Stripes II: I Want You For Afghani Army

California Sale/Leaseback Insanity

The buzz of the commercial real estate world has been over the offering of California State office buildings by CBRE. California Hires Broker to Sell Government Buildings

The real topic of discussion behind closed doors is - what are they worth?

Pricing of commercial real estate assets are based on multiple factors: existing income, age/condition of building, location and risk of tenant default and or relocation. Typically, the most basic measuring stick of price is the "cap (capitalization) rate" which is net operating income divided by sales price of asset.

Let's take a look at a low risk, retail investment opportunity in North Highlands, California: a 10 year NNN lease to Walgreens.

WALGREENS - 6% CAP RATE - NORTHERN CALIFORNIA !

6819 Watt Ave., North Highlands, CA 95660

• Price:
  N/A
• Building Size:
  14,490 SF
• Property Type:
  Retail
• Property Sub-type:
  Free Standing Bldg
• Additional Sub-types:
  Street Retail
  Retail Pad
  Anchor
• Property Use Type:
  Net Lease Investment with 10+ years left on lease
• Cap Rate:
  6%
• Occupancy:
  100%
• No. Stories:
  1
• Tenancy:
  Single
• Year Built:
  2008
• Lot Size:
  91,198 SF
• 
  

Last Verified 9/22/2008 Listing ID 15873656

Highlights

• "Fortune 50" National Credit Tenant.
• NO Landlord responsibilities
• Very high average datily traffic count.

• Brand new freestanding corner building.
• Fee simple land and building. Cert of Occupancy 3/28/08.
• Rated #1 drug store company. 30+ years of record profits.

Description

TRUE NNN Walgreens in NORTHERN California (SACRAMENTO COUNTY) and the perfect 1031 exchange property. Certificate of Occupancy March 28, 2008.

Founded in 1901, Walgreens is not only the nation' s largest retail pharmacy chain, it is considered the leader in innovative drugstore retailing. The Company has pioneered many modern store and pharmacy features, some of which have become standards in the industry. Walgreens is a publicly traded "FORTUNE 50" Company and is ranked #1 in sales in the United States with sales totaling over $50 billion. The Company is included in the Forbes Platinum 400 list of best performing big companies in the United States. Walgreens has a net worth of over $10 billion and held an A+ rating by Standard and Poor' s.

* $ 412,000 Annual Rent + % rents.
* Property delivered debt free.
* New 25 Year Lease plus options.
* + 14,490 sf Bldg. on + 91,198 sf lot. 64 parking stalls.
* NNN Lease - No landlord responsibilities.
* Price: $ 6,866,888 Cap Rate 6% or purchase a 50% Tenancy In Common Interest for $3,500,000.

Sacramento/North Highlands is a strong, vibrant community that is enriched with a vast history and a diverse, family-oriented and an active community that works together today for a better tomorrow. North Highlands is a community of over 38,000 residents that is located approximately 10 miles northeast of downtown Sacramento.

The community was formally established with the opening of the North Highlands post office in July of 1952 and the development of the McClellan Air Force Base (now known as McClellan Business Park). McClellan Business Park is one of the largest business parks in California and will ultimately employ over 30,000 individuals.

Doing a quick analysis, this investment has several flaws for the conservative investor including a short fuse of 10 years of guaranteed income, a flat rental rate, no tenant diversification (with multiple tenants leases typically end at different times...with one tenant cash flow can dissappear entirely if tenant leaves/goes out of business) and a secondary market location.
However, in comparison to other opportunities the level of risk that a default could occur is relatively small with a fortune 50 company selling basic products that will ALWAYS be in demand.

Unlike Walgreens, California is not profitable - not even remotely so. It's level of debt is unsustainable and it pays its employees in IOUs. The situation is so terrible that I simply cannot comprehend how you can measure the risk of default which I perceive to be 100%. The only comparison may be purchasing a retail building/mall that is full of bankrupt tenants (nobody buys them in their right mind without another tenant in place!!!!) Sure, the contracts which will be created from sale/leaseback will spell out rent to be paid in US dollars...however, there is no way an investor can outmaneuver creditors in positioning to be in line to at least get pennies on the dollar of guaranteed rent after a default. Like the Walgreens deal, if the California Government were to leave - cash flow ends immediately and entirely and the ownership is left with an asset that needs to be maintained, property taxes need to be paid and leasing/tenant improvement fees to be shelled out to find a new tenant.

