By MONICA UNHOLD, The Daily Transcript
Wednesday, January 20, 2010
Brian Nelson saw a niche and went after it, leaving behind a comfortable job at a midsize commercial real estate company to strike out on his own with colleague Kevin Hemstreet.
Though numerous companies in the region specialize in 1031 exchanges, none offer property management services like Nelson’s new company, South Coast Commercial Inc. As president of the company, Nelson sought to create a commercial real estate brokerage firm with the capacity to increase the value of the properties it sells through effective management.
“I like the ability to manage properties that we sell or buy with our clients,” Nelson said.
The company primarily manages properties it is planning to sell. Brokers advise owners on small upgrades that can increase property values prior to putting them on the market. South Coast Commercial specializes in multifamily properties between five and 5 0 units in size. The company often helps property owners exchange five-unit rental properties for 10-unit properties or 10-unit properties for 15-unit properties. However, single-family homes that are non-owner occupied, income-generating properties can be handled under a 1031 exchange as well, Nelson said.
For example, a current client has entered into an exchange to purchase a five-unit apartment property after selling a single-family rental property. Through the transaction, the owner increased her property-generated income from $800 to $1,400 per month.
“The goal is to increase personal wealth, ” Nelson said.
When trading properties through a 1031 exchange, the owner must purchase a higher valued property. If an owner were to sell a $2 million property, they would have to buy a property with at least the same value and add more than $1 million in debt, Nelson said.
South Coast Commercial will occasionally represent owners who simply want to sell a property; however, they always encourage completing a 1031 exchange in order to avoid the tax liability and to increase income, Nelson said.
Due to the recession, people who trade commercial properties within the same ZIP code are seeing that they can trade up more easily because prices are so reduced, Nelson said.
South Coast Commercial finds people interested in 1031 exchanges by cold calling property owners in the region, Nelson said. Due to the complexity of the exchange process, the company contracts with exchange acco mmodator Investment Property Exchange Services Inc. (IPX) on more than 90 percent of its deals, Nelson said. The accommodator follows regulatory changes in the market and ensures the proper documents are filed correctly.
Though 85 percent of the company’s sales volume consists of multifamily commercial properties, the company also works on industrial and residential properties — often with the hope of interesting the client in the company’s multifamily services, Nelson said.
Despite market conditions, Nelson is optimistic about the coming year. In 2010, transactions values will increase with a small decrease in prices. Nelson anticipates the company’s sales volume will increase by 10 percent to 15 percent. Rents will decline between 1 percent and 3 percent, while vacancy rates will remain fairly constant, he said.
He expects buyers to continue showing interest in newer properties, built in the 1980s and later. The top priced properties are also selling well in the current market, as are distressed properties — preferences that will likely continue through 2010, Nelson said.
“The more savvy real estate investors will continue to go after distressed properties and multifamily foreclosures,” Nelson said.
South Coast Commercial currently represents buyers interested in purchasing bank-owned properties, and is working to establish relationships with banks that will allow the company to get more involved in the sector in the future, Nelson said.
While many commercial real estate brokerages have been forced to lay off swaths of employees, two-year old South Coast Commercial is growing. The company recently took on five more agents and moved from its location in Mission Beach to new offices in Point Loma to accommodate the growth, Nelson said.
The company plans to keep it s size constant, at least for the short term, in order to preserve the company culture, Nelson said.
“We have a good, very youthful, energetic office,” Nelson said.
source: San Diego Daily Transcript