Year End Report 2009
AMERICAN LIFE, INC.
2009 Year End Report
2009 by any standards was difficult. During the first half of the year we experienced a deterioration of our tenant base. By the end of the year, we caught up to where we started. This performance is acceptable in nominal terms and certainly puts us ahead of competitive investments. Because tenant bankruptcies and lease renegotiations aren’t spread evenly across the portfolio, some investors experienced more or less deterioration than others. The reality is that it will take longer to achieve projected income yields.
In 2010 three large projects will be finished, the 618 LP (tenant Courtyard Marriott Hotel), 1531 LP, a light industrial building, and 3100 LP (tenant Rainier Storage). The 618 LP and 3100 LP have tenants, 1531 LP is near completion and is being marketed. Our strategy going forward is to fill spaces at the best prices we can and at the shortest lease durations so that when the economy recovers, we will be positioned to take advantage of rent increases.
The SODO area continues to benefit from infrastructure investment. First Avenue South was repaved and improved in 2009; the West Seattle Freeway expansion is underway; the light rail is complete and in operation, and the initial contracts for the removal of the Alaskan Way viaduct and replacement tunnel have been let. These projects further improve an already very convenient location.
Going forward, we are seeing moderate demand for spaces but at lower prices than in 2008 and earlier. We are negotiating leases with several companies most of which we believe we will conclude. In 2010, we expect to fill more space than we lose but at prices 10-20% lower than before the recession began. Tenants have been inquiring for smaller spaces in the 3,000-5,000 square foot range. We also see entertainment venues and companies with niche markets looking at our non-traditional flex space versus higher priced retail space. The viaduct and tunnel construction contracts should be awarded in the next month. The contractors will require office, warehouse and yard space which should absorb inventory and help increase rental rates. We are positioned with the right type of product and guardedly optimistic that leasing activity will favor our inventory.
The big question is, when will things rebound? Over all, we still believe we are in for several years of essentially no growth primarily because of the lack of available credit. It may take years for banks to sort out their portfolios.
For American Life, perhaps the biggest achievement for us was to prove the validity of our no-debt business model. While many real estate investments failed entirely, the biggest cost to our investor group has been an opportunity cost. Because we did not borrow, we have not placed your principal investment at risk. During this time we will take advantage of being debt-free to preserve our assets and do our best to create reliable income for our investors and wait for a better day.
All of us at American Life would like to extend our best wishes to you and your family for a happy and healthy and prosperous 2010.
Sincerely,
AMERICAN LIFE, INC.
Henry Liebman
President
Date of entry 18/2/2010
---------------------------------------------------------------
EB-5 in the media
EB-5 immigrant articles are becoming more popular with the US media as they try to highlight business success stories during the economic crisis. Though it’s great for the program, to-date the coverage has had its inaccuracies. Fox News broadcast a short piece about a million dollar EB-5 investor without ever mentioning Regional Centers. Another piece mentioned a half million dollar ‘donation’!
Our clients, Mr and Mrs Thompson, emailed us about the 15 minute conversation they had with the NPR (National Public Radio) reporter which was severely cut to a very dramatic portion of the segment: Recession Fuels Spike In Foreign Investor Visas. In reality, the recession hasn't increased demand for EB-5 visas, but increased the number of Regional Centers. It's the lack of bank lending which is driving organisations to attract funds via the EB-5 program and much of what's on offer does not, in my view, look like a safe haven for one's capital.
It might be important to clarify two points. 1) EB-5 Regional Center investments should be treated like any other investment and analysed by a professional investment advisor; and 2) when seeking unlicensed advice, claims of ‘independence’ or ‘government approval’ could be misleading. There is no way to be sure of their independence, and ‘government approved’ EB-5 consultants do not exist. We prefer to see an EB-5 consultant’s affiliation stated visibly and unambiguously; you then know where you stand.
Date of entry, 22 January 2010
---------------------------------------------------------------
Investment Dangers --- revised Feb. 2010
Since the credit crunch the number of Regional Centers has risen from a handful to more than seventy, stimulated no doubt by the shortage of capital. Many indebted businesses and opportunists have latched onto the EB-5 program as a source of cheap money and easy profits. It is hardly surprising as the EB-5 program offers a source of virtually free capital. These new Regional Centers take most of the income or profit for themselves with the green card as your dividend.
Some investors, knowing how difficult it is to secure a green card, are willing to sacrifice income. I’ve heard that many times, but what does it tell you about the people managing your funds? So please beware, for at some stage over the next few years some Regional Center investors could loose some or all of their investment. I dread that day for it will damage the whole program and might deter others from gaining US Residency.
Recently, ‘loan’ based schemes (rather than ‘equity’ investments) have emerged whereby the capital from EB-5 investors is bundled together and lent on to another organisation, often a local governmental agency. These tend to use the capital for infrastructure projects being put in place by municipalities or redevelopment agencies. These entities become responsible for repaying your capital.
