Self Directed IRA

Arixa Capital 2012 Spring Newsletter

First Quarter 2012 Newsletter
First Quarter 2012 Newsletter

This edition of Arixa's newsletter includes:

  • The growth of our investment programs and the launch of our second fund
  • Our annual panel discussion at UCLA in conjunction with the Ziman Center and the Anderson School
  • An update on Arixa's first assignment as a court-appointed receiver; and
  • Information on a new white paper by Jan Brzeski
 

Arixa Capital 2011 Winter Newsletter

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Arixa's latest activities include:

  • The growth of our investment programs,
  • Upcoming events and Arixa's first assignment as a receiver for a shopping center in Phoenix; and
  • Information on our 2012 Real Estate Round Table Discussion
 

Jan's First Article for AllAboutAlpha.com is Published

AllAboutAlpha.com is the online publication of the Chartered Alternative Investment Analyst (CAIA) Association. The CAIA is devoted to training investment professionals who focus on alternative asset strategies such as hedge funds, commodities, private equity and real estate. Jan is writing a series of articles about today's real estate investment environment. Because AllAboutAlpha attracts readers from Europe and Asia as well as North America, Jan will curate articles by real estate investment experts from outside the U.S. about which investment strategies are working and why in their respective regions. In Jan's first article, he discusses how yields are compressed for many popular real estate investment strategies, but remain attractive on a risk-adjusted basis for other, less well known strategies. To access Jan's article, "What Los Angeles Traffic Can Teach Us About Investing in Real Estate Today " please click here.

"Gotcha" Issues with Income Property

This podcast presents a list of "gotchas"--things that can make what appears to be a good investment actually turn out to be a bad investment, because the income stream ends up being less than what it appears to be. The podcast also presents a critical and at the same time enjoyable step in the process of researching an investment, namely, visiting the property and driving around the property in concentric circles to get a feel for the neighborhood.

A Real Estate Investor's Approach Towards Chimera Investment Corp.

Chimera Investment Corporation (CIM) is a $3 billion mortgage REIT with an 18% dividend yield. In an article for Seeking Alpha, Jan Brzeski analyzes Chimera the way we at Arixa Capital would analyze a real estate investment, focusing on the income it generates, the dependability of that income stream, and how the investment is financed. To read this article, please click here.

2 Roads Diverge In Commercial Real Estate

Jan Brzeski is a contributor to Seeking Alpha. The article below is a copy of what he posted on August 30, 2011. To access his article on Seeking Alpha, please click here. Real estate investors know that generalizations are of little value when describing the real estate investment market. Some markets see rising rents while others see the opposite. Results vary by asset class as well.

Today we are seeing an unusual divergence in values as indicated by the two charts below.

The Broad Commercial Real Estate Market: Still on the Floor The first chart is the Moody's/REAL All Properties commercial real estate index:

The index from which the chart above was made tracks repeat sales of all properties across the U.S. where the sales price was $2.5 million or above.

The Institutional-Quality Commercial Property Market: Bubbly Now let's look at the Green Street Advisors Commercial Price Property Index (CPPI). This index tracks the price at which public REITs are buying and selling real estate. This index also gives higher weight to higher dollar volume transactions, whereas the first index gives equal weight to every transaction (only repeat sales of the same property are tracked in the Moody's/REAL index; the CPPI tracks all large transactions by REITs, including those that are not repeat sales).

Mixed Signals The index of REIT-quality properties is up almost 50% since it hit bottom in early 2009. Meanwhile the broader index that includes many smaller, lower quality properties has actually gone down since 2009.

Consider for a moment that the broader index, which is still near its bottom, includes some large transactions where the price is presumably up 50% from where it was two years ago. This must mean that the prices of all non-large properties are down substantially since two years ago, in order for the broader index to be flat.

Imagine if the Dow Jones Industrial Average were up 50% in the past two years while the Wilshire 5000 Index was flat in the past two years. That is more or less what this data says.

Possible Explanations Let's examine some possible explanations of this dramatic divergence. Note that I am not advocating for the superiority of one or another explanation below, only trying to draw out arguments that could explain what we are seeing.

