Q1 2013 Update

 

Operating Results:

Sandalstone’s 1st Quarter of 2013 continues on the foundation built in 2012 with solid business performance.  We once again report record quarterly rental revenue:  34% year to year growth compared to Q1 2012 and 9% quarterly growth compared to Q4 2012.  The primary reason for the Year to Year growth is that we have grown the number of properties under control.  The Quarter to Quarter growth reflects a reduction in vacancy quarter to quarter.  Clarameda Fund issued a Special Distribution reflecting positive business operations.  

Before discussing the much publicized price increases in the underlying assets, I'll start with the rental markets. The rental Estate Market the East Bay continues to be red-hot. The East Bay and the Bay Area in general is feeling the effects of a much improved economy. We have had tenant turnover in the East Bay and new tenants were found within days at a significantly higher rent. Growth in the future will be seen as these price increases are reflected in the Operating results. We will continue in our efforts to move rents in line with market as soon as possible.  

Las Vegas, as we had anticipated is seeing a bit of a drag on rents and occupancy. We have one vacancy at our Backwoods property past the 2nd month. We have lowered the rent and have had two applications. The underlying issue based on our experience is that there is more supply of rental housing that is outpacing demand. We think this will be temporary as the overall economy improves. What we are not doing is lowering our standards and we continue to manage the properties so that we get good qualified tenants.

Of course the real story of Q1 is that the price increases that we had been seeing on the ground over the last few quarters of 2012 finally got attention in the press. In Las Vegas, investor demand, led by the large hedge funds/real estate funds, are competing furiously with natural buyers to take advantage of this unique opportunity. Coupled with a severe reduction in homes released to the market by the banks and you have the making of a rapid rise in prices. We estimate at least 10% Qtr to Qtr increase and that's on top of last years 24% increase. In other words - in Las Vegas, a home that was $300K at the top, fell to $100K and is now probably at $130K or so. The $140K continues to increase as bids come in fast and furious. In Oakland the $400K house that fell to $100K and is now up to $155K.

As stated last time, plans are underway to move to the next part of the cycle and return to more Develpment / Value Add opportunities. We are in contract on TWO short sale properties where the plan is to fix and flip.  This is however a strategic call and as we write this - the decision to move back to cash in lieu of real assets is frankly a tough one.  Another way of saying that - is that given the zero rate of return on cash - we much rather favor staying in real estate.  We also are aggressively recommending taking advantage of the historic low interest rates.  

In keeping with that, Sandalstone was able to close on one property using 75% leverage at 3.375% 30yr for $100K in debt with expected rent of $1190/month.  The property acquired last year - Jib Court - was (re)financed at 3.75% 30 yr on about $206K in debt.  Sandalstone has thus been able to expand its balance sheet using highly favorable leverage on its terms.  

We continue to seek larger projects most likely in the Bay Area where we can go back to doing Development work.

 

Clarameda Fund, LLC:

  • Acquisitions:

    • One Short Sale Offer Made and Accepted - Months of Waiting to come ...  

    • Property to be Funded by Credit Line

    • Will assess market when property is closed to determine if we will hold and rent or flip.

  • Operations:

    • Passed Section 8 Inspection for East Oakland Property    

    • BackWoods - Vacant for past two months - rent reduced, several applications, none have worked out.    

  • Finance

    • Secured $229K credit line for Clarameda at 5.5%.  Will enable cash for purchases.  Also will offer more working capital if need arises which allows us to self-insure more aggressively.  Finally can offer Partners the chance to earn more than they would at the banks - as seen here:

      • One more Clarameda Partner took advantage of the 3.25% "Note" program.  Fully backed by the credit lines of both Clarameda and Sandalstone.

  • Partners:  

    • Distributed K1s to Partners

    • Issued Special Distribution of 0.25%

    • Continued uninterrupted streak of distributions of the Preferred amount to Partners.

    • We had another Partner take advantage of the Opportunity to utilize their excess cash into Clarameda’s 3.25% Note Program.  This is similar to Sandalstone’s Note Program.  The Note pays 3.25% and is fully liquid - as a credit line (backed by Sandalstone) is in place to pay off the Note at a moment’s notice.   Contact us if interested.

* Note Sandalstone is borrowing money from Clarameda - temporary condition prior to closing of new property

  • Clarameda Fund is NO LONGER seeking new Partners  

    • Raised an additional $100K in 3.25% Note .  

In Summary,

As we write this, we are saddened by the tragic news in Boston.  We wish all those affected our best.  In light of these events, we are reminded that we all have a purpose in life.  I spend most of these updates writing about the high level financial aspects of the business.  The business though is about relationships and people.  We are blessed to provide for our tenants, our investors, the people who work on behalf of us and yes that includes the larger community and government authorities.  We gratefully acknowledge that we receive far more in return.

This update marks the 10 year Anniversary of my last paycheck in Corporate America - thanks to everyone for making that possible!  

 

Cheers!

Biren

Biren Talati

Managing Member

Sandalstone Group, LLC

www.sandalstone.com

 

Market Data follows...

MARKET DATA

VANGUARD REIT ETF:

http://finance.yahoo.com/q/bc?s=VNQ+Basic+Chart&t=1d

CURRENT YIELD:  3.37%  Compare to Clarameda...

HEADLINES

New casino resorts planned for Strip:

http://www.cbsnews.com/8301-505263_162-57573524/hope-high-for-1st-las-vegas-development-since-recession/

WSJ:  Q1 Case Shiller - reports over double digit increase in Bay Area, Vegas -  TOP 3:  Phoenix, SF, Las Vegas - Sandalstone is in two of these.   

Las Vegas Valley, state unemployment rate ratchets downward

In Las Vegas, the unadjusted rate was 9.8 percent in February and March, while the Reno-Sparks area saw a slight decrease from 10.1 percent in February to 10 percent in March. Carson City decreased from 10.7 to 10.6 percent over that same period.