At first glance I was impressed at the apparent security of capital, which is everyone’s overriding priority after the green card itself. But it wholly depends on who borrows your money. The prestige of the project counts for nothing if the agency using your capital is unable to repay your loan.
Municipal borrowing has been growing for some time. 'The size of the municipal market -- based on Fed data that includes short- and long-term debt from states and local governments as well as bonds sold for nonprofit groups and certain corporate businesses -- has more than doubled in 12 years, based on historical data provided by the central bank. [
17 Sept 09]' As reported in the press, many municipalities and agencies are financially stretched and the problem is getting worse. A quick ‘Google’ has found the following items from the likes of Bloomberg and local media:-
The above are just a brief example of the reports on municipality funding issues. The examples given may not relate to a specific Regional Center, but are provided to demonstrate that municipalities throughout the US do not enjoy the same financial well-being of their opposite number in countries like the UK.
Date of entry, 22 December 2009 --- revised with additional information 11 February 2010
---------------------------------------------------------------
American Life's property market
The last eighteen months have been interesting to say the least. No business, especially banks, seemed too big to escape the crisis. Yet at American Life, with its debt-free business model, it has been business as usual.
In the last 12 months, a raft of investors wanted or needed to halt their emigration plans at different stages of the visa process. With around thirty investors looking to sell their shares after October 2008 (about the worst time imaginable), all those EB-5 slots were sold successfully.
According to PricewaterhouseCoopers, in a
survey with the Urban Land Institute think tank, the commercial property market, in general, is still difficult. Earlier this year Seattle was the number one choice for commercial property, but the downtown area slumped after Washington Mutual, a savings bank holding company, went off the rails and placed its entire towerblock onto the market. The WaMu tower has since been bought by a Tacoma company. Seattle remains in the Top 10 cities and is a commercial property market to watch as “
the city’s global pathway positioning should accelerate a market bounce back once the U.S. economy recovers.”
American Life’s properties are in SODO, close to downtown, but are approximately half the cost per square foot to rent. That provides a useful attraction in the current climate, along with the advantage of American Life’s flexible leasing arrangements.
Date of entry, 20 November 2009
---------------------------------------------------------------
The EB-5 Pilot Program has been extended for three years.
Yesterday, 28th October, President Barak Obama signed the 3 year extension for the EB-5 program. The excerpts from the Summary about immigration are in the section below.
Date of entry, 29 October 2009
---------------------------------------------------------------
Awaiting President's signature: EB-5 Program three-year extension, plus 'bonus' legislation we didn't anticipate
The US Senate has passed the Homeland Security Appropriations Conference Agreement, which includes the 3-year extension of the EB-5 program. The Bill passed in the House last week and now goes to President Obama for signature. The Conference Summary states:
Visa Extensions: Provides three year authorization extensions for the religious worker (R visa), rural-serving doctors (Conrad 30-J visa), and investor (EB-5 visa) programs.
Humanitarian Treatment for Surviving Spouses and Other Relatives of Deceased Immigrant Sponsors: Provides statutory authority for USCIS to complete processing of permanent residence applications for surviving spouses and other relatives of immigration sponsors who die during the adjudication process.
If you are on our mailing list we will advise you via email of all EB-5 updates.
Date of entry, 22 October 2009
---------------------------------------------------------------
EB-5 program extended one month, awaiting extension yet again
It sounds like déjà vu, but we expect Congress to vote on a further extension of the EB-5 Pilot Program some time this month or next.
If you are on our mailing list, we will advise you via email of the relevant details.
Date of entry, 6 October 2009
---------------------------------------------------------------
EB-5 Program extension
We expect Congress to vote on a further extension of the EB-5 Pilot Program some time this month. The program is very popular and has bipartisan support. We are monitoring the situation and as soon as we have something concrete to report, we will let everyone on our mailing list know what Congress has decided and when the Bill is signed into law.
Date of entry, 16 Sep 2009
---------------------------------------------------------------
Midyear Report
AMERICAN LIFE, INC.
2009 Midyear Report
Business activity was more of the same until May when investor inquiries and tenant inquiries picked up some. We don't see anything to indicate the economic "recovery", whatever that means, is coming anytime soon. As I mentioned in the last report, it will take several years for consumers and businesses to rebuild their balance sheets and start spending. This means that what we see today is what we get. Nevertheless, there is still business to be done, just less of it. In this economic environment people are concerned about the safety of their investment, and our ability to rent space. Property values have held up and we are still renting space. GVA Kidder Mathews, a U.S. West coast real estate management company, reported as of May 2009, that the overall vacancy rate for industrial property in the three Counties/Seattle metropolitan areas is 6.89%, compared to 5.28% at the beginning of the year. The Seattle close-in industrial market, which is where our properties are located, has a 2.96% vacancy rate compared to 2.69% at the beginning of 2009. Although I think these numbers are optimistic, meaning that the real vacancy rates are higher, our market area is clearly the best performer in the region. By contrast Pacific Real Estate Partners reports that Seattle metropolitan office vacancy rates are now 9.9%. Seattle vacancy rates are generally lower than most comparable and larger metropolitan areas. Additionally, local employment seems to be holding up. While there are probably no companies hiring in large numbers, the announced layoffs by major employers such as Microsoft and Boeing have not been catastrophic, around 5000 jobs for each of those companies. The new rule of the game is to rent space faster than our tenants who are going out of business.
