Chasing Yield

By Jay Kerner

We live in a constantly changing investment world, and investors should be focused on adjusting and expanding their portfolio to maximize returns and reduce risks. Watching for emerging trends and opportunities is an important part of this process. This book can help you better understand and profit from passive investment opportunities in commercial real estate.
* Get Educated
* Increase your portfolio returns
* Diversify
* Beat inflation
* Benefit from good market timing

• Language: English
• Publisher: Jay Kerner
• Release date: Sep 7, 2012
• ISBN: 9780985166519

Jay Kerner

Jay Kerner is the CEO of U.S. Realty Partners, a regional commercial real estate operating company and consulting firm focused on high quality properties in California and Arizona. He has over twenty seven years of experience in the acquisition, operation, development, leasing and management of retail, multi-family, office and mixed use properties. Mr. Kerner was formerly Regional Director of Capital and Counties, U.S.A., a privately held real estate investment trust with 2.5 Million square feet of retail, office, multi-family and mixed use properties organized as a subsidiary of Capital Shopping Centres Group, London (a publicly traded FTSE 100 company; CSCG.L). In addition to his duties overseeing acquisitions, dispositions, financing, and operations, he was a key executive involved in the sale of the company to Equity One (NYSE; EQY) in 2011 for more than $600 Million. Prior to that, he was Senior Director of Acquisitions for Federal Realty Investment Trust, a public REIT with more than 19 million square feet of high quality mixed use and retail properties in the best markets in the U.S. (NYSE: FRT). Mr. Kerner was also President of Kerner Management and Investments, a regional shopping center operator and developer, for more than 10 years. Over his career, he has been personally involved in more than $1 Billion in commercial real estate projects. Mr. Kerner is a graduate of UCLA with a degree in Business & Economics. He is a member of the International Council of Shopping Centers and has served as a speaker at past events. In addition, his is a licensed California Real Estate Broker and General Contractor. Mr. Kerner is also the author of Chasing Yield; an Individual Investor’s Guide to Passive Commercial Real Estate Investments.

Book preview

COMMERCIAL REAL ESTATE SHOULD HAVE A PLACE IN EVERY INVESTMENT PORTFOLIO

We live in a constantly changing investment world, and investors should be focused on adjusting and expanding their portfolio to maximize returns and reduce risks. Watching for emerging trends and opportunities is an important part of this process. This book can help you better understand and profit from passive investment opportunities in commercial real estate.

* GET EDUCATED

* INCREASE YOUR PORTFOLIO RETURNS

* DIVERSIFY

* BEAT INFLATION

* BENEFIT FROM GOOD MARKET TIMING

------------

Real estate is a prudent component of any investment portfolio and this book arms an investor with the knowledge to confidently invest in this sector. It is particularly helpful in identifying ways to participate in the real estate market without having to actively manage properties thus allowing an investor to continue their focus on their full time career.

—James Pieczynski, CEO, Capital Source

This book is an excellent primer for individual investors looking to add passive real estate investments to their portfolio.

—Tim Wennes, Vice Chairman, Union Bank

"A must read for anyone considering an investment into commercial real estate. Kerner succinctly defines the risks and rewards in the space of passive real estate investment.

—Peter Smyslowski, Managing Director, Holliday Fenoglio Fowler, L.P.

~~~~~~~~~~~

CHASING YIELD

Individual Investors Guide to Passive Commercial Real Estate Investments

Jay Kerner

Published by North Ranch Publishing at Smashwords

Copyediting by All My Best Business and Non-Fiction Copyediting

Book Design by North Ranch Publishing

Book Information:

http://ChasingYieldBook.com

Address all inquiries to:

Jay Kerner

3717 E. Thousand Oaks Blvd., Ste. 220

Westlake Village, CA 91362

[e-mail]

Copyright 2012 Jay Kerner

All rights reserved. No part of this book may be reproduced by any mechanical, photographic, or electronic process, or in the form of photographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use without permission of the author/publisher, except for a reviewer who may quote brief passages for review.

Printed in the U.S.A.

Print Edition ISBN: 978-0-9851665-0-2

Smashwords Edition ISBN: 978-0-9851665-3-3

Library of Congress Control Number 2012909282

The author/publisher assumes no responsibility for errors or omissions or for damage resulting from the use of the information contained herein. The information contained in this publication is intended solely to provide general guidance on matters of interest for the personal use of the reader. Laws, regulations, and practice change constantly and vary throughout the world. As such, this book is not meant to provide individual or personal tax, legal or other professional advice.

Talk to your financial advisor before making any investment decisions. The author/publisher does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability, or profitability of any particular security, portfolio of securities, transaction or investment strategy; you shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. Commercial real estate and stock market investments are risky. They do not provide fixed returns, and past performance does not guarantee future results. All securities investments entail the risk of great and sudden financial loss. Returns vary, and you may have a gain or loss when you sell your securities. No assurance is given that any investment, strategy, particular company, or investment vehicle described herein will be successful.