The idea of buying any of these assets is absolutely insane.

Retail Walking The Plank

Walking Company is the latest retail casualty, just in time for Christmas. Sales so far this season have been an absolute disaster as they have been down 8% per shopper, to $343.31 a person from $372.57 last year. According to Howard Davidowitz, Chairman of Davidowitz & Associates "They charged in and bought the door busters, and when the door busters were out, it was over, by 1 o'clock, there was no more Black Friday — it was over."

Retailers like WalMart, Target and Best Buy use promotional, loss leaders to draw consumers in for complementary purchases. Other than the deals, consumers are not buying.

Again, Walking Company will have company 1st Q next year. Companies like WC have DOZENS of corporate competitors and a similar number of regional and local concepts that battle them in different markets.

Specialty retail - profitable when times are good - is frequently not viable in times of contraction. Differentiating experience, product and price simply can not be done when the field is so over crowded.

Walking Company In Bankruptcy, Wants to Shut 90 Stores
Seeks to close 90 of its 210 stores immediately

* Has pre-negotiated reorganization plan

By Emily Chasan

NEW YORK, Dec 8 (Reuters) - U.S. shoe retailer The Walking Company Holdings Inc (WALK.PK) has filed for bankruptcy protection, with a plan to close almost half of its stores.

The company, which sells comfortable shoes at its namesake stores and also runs the Big Dogs sportswear clothing line, filed a voluntary Chapter 11 bankruptcy petition in California on Monday, saying it would seek approval to begin store closing sales at 90 of its 210 stores immediately.

With only a few weeks remaining in the holiday shopping season, the company said it has pre-printed store closing signs and was ready to begin the wind down, subject to court approval, according to court documents.

The retailer expanded rapidly, more than doubling in size from 2006 through 2008, by opening about 140 new stores. It said it was forced to seek court protection because it was unable to convince landlords to cut costs under its leases in a difficult retail environment. It has already started closing its Big Dog clothing store chain, which once had about 200 stores, and is set to close its final 8 locations by the year-end.

The retailer said it will be able to use bankruptcy to close underperforming stores under a "right sizing" strategy and expects to file a "pre-negotiated" reorganization plan within weeks.

The Walking Company, which is about 56 percent owned by its chairman, Fred Kayne, said in court papers it has assets of about $103 million and liabilities of about $76 million.

The retailer had sought to raise capital or sell itself to avoid bankruptcy, but those efforts failed due to a lack of operating profits amid the recession and above-market rents that it was paying for many of its stores.

The company has obtained debtor-in-posession financing from Wells Fargo Retail Finance and Wells Fargo is interested in providing exit financing, according to court documents. It said it had a commitment from an investor group led by Kayne Anderson Capital Advisors for $10 million in new capital to be provided to the reorganized company. That group is led by Richard Kayne, the brother of Fred Kayne.

Federal Bank Monopoly

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Its too bad the only serious reporting on the Federal Reserve is a joke.

Detroit Insolvent

Not much of a surprise here. This simply can not go on forever - the madness of insolvency on a local, state and national level is absurd! Detroit, Cleveland, Baltimore & New Orleans are 3rd world interchangeable.

Detroit's Finances Poised to go From Bad, to Worse, to Insolvency

The Motor City is running out of cash. "In a nutshell, the city is insolvent," Joe Harris, the former chief financial officer under one-time interim Mayor Ken Cockrel Jr., told The Detroit News today. "The next few weeks will determine if they will survive."

Are you listening, AFSCME?

Audits of Detroit's books show a city borrowing to pay its everyday bills, ignoring deadbeats who owe unpaid taxes and hoarding overpayments by others because, well, City Hall needs the money. Imagine the uproar if Citibank booked a refund on your credit card because it needed to amass a stash.

