Top

Trust Deed

Maturity of Residential & Commercial Bridge Loans

This podcast addresses the maturity of both commercial and residential bridge loans. The maturity is the length of time that the loan can be outstanding before it must be repaid. The range of maturities is 6 months to three years, depending on product type.

Investors need to be very mindful of maturity because the lender generally cannot accelerate the repayment of a loan. If the lender needs liquidity prior to a loan being repaid, the only option is to sell the loan which might require some discounting as an inducement to other investors. Of course there is no guarantee that a loan will be repaid on its maturity date.

The investor needs to be prepared to foreclose on any loan if necessary, and subsequently sell the underlying property to recoup principal and interest, which generally would add six to 12 months to the investment time horizon on top of the maturity of the loan.

WSJ: Mega-Banks and the Next Financial Crisis

Please see the following article: Mega-Banks and the Next Financial Crisis In the article, fund manager Paul Singer argues that we may be headed for substantial inflation. The Fed "is treating confidence in fiat money--paper money--as inexhaustible." Loose monetary policy is being used as "virtually a complete substitute for sound fiscal, regulatory and taxing policy."

Mr. Singer has a point. Listening to the discussion and debate in Washington D.C. and Sacramento, one can't help but notice how far removed our elected officials are from the rules that govern a typical family's finances. Worse still, there seems to be very little resolve to tackle the tough issues, such as bloated pension promises, ever-rising government health care costs and raising the retirement age.

If Mr. Singer is correct, what does that mean for real estate investors? Here are a few observations about investing in an inflationary world:

* Owning real estate is a pretty good inflation hedge. Like gold, it is a hard asset and the supply is fixed. * Borrowing money for a long period of time at a low fixed rate is a good idea. The real value of the debt and the interest payments will shrink over time. * Lending money for long periods at fixed rates is a terrible idea. Avoid investing in long-maturity bonds because their real value will plummet if inflation comes back strongly. * In addition, any investment that is premised on the unlimited good credit of the U.S. or state governments, or on the credit of giant financial institutions, is risky.

What does all this mean for our program of making short-term real estate loans? Inflation would reduce the real return of these investments. However, because they are typically due in 6 to 24 months, they will fare much better than long-dated debt investments.

Real Estate Panel Discussion- The New Normal: Adapting to the Great Recession

Please join us Wednesday, February 2nd at the Anderson School at UCLA for an evening of networking and insights from a group of prominent Los Angeles-based real estate investors. Our confirmed panelists include:

  •  John Brady, Head of Global Real Estate, Oaktree Capital Management
  • Sam Freshman, President and Founder, Standard Management Company
  • Bill Lindsay, Founding Partner, Pacific Coast Capital Partners
  • Ray Lowe, Senior Vice President, Wells Fargo Real Estate Banking Group
  • Jesse Sharf (Moderator), Partner and Co-Chair of Real Estate Department, Gibson Dunn & Crutcher

Once again we are providing wine, beer and hors d'oeuvres all for just $15 if you pre-register. The event starts at 6:30 p.m. at Korn Hall at the Anderson School at UCLA. To learn more or to register, please go to www.stndcap.com/conference or feel free to call me if you have questions about the event. We hope to see you in February.

This event is brought to you by the following sponsors: UCLA Ziman Center and Real Estate Alumni Group; Gibson Dunn & Crutcher; Stanford Professionals in Real Estate; Dartmouth Club of Los Angeles; the Los Angeles Venture Association; and the Anderson Real Estate Association.

U.S. Backs Away From Support for Homeowners - WSJ

In the article, note that the mortgage interest deduction, designed to make houses more affordable, actually does the reverse in dense urban markets such as Los Angeles. Access the article on Wall Street Journal online here: Homeowner Perks Under Fire

OR, if you are unable to access WSJ online, I've created a pdf of the article for you to read here: U.S. Backs Away From Support for Homeowners - WSJ

Debt Commission Recommends Shared Sacrifices : NPR

The attached story (link found below) includes comments by the CEO of Honeywell which I found very relevant. He makes the point that if we don't have the resolve to address our budget deficit problems, the bond markets will react by pushing up interest rates dramatically.  It seems to me a fair assumption is that we will not solve all of our deficit problems quickly.  Over time the Chinese and other buyers of US debt will demand higher returns given the increasing risk of lending to the U.S. As a real estate investor, if interest rates move up, real estate values will move down, all other things being equal. Therefore there is downside risk in today's real estate values.  Acquisitions need to be scrutinized with this in mind. At Arixa Capital, we generally prefer to be the lender rather than the buyer of real estate in the current market, because this insulates us from being hurt by possible downward pressure on real estate values.

In the link below, you can access the transcript for this discussion.  If you prefer to listen, the CEO of Honeywell, David Cote's comments are found at minute 3:05.

Debt Commission Recommends Shared Sacrifices : NPR.

Gallatin Plaza - DOWNEY, CA

Arixa Capital Gallatin Plaza

REFINANCE

Our involvement: Our client and partner Southland Development purchased this property in 2006 based significant potential to add value through rent increases and re-tenanting. We are financial advisors to Southland and have refinanced the property as income increases.

Article Co-authored by Jan Brzeski Appears in Daily Journal

The article appeared in the Daily Journal on October 27, 2010. The Daily Journal is California's leading publication for legal professionals. The article focuses on the investment niche of making loans secured by trust deeds, as opposed to the more usual type of loan secured by real property. To receive a copy, please email Kari Burns at kburns@stndcap.com.