Explanation #1. The income of Class A buildings has gone up 50% in the past two years, while the income of all commercial property as a whole is flat. This explanation, if true, would be satisfying. It would suggest that the indexes are diverging for sensible reasons. However, that is not the case. On page 4 of the 2010 Annual Report of Vornado Realty Trust, "same store sales" EBITDA for Vornado's office properties rose 3.2%. And that includes more than a 5% increase from Vornado's big investment in the government bubble market of Washington D.C. which benefitted from stimulus spending during the period.

Explanation #2. Large, institutional quality assets are experiencing a bubble and are over-bought. Interest rates for both individual savers and institutional investors such as pension funds are near all-time lows. As investors look for yield, they are buying high quality REIT stocks, driving the dividend yields on those companies to very low levels. In turn, the REITs have issued huge quantities of equity on favorable term. If they only need to pay investors 2-4% dividend yields, they can afford to pay very low capitalization rates (very high prices) when they go shopping to invest the cash they raised. Of course if they are going to pay top dollar, they want to buy only the highest quality properties.

Explanation #3. Smaller properties will from now on be relegated to their appropriate place "on the wrong side of the investment railroad tracks." There has always been a gap between the value of a dollar of cash flow from a San Francisco or New York high rise and a dollar of cash flow from an Ohio shopping center or an Arizona mobile home park. The gap has now widened and will remain huge forever.

My Own Interpretation Personally, I think the rise in REIT stocks, and the related jump in values for top quality real estate assets, is part of a larger flight to safety. Investors are scared. They lost a huge amount of money on real estate in recent years. They need to get back into real estate because there is no way to fund retirement with a 1% or 2% yield from government bonds.

As Warren Buffett said, "be fearful when others are greedy, and be greedy when others are fearful." The best way to apply that advice in commercial real estate today is avoid pricy REIT shares and to embrace the healthy income that can be had from less prestigious properties. Small is beautiful in real estate today.

Disclosure: Our own strategy is to make loans to investors who are buying properties at beaten down prices. This provides healthy income with a margin of safety because the borrower's equity acts as a cushion for our investment in case values fall. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Are you looking for a speaker on real estate investment?

We take education seriously at Arixa Capital we pride ourselves not only on being capable real estate investors, but also on being able to explain what we do and how we do it effectively to a wide variety of audiences. We do not advertise but we do look for opportunities to share our knowledge and expertise to groups of individuals who have a reason to be interested in real estate investment. If you have a speaking opportunity that would be suitable for us, we would like to hear from you.

Please access a package of information about Jan Brzeski's speaking credentials by clicking here.

Jan Brzeski Featured in Pensco Webinar in September of 2010

In late 2010, Jan Brzeski of Arixa Capital Advisors, LLC, (formerly known as Standard Capital, LLC) was a featured speaker in Pensco Trust's webinar series for self-directed IRA investors. Using the links below, you can access the audio file of that webinar as well as the presentation that was distributed to the more than 250 participants in the webinar. As of the time of this posting, Standard Capital has invested successfully in dozens of new loans beyond those that were held at the time of the webinar. In addition, all of the loans we held at the time of the webinar have paid off profitably. To listen to the audio of the webinar, please click here. Please click here to download the webinar's power point and follow along.

Standard Capital & Feb 2nd Event featured in Globe Street Articles

We were very fortunate to have Globe Street as one of our sponsors for our February 2nd event panel. Globe Street reporter, Natalie Dolce was present and has covered our event in two separate articles. Please see each below.

"The Capital Crowd" -Natalie Dolce, GlobeSt.com

"Are Smaller Deals the Bread and Butter?" -Natalie Dolce, GlobeSt.com

Feb 2nd UCLA Event Photos and Video

To all who registered for and/or attended our event last week, thank you for coming. If you were able to attend, we hope you found it valuable.

If you are interested in the photos that were taken of the event, please click here.

With more than 230 people present, it was our largest event yet. We held our first event six years ago and it has grown organically ever since. The unique value proposition for this event series is the high quality networking and educational opportunity combined with the very low registration fee ($15 for pre-registration or $20 at the door). The fact that beer, wine and appetizers are included in the price is also popular with participants.

For those of you who were unable to attend, or would simply like to listen to the discussion again, the UCLA Ziman Center was kind enough to record the event this year. We plan to post this video within the next week, so please check back on this blog for that link.

If you have suggestions for making the event even better next year, or would like to reach us for any other reason, we would love to hear from you. Please email Kari Burns at kburns@stndcap.com.