~~~~~~~~~~~

Contents

Acknowledgements

Preface: Why You Need This Book

The Basics

1. Introduction

2. Five Great Reasons to Invest in Commercial Real Estate

3. Goals and Objectives

4. Timing Is Everything: Basic Cycles and Strategies

5. Understanding Risk

6. Commercial Real Estate: Direct Investment Versus Passive Investment

7. Commercial Real Estate Investment Strategies

8. Commercial Real Estate Near-Term Outlook

The Real Estate Investable Universe

9. Real Estate Private Partnerships

10. How Real Estate Investment Trusts (REITs) Operate

11. Public REITs: Traded—Common Stock

12. Public REITs: Traded—Preferred Stock

13. Public REITs: Non-Traded

14. Private REITs

15. Commercial Real Estate Exchange-Traded Funds (ETFs)

16. Commercial Real Estate Mutual Funds

17. Real Estate Master Limited Partnerships

18. Conclusions

Drilling Down

19. Due Diligence, Part One: Overview

20. Due Diligence, Part Two: Key Characteristics by Property Type

Glossary of Terms

About the Author

~~~~~~~~~~~

COMMERCIAL REAL ESTATE SHOULD HAVE A PLACE IN EVERY INVESTMENT PORTFOLIO

We live in a constantly changing investment world, and investors should be focused on adjusting and expanding their portfolio to maximize returns and reduce risks. Watching for emerging trends and opportunities is an important part of this process. This book can help you better understand and profit from passive investment opportunities in commercial real estate.

* GET EDUCATED

* INCREASE YOUR PORTFOLIO RETURNS

* DIVERSIFY

* BEAT INFLATION

* BENEFIT FROM GOOD MARKET TIMING

------------

Real estate is a prudent component of any investment portfolio and this book arms an investor with the knowledge to confidently invest in this sector. It is particularly helpful in identifying ways to participate in the real estate market without having to actively manage properties thus allowing an investor to continue their focus on their full time career.

—James Pieczynski, CEO, Capital Source

This book is an excellent primer for individual investors looking to add passive real estate investments to their portfolio.

—Tim Wennes, Vice Chairman, Union Bank

"A must read for anyone considering an investment into commercial real estate. Kerner succinctly defines the risks and rewards in the space of passive real estate investment.

—Peter Smyslowski, Managing Director, Holliday Fenoglio Fowler, L.P.

~~~~~~~~~~~

Acknowledgments

I would like to dedicate this book to the love of my life and wonderful wife, Andree, and my children, Jordan, Justin and Lexi, for their encouragement and support while I was writing this book. I could not have done it without them.

A special thanks to my mom, dad, sister (Sandy Sanchez) and Norm Sellz for their love and support throughout my life and for being such great role models.

I greatly appreciate the encouragement, feedback and advice from my friends and confidants who helped me get to the finish line: Jim and Diane Pieczynski, Jason Schwetz, Jeff Berkes, Peter Smyslowski, John Walsh and Greg Greenstein. Thank you so much!