Mayor Dave Bing can journey all he wants to Lansing to repiar relationships with the Legislature and to Washington to lobby for federal dollars from the Obama White House. In fact, he should -- if only because everyone else seems to be. But the mounting evidence -- and audits are just that, doubters -- is that Detroit's financial health is slipping from critical to grave.

Meaning Detroit's hottest topic of the new year is likely to be who Gov. Jennifer Granholm would appoint emergency financial manager of Detroit, which would be the largest to be American city to fall into receivership. Given recent political chaos and the deep historic resentment about heavy-handed Lansing involvement in Detroit's affairs, my guess is the guv would prefer that emergency financial manager and Mayor Bing to be the same person -- which would require a change in state law, I'm told.

Wouldn't be surprised if one of the mayor's unspoken reasons for working Lansing this week was to lay groundwork for legislation that would make him the emergency financial manager, if it becomes necessary.

Greece Troubled With Debt

Sounds like Icelandic rhetoric

Greece Says It Won't Default on Bonds

BRUSSELS -- Greece's finance minister promised Wednesday that the country wouldn't default on its loans as the cost of insuring its bonds soared to the highest among the 16 nations that use the euro.

George Papaconstantinou told reporters that he was trying to restore Greece's credibility after the country surprised credit markets by forecasting a massive 12.7% deficit this year — well above the 3% maximum fixed by EU budget rules.

Greece will put forward in January a plan and a timetable to reduce the yearly budget gap to 9.1% next year by widening the tax base and making spending cuts, he said, describing "an uphill struggle" to get the economy back on track.

He said speculation that Greece would not be able to pay back its borrowing was "completely unfounded" and there was "absolutely no risk to holders of government bonds."

Spreads on Greece's bonds -- the cost of insuring them against the risk of not being repaid -- overtook Ireland as the widest in the euro zone a month ago, even before markets were rocked by an announcement by Dubai's state investment company that it wanted to postpone debt payments.

Mr. Papaconstantinou said Greece was "hit for a day after the Dubai story broke" when stock markets dropped 7% but they rebounded by the same amount the next day.

"The battle with the markets is one that you win every day with a view to the credibility of your policy and this is what we are trying to build — credibility," he said.

Irish Finance Minister Brian Lenihan said his country was winning that battle because "Ireland is viewed by Europe has having taken effective action to control its finances."

He said Ireland expects this year's deficit to be lower than expected, coming in under 12% instead of the 12.5% it predicted earlier. Ireland plans to shave €4 billion ($6.03 billion) -- or 2% of economic output — from public spending next year in Tuesday's budget.

"That should give some confidence to the international bond markets because that means that the Irish [deficit] position is superior to that of the United Kingdom as well as Greece," Mr. Lenihan told reporters.

EU finance ministers told Ireland Wednesday to bring the deficit under 3% by 2014.

Anthracite Capital Defaults

Pocket change...the rolling, non performing commercial loans across the commercial real estate industry are losing momentum and will be coming back to the banks 1st Q 2010.

Expect the retail sector to have a rocky Christmas season with store closings to come early next year, igniting another round of retail ownership concerns.

Anthracite Shares Drop Sharply After Loan Default

SAN FRANCISCO -- Shares of Anthracite Capital Inc., a real estate investment trust based in New York, fell Wednesday after the company defaulted on $79.3 million in debt and said there is a chance the company would be forced to file for bankruptcy.

Shares fell 15 cents, or 62 percent, to 9 cents in afternoon trading. The stock was delisted Wednesday by the New York Stock Exchange because of its low price. It is now trading on the pink sheets under the ticker ACPI.PK.

The default on the senior notes with varying interest rates and due dates could accelerate the expiration of yet other debt, thus putting the company's future at risk.

"If acceleration were to occur, the company would not have sufficient liquid assets available to repay such indebtedness and, unless the company were to obtain additional capital resources or waivers, the company would be unable to continue to fund its operations or continue its business," Anthracite said in a statement.