds.

The current conditions are simply that local area lenders are not extending loans for speculative developments or investments. Many lenders, while seeking new loan clients, are cautiously measuring their opportunities with wealthier clients, who need lower loan to value ratios, that have sterling asset values.

Many lenders are lending only to owner – occupied investments. Investment real estate is out of the question except for very low loan to value investments. This trend should continue until unemployment drops, vacancy rates decline, and foreclosure rates stabilize.

The world’s largest economy is starting to purr again, as evidenced by increasing stock market returns and higher retail sales, however, the real estate market continues to teeter with the lack of liquidity and credit that a healthy real estate market requires.

McGinnis Commercial Real Estate Company can assist you in your purchase of investment real estate by helping you to find properties that are priced correctly, and by matching you with lenders who are ready, willing, and able to help you with your acquisition. The real estate market has become complicated with the current market conditions, and you need real estate professionals who can help you navigate through these difficult market conditions.

Financing real estate occupancy through leasing is a wise investment. Not only does the business enterprise preserve capital for the operation of its business, but many attractive properties become available. The three key features, as they say, of real estate are location, location, and location. Theoretically, all of the best locations are already acquired, and not for sale. However, many of these great locations can be leased, so the organization not only acquires a great location, but preserves capital wisely, as well. McGinnis Commercial Real Estate Company is pleased to announce its representation of McKown Holdings’ property at 30 Old Rudnick Lane, fronting Webbs Lane, in South Dover, Kent County, Delaware. The office space is 6,019 square feet, on the first floor, and is fully improved with offices, conference rooms, and furnishings. The property is ideally located off of South State Street around the corner from U S Route 13 and the South Dover SR 1 Interchange. The rental rate is $15.50 per square foot, plus utilities, maintenance, taxes and insurance. There is more information about this offering on our website. McGinnis Commercial Real Estate Company can accommodate all of your real estate needs.

The goals of commercial property occupancy vary with the goal of the business enterprise. Typically, real estate occupancy is a cost of doing business, just like advertising, telephone and internet usage, salaries and wages, and other expenses. Purchasing real estate ties up capital that could best be used by management to operate the core business of the organization. There are tax advantages to renting real estate, as the rental payments are deductible against the income generated for income tax purposes. The ideal benefit of renting the real estate for the business enterprise is that a huge investment of capital for equity is not required. In this market, equity requirements are a minimum of 20 percent, and typically 25 to 30 percent of purchase price. Then there are closing costs, adding as much as five percent more to the capital requirements. The capital requirements for rental real estate are typically the first monthly rental payment, and a security deposit. Often the improvements required by a tenant can be financed and paid over the term of the lease. The business enterprise then retains capital to operate its business. To illustrate, even real estate brokerage firms are not in the real estate business, they are in the brokerage business, so renting office space provides the optimum use of its capital. McGinnis Commercial Real Estate Company has a number of office lease listings which would accommodate a variety of business needs, such as professional office space requirements for physicians, and general office space requirements for accountants or insurance agents. We also have flex space which includes shop and warehouse areas together with smaller office areas for contractors. McGinnis Commercial Real Estate Company has commercial lease opportunities in every price range, and in every location in the market area. For your office leasing needs, call on McGinnis Commercial Real Estate Company.

Real estate investment, like any investment, involves fundamental theories and techniques to succeed. Most investment vehicles offer return on investment, and return of investment. But in today’s investment market, even return on and of investment is risky. No other type of investment offers as much to the investor as real estate.

The primary advantage in investing in real estate is leverage, in which the investor can use a small portion of his or her capital, and borrow, or leverage the difference in the price. Secondly is income, which is achieved from rental of the property, among other sources, such as vending machines. The third advantage is appreciation, with price growth very nearly assured. While the market conditions current in September, 2009, may cause some doubt about depreciation, real estate prices over the long term always go up. An attractive advantage in real estate investing is tax savings, because interest on your debt is deductible against rental income, operating expensed are deductible, closing costs on the acquisition of the property are amortized over the holding period, and likewise are deductible, and some of the income is sheltered through depreciation.

One investment advantage unique to real estate investment is mortgage reduction, achieved as rental income pays down the debt. It is complicated and very rare when any other investment vehicle can provide the investor the advantage of debt reduction. There are many other types of investments, including bank savings, life insurance, stock market known as equities, bond market known as debt such as treasury securities, junk bonds, and so forth, and tangibles such as art, wine, gemstones, and other similar items. None of these investments have the advantages of the real estate investment.