Back to TOC

~~~~~~~~~~~

Preface

Why You Need This Book

There is nothing more constant than change.

Ancient Greek proverb

We live in a constantly changing investment world, and investors should be focused on adjusting and expanding their portfolio to maximize returns and reduce risks. Watching for emerging trends and opportunities is an important part of this process. This book can help you better understand and profit from passive investment opportunities in commercial real estate.

* Get Educated

* Increase your portfolio returns

* Diversify

* Beat inflation

* Benefit from good market timing

Get educated—a knowledgeable investor is a powerful investor. Many investors do not have hands-on experience with commercial real estate or a strong understanding of the risks and rewards of passive commercial real estate investments. This book will give you the tools to evaluate these types of investments and make better investment decisions.

Sources: BMO Capital Markets, Blue Vault, NAREIT, U.S. Federal Reserve, Bank of America

Increase your portfolio returns—we are currently living in a low yield environment where interest rates are at historic lows, yields on bank deposits are almost nonexistent, and the Federal Reserve has indicated that it intends to keep interest rates very low through at least 2014. In this kind of environment, borrowers are being rewarded (by low interest costs) and savers are punished (through low yields on their savings). Astute investors are rebalancing their portfolios to adjust for the reduced returns on their investments. Passive investments in commercial real estate are one way of achieving increased yields through cash dividends paid monthly or quarterly, plus the opportunity for longer term capital appreciation.

Source: U.S. Federal Reserve

Diversify—a solid investment portfolio contains a balance of stocks, bonds, real estate, cash, and cash equivalents (such as T-bills, money market investments and certificates of deposit). This book helps investors understand the opportunities and risks in making passive investments in commercial real estate a part of a well-rounded portfolio.

Beat inflation—inflation in the United States has averaged approximately 2.55% over the past 20 years. In 2011 inflation averaged approximately 3.0%, and many believe that inflation will increase dramatically in future years as the economy improves. Loose monetary policy by the Federal Reserve has pumped large amounts of liquidity into the banking system, and the result could be a quick run-up in inflation. Passive investments in commercial real estate help provide an inflation hedge. Keep in mind that your investments must earn at least as much as the rate of inflation to simply not lose value.

Source: USinflationcalculator.com

Benefit from good market timing—real estate markets have been hit very hard by the economic downturn that started in 2007, and values for many assets have fallen 30% to 40% or more from the market peak. Arguably, commercial real estate values have hit bottom and will likely present excellent investment opportunities as the economy and real estate markets recover over the coming years.

Source: Selected data from Moody’s, Commercial Property Price Indices and MIT

Back to TOC

~~~~~~~~~~~

The Basics

First things first. This section of the book is focused on investment basics in preparation for later chapters, where the focus is on specific types of passive commercial real estate investment opportunities. We begin with an introduction to commercial real estate, progress through the process of setting investment goals and objectives, and then touch on timing, understanding risk, investment strategies and an outlook on commercial real estate.

* Introduction

* Five Great Reasons to Invest in Commercial Real Estate

* Goals and Objectives

* Timing is Everything: Basic Cycles and Strategies

* Understanding Risk

* Commercial Real Estate: Direct Investment Versus Passive Investment

* Commercial Real Estate Investment Strategies

* Commercial Real Estate Near-Term Outlook

In the following chapters we will explore the details of each of these topics.

Back to TOC

~~~~~~~~~~~

Chapter One

Introduction

Skate to where the puck is going, not where it has been.

Wayne Gretsky

Following the most dramatic economic downturn since the Great Depression and the most devastating commercial real estate downturn in history, pricing for institutional quality, well leased, and stabilized commercial properties in the United States is recovering remarkably well. With expectations of restrained growth over the next decade, unlevered core U.S. commercial real estate (core is a term for the highest quality and lowest risk institutional real estate) is projected to deliver between 6% and 7.5% average annual returns over the same period. While these returns are lower than historical averages, they are still higher than expected returns for many other investment types. Commercial real estate offers a compelling investment option for investors seeking yield. This is especially true in light of the 10-year Treasury recently yielding about 2%, and money market accounts/savings accounts yielding less than 1%.

Structural shifts in the U.S. economy are likely to result in lower gross domestic product (GDP) growth over the next decade, as well as shifts in investment patterns and returns for all asset classes. The aging population will likely slow the growth in the labor force, and the current deleveraging process underway