We signed 12 leases thus far in 2009 for a total of 131,368 square feet. On the other side of the equation, we lost 7 tenants totaling 62,974 square feet. We gave 2 tenants rent concessions totaling 15,700 square feet where we temporarily reduced rents and took a personally signed promissory note for the amount of rent deferred. This is better than forcing the tenant to file bankruptcy and over time we should collect on most of the promissory notes. The net effect is two steps forward and one step back but an increase of 68394 rented space. There is no evidence that land prices have gone down in the close-in industrial market. There are only two properties listed for sale in our area. Both properties have been on the market for over a year and are listed at prices that would have been high before the economic collapse. We know of no 2009 closed transactions in the close-in market. My sense is that reasonably priced properties will sell without steep discounts. One local bright spot is the number and size of the infrastructure projects that impact our market area. The West Seattle Freeway expansion commenced which creates two new exit ramps serving SODO. The HWY 99 tunnel project commenced and includes replacing the elevated freeway with a tunnel under downtown Seattle and an exit ramp that connects HWY 99 to Interstate 5 and Interstate 90 freeways. This project not only improves access to our market area but also creates views of the Port and Elliot Bay for several of our properties. The light rail finally opened on July 18th (www.soundtransit.org). The 14 miles route from Westlake to Tukwila with 10 stops along the way includes 2 stops in SODO by the Stadiums and 6th and Lander. Of course, it is much too early to evaluate the light rail’s impact on our area. These projects will require land for staging and warehouse/office for contractors and consultants. We hope and expect to be able to rent additional spaces as a result.
Given our increasing number of investors, providing liquidity is another of our goals. Ultimately, the best way for us to provide liquidity to investors, would be to become a publicly traded Real Estate Investment Trust, or REIT. We will work toward this goal but markets are not always cooperative so we cannot guarantee such a result. If successful, we expect this process to take at least three years. The result would be that investors could trade their partnership interests for shares and sell all or a part of their shares as they wish at whatever the market price is at the time. Even though our investments are not currently liquid, we deliberately avoided debt in order to best survive times like these. However, for those investors who would like to sell their investments prior to the possibility of going public, we have begun working with an investment banking firm called Broadmark Capital (www.broadmark.com) to create a fund that can be used to buy out such investors. Broadmark will manage the fund and negotiate the purchase price with each selling investor. This fund will provide each investor a property appraisal and will want to purchase at some discount to appraised value. We expect the fund to be operational in approximately 12 months. Those who don't have to sell shouldn’t do so, since in this market any buyers will want a significant discount to an appraised value.
To conclude, 2009 continues to be a tough year, but we are making progress, just at a slower rate.
Sincerely,
AMERICAN LIFE, INC.
Henry Liebman
President
Date of entry, 03 Aug 2009
---------------------------------------------------------------
EB-5 visa program extension until 30 September 2009
The EB-5 Pilot program has been extended to 30th September 2009.
Date of entry, 12 Mar 2009
---------------------------------------------------------------
Year End Report 2008
AMERICAN LIFE, INC.
2008 Year End Report
The best thing about 2008 for most people is that it’s over; although it was a good year for American Life's investment partnerships. Total Capital Investment among all partnerships increased by about $100,000,000 to approximately $400,000,000 at book value. Our land area increased from 2,137,000 to 2,324,000 square feet. The number of investors increased from approximately 820 to 1000 of which about 40% are financial as opposed to immigrant investors.
The Seattle area economy continues to be driven by Boeing, Microsoft, tech, biotech, and resource extraction in Alaska and Alberta. As such it remains one of the strongest local economies in the USA. Currently occupancy rates in the SODO industrial area are approximately 95% which is slightly weaker than in 2007. Although I have no objective evidence that the main drivers of the local economy are in trouble, signs of a slowdown abound. The so called “credit crises” which became apparent in October 2007 grew to a once in a hundred year storm. I doubt anybody predicted the demise of Lehman Bros, Bear Stearns, the Troubled Asset Relief Program, automotive bailouts and the many government bail outs and make work programs yet to come.