The ability to invest in real estate provides great flexibility. There are many types of investors, including individuals, partnerships such as general partnerships or limited partnerships, corporations, limited liability companies, and syndicators. Pooling assets so numerous individuals are able to join together to purchase larger properties is easily accomplished.

There are many types of properties, just like there are many industries represented on the stock exchange, including residential, and non – residential. Each of these types further segments into single tenant and multi tenant types of properties. Further still, properties segment into retail, office, industrial, and agricultural.

Finally, the investor can be also be a speculator, meaning the goal no longer lies in income, and tax savings, and even debt reduction, but lies totally in price appreciation. The speculator has a long and notorious reputation in real estate investment history; however, converting vacant land to profits is a perfect representation of the American ingenuity.

Although investment in real estate is illiquid, meaning that property does not quickly convert to cash, the overall yield can be quite higher than the yield achieved in alternative investments, the real estate market is generally more stable than capital markets, and the sum of the advantages of real estate investment should make real estate a part of the investor’s overall portfolio.

McGinnis Commercial Real Estate Company is able to help the real estate investor sort through all of the questions and requirements of investing in real estate. Our company can help the investor match his or her goals with opportunities. In business for over 30 years in the local market area, McGinnis Commercial Real Estate is trained and experienced in real estate investment, and our goal is enable the investor to repeat as our client maintaining a long term relationship. Call us today and we can help you convert your dreams into investment reality.

Many real estate investors do not consider that investment value is maximized through the employment of professional property managers. The professional property manager plays a very important role in the performance of  the real estate investment. The professional property manager can offer a variety of services, and levels of service, in tailoring a fee to meet the needs, and the goals, of the investor. The investor needs to consider that maintenance calls come at all times of the day, even late at night. Property managers who have relationships with maintenance contractors can typically achieve a lower cost for services than the individual investor can. Reactions to market changes will always occur faster with professional property management. So real estate investors will reduce overall costs by adding professional property management, and will increase property values and maximize wealth. McGinnis Property Management has been managing all types of real estate for more than 25 years. We are happy to discuss the real estate investor’s needs and goals, and tailor a fee for specifically for any real estate investor.

Investing in real estate is an important component to any investor’s portfolio. While the real estate market is notoriously under-performing at present, it is the most opportune time to invest. Mortgage rates are historically low. Cap rates, an important measure of investment real estate pricing, are creeping up, lowering prices. So lower prices and lower financing rates equals bargains for the astute investor. Investment real estate comes in many varieties. Retail properties, office properties, industrial properties, even residential properties all offer outstanding opportunities. Downtown Dover even offers mixed – use properties, which include both residential and commercial in one building, offering investors an even broader market for rental opportunities. McGinnis Commercial Real Estate Company offers guidance on investing in all types of properties. A review of our website will illustrate the investment properties we currently offer. And as a member of the MLS, we can assist you in investing in properties offered on the market listed by other brokers.

McGinnis Commercial Real Estate Company specializes in non – residential real estate, however, we broker a wide variety of properties in the local market area, including residential investments. The Raubacher 27 West Loockerman Street Property is unique in that it is a mixed – use property, with commercial us on the ground floor, and multi – family residential use on the second and third floors. This type of property appeals to a broader market of investor because leasing potential crosses two markets. The Downtown Dover location is attractive to residential tenants because they can walk to work, walk to recreation, and walk to entertainment. The commercial component, currently a fully – equipped restaurant, is located close to the government offices of the city and state, and close to the legal community surrounding the Green and world – famous Delaware courts. All property details are contained on the website.

McGinnis Commercial Real Estate Company is proud to announce that we have listed the Braun Properties LLC property located at 429 South Governors Avenue in Dover, Kent County, Delaware,  for sale. This property is unique in that there is a 4,096 square foot, two – story frame office building, and there is also a half – acre vacant site available for expansion of the existing building, or development of a new building. The vacant site fronts Water Street. The office building was renovated in 2007, and has numerous features including zoned HVAC, built – in cabinets and counters, and other such features. We can arrange a showing of this property at your earliest convenience. You can download a property profile for this property under the Office Sale properties tag from the home page.