Q2 2012 Update

 

Sandalstone Group, LLC.

Highlights
Overall Market:  

Sandalstone’s 2nd Quarter of 2012 shows the strength of the company and its markets.  

We report record quarterly rental revenue:  33% year to year growth compared to Q2 2011 and 5.6% growth compared to Q1 2012.  The primary reason is that we have grown the number of properties under control.  For the first half of 2012 the Company had a 1.8% vacancy rate across all its properties.   

At the end of Q2 Sandalstone acquired one additional property for Clarameda and invested in a larger property (6BDR, 5Bath, 3 car garage, pool, basketball court) for a close relative.  Stay tuned for a Case Study on that model...  

The vacancy number in the East Bay (zero for the year) reflects the large uptick in rent and and strong demand across the Bay Area.  We are looking forward to some tenant turnover going forward as we will have the opportunity to test market rates by pricing at what we believe will be an upside to the discount reflected in the current leases.  
The Las Vegas market has picked up dramatically as the number of properties offered for sale continues to be low.  The primary reason is that banks are forced to foreclose more diligently with the passage of several state laws (think robo-signings, etc.).  The blessing in disguise for banks is that this decrease in supply is leading to an increase in price.  

The Las Vegas economy appears stronger both from the “official” numbers on employment and from our observation - a July 4th trip confirmed that the casinos (Wynn) seemed fuller than in prior trips and the foray into the Premium Outlets - always a good indicator - confirmed the demand from tourists - especially from Asia - buying everything esp. Coach and Burburry!   

As stated in our last Update - the Official numbers are now starting to reflect this uptick.  Case-Shiller reports a Qtr to Qtr increase in Las Vegas home prices and REIS reports a rise in rents for Q1.  Being on the ground and being active - these numbers are no surprise - they will lead to others to jump in so we expect the investor led momentum to continue.  

We continue to purchase assets that make sense using our models and this bears repeating:  remain committed to our OPINION first articulated in 2007 that this uptick won’t happen until 2016 to 2019.  We will consider selling when ordinary people can get the financing to enable them to buy our homes using conventional (cheap) mortgages - that’s when we convert back to cash and consider alternate investments that allow us to play that part of the cycle.       

Green Improvements:

The shower heads we got from EBMUD proved to be a disaster.  Basically it caused the pipes to rattle and proved to be less than a satisfying shower experience - so much for getting it for free!  In its place - we are recommending the following shower head from Delta .  We personally use it and can hardly tell its only putting out 1.5 gpm.  We are having this be the standard shower head on all properties going forward.

One of Sandalstone’s members is LEED certified and it is our intent to apply those lessons over time to the portfolio - we believe it will provide a long term benefit - some of which is quantified through cash and the other of good karma for doing something for the planet.  We are blessed and inspired to have my friend David and his family visit us earlier this year - read more about their accomplishment!  

Clarameda Fund, LLC:

  • Purchased one Property in Henderson, NV
    • 1457 Homestead:  4BDR, 2.5BA - $120,000 purchase price, $136,000 all-in rehab price.  With a pool.   
      • Currently in renovation
      • Budgeted $1450 per month in rent (Property Manager believes there is upside and we are pricing to that) - stay tuned!  
    • Property is in a “B+” area, is a two story, has a pool and HOA.
      • These characteristics are a departure from our usual criteria - so it will be a test of a more upscale location with a pool as an amenity.  
  • Continue to aggressively bid on properties that fit our criteria
    • We are in contract for a short sale 4BDR, 3BA in the Orchards subdivision - same ‘hood as Back Woods.  Reports are that the people living in it are “moving out” - so hope to close soon?  
  • Operations:
    • 922 Single Tree rented in late April (about 5 weeks of vacancy - some lessons re-inforced ie. - don’t skimp on renovations).  
    • Rehab proceeding on 1457 Homestead, expect to have on the rental market the week of July 16.  
  • Continued record of paying 43 straight months of distributions of the Preferred amount to Partners.
  • Seeking additional Partners - check out the latest Presentation which more fully describes the opportunity!

Investment Opportunities:

Wanted to share this graph which shows the commitment of Partners who have invested in Clarameda.  It shows that Partners who initially come in at the minimum level of $50,000 increase their investment in later rounds.  For that we are grateful and believe it is a great testament to their belief in the value of this vehicle for their investment goals.  

  • Clarameda Fund is actively seeking new Partners.  This Company is expected to return 10 to 12% to investors.  Company has paid 43 straight months of distributions (plus Special Distributions which boost distributions in “profitable” years - and TAX loss in “unprofitable” years).  
    • Raised $125,000 in new money this quarter.  

In Summary, lots of work on the acquisition front.  We made over 25 offers and came away with two properties.  We expanded our criteria to go more upscale with properties that have more amenities.  The rationale is that in an appreciating market these properties should recover faster - albeit typically at a lower going-in cap rate.  

This is the “standard” textbook rationale.  Over the next month or so we hope to have both of the new properties rented out.  Those rents will help determine the going-in success of this “new” approach.  The back-end appreciation will of course take years to be validated.  

We encourage those of you on the sidelines to consider real estate as part of your investments.  There is a massive transfer of wealth going on right now.  Wealth is being transferred FROM people who have saved who earn nothing on their deposits TO people who are able to invest in these types of assets - the banks aren’t doing it for you!

Clarameda Fund is a low risk way of doing it (all cash, no debt) - a property purchased using financing is another that is a higher risk way of doing it...let me know if you want a Case Study that we’ll later publish that illustrates that model ...

     

Cheers!

 

Biren

Biren Talati
Managing Member
Sandalstone Group, LLC
www.sandalstone.com

 

Market Data On Next Page...

MARKET DATA

VANGUARD REIT ETF:

http://finance.yahoo.com/q/bc?s=VNQ&t=1y&l=on&z=l&q=l&c=

CURRENT YIELD:  3.30%  Compare to Clarameda...

HEADLINES

WSJ:  Q1 Case Shiller - confirms uptick in Bay Area, Vegas (and most other markets)

http://blogs.wsj.com/economics/2012/06/26/a-look-at-case-shiller-by-metro-area-13/

WSJ:  REIS reports an increase in Vegas rents (and most other markets)

http://online.wsj.com/article/SB10001424052702303933404577505260835025948.html
 

Las Vegas Review Journal:  Unemployment - falls to 11.6% (lowest since 2009 and drop from 12.3% prior Qtr).  Also population in Clark County rises!

http://www.lvrj.com/business/nevada-las-vegas-valley-unemployment-rates-lowest-since-2009-152026665.html