Bail outs take money out of private hands and put spending power in the hands of the government who becomes the lender or owner of last resort. Government spending is always inefficient and often inflationary. This is particularly so when there is no talk of a gas tax, energy tax or some other source of paying for the billions if not trillions of dollars in infrastructure and social spending.
Political uncertainty accompanies any new President. Our new President, however well intentioned, has no training for the task at hand. However, Americans are a resilient lot and this is still a rich country so this too will pass.
As credit lines and mortgages mature, banks will cancel some loans and exact larger percentages of equity and or interest rates on many others, which will translate to high rates of foreclosure and bankruptcy for most if not all of 2009. The US consumer needs to rebuild his personal balance sheet. The average family of four income in the US is about $60,000. Average family debt exceeds family income and net assets. Assume the average family has a home equity loan, credit card bills, car loan and more. How long does it take such a family to reduce debt to the point somebody will loan them more money. In the extreme, if families reduce debt by $1000 a year the complete process takes 60 years. Consumer spending is unlikely to recover for many years to come. This means the retail sector, i.e., anything that isn't a necessity, will be moribund for quite some time. Thankfully we have little retail and no residential exposure to our portfolio. In general, government spending should create a floor under unemployment.
The rental market for industrial and warehouse properties slowed but still has some life. At the moment we are still renting space faster than our tenants go broke but the overall pace of business is markedly slower. The number of property sales in Seattle’s close in industrial area slowed markedly, but prices haven’t dropped. The buying opportunities we expected in 2008 didn’t materialize. Given the meager supply of close-in industrial land and the requirements for rebuilding infrastructure, I don’t think close-in industrial property prices will decline much, if at all.
All of this translates to a slow economy for the next several years. Given these uncertain times where does one place his money? In no particular order: cash, gold, debt free real estate and shares of the few companies that have relatively debt free balance sheets. Gold and cash need no explanation. I know little about publicly traded companies and own none of them so I can only discuss how our strategy should fare in this environment.
Our portfolio should survive the “great recession” better than most. The Marriott Hotel project is well positioned in its market. 1501 1st Ave S is one of the few locations that should outperform the market to attract corporate tenants requiring a close-in location. We have no residential exposure and very little retail exposure. Warehousing and industrial properties, particularly debt free properties, should be among the best performing real estate classes because the proposed infrastructure programs create warehouse and industrial space requirements to stage, build and store equipment.
As many of our investors know, American Life has been working to change the zoning in SODO for many years. In this regard, the poor economy may be our friend. The City of Seattle needs tax revenue and unions need jobs, so we have the basis of a bargain to at least obtain more density while maintaining the industrial character of the area. This works for us as long as “industrial” includes tech and R&D uses. The next round of hearings regarding the process starts in March of 2009. I'm always optimistic about this subject but I've not yet been correct. Maybe this year is our year. As I said last year we are well positioned, no matter how the zoning debate resolves itself. If density is increased, land values will increase since one can build more on the land. If the down zone becomes permanent, rents increase since the pattern of more buildings going out of service than coming into service continues. Projects such as the Alaska gas pipeline which is in the planning stage could fill our buildings for several years. The pipeline goes from the Arctic Ocean to Edmonton. Much of the pipe and machinery has to be staged in our area of Seattle. Despite the midterm gloomy economic we have a lot of positive things to look forward to.
To conclude, 2009 looks like a potentially tough year. Rents may decrease until the infrastructure projects take root. On the other hand the Pacific Northwest’s abundance of natural resources, trading location, and educated work force will survive the hangover of a credit binge. American Life is positioned to survive the year in better shape than most because no-debt was more important than I imagined.
Sincerely,
American Life, Inc. Managing General Partner
Henry Liebman
President
Date of entry 21/1/2009
---------------------------------------------------------------
Seattle Real Estate strongest in the country
According to a survey of metropolitan areas, Seattle commercial real estate is the strongest in the country.
Yes, in general the world economy is weaker, but in these difficult times it is good to know that Seattle offers the best investment potential in the US.
Follow the links to read the story from local newspapers. They will open in new windows.
Seattle real estate rated No. 1
A national study rates Seattle the top commercial real-estate investment market in the country for 2009
Date of entry 24/10/2008
---------------------------------------------------------------
Second Regional Center for American Life
American Life has been awarded a second Regional Center and we hope that it will be shortly offering property investments from two regions within the State of Washington.
The Company now has 34 buildings under management, some in the process of construction or refurbishment, totalling in excess of 2,000,000 sq ft.
Statistics on EB-5 applications, for the year to the end of Sept. 2008, reveal that American Life attracted more immigrant investor capital than any other Regional Center.
Date of entry 7/10/2008
---------------------------------------------------------------
EB-5 Extension until 6 March 2009
Congress has approved the Continuing Resolution Bill (necessary for the Government to continue to function) which includes, among many other things, an extension to the EB-5 Visa Program until 6 March 2009. This gives ample time for the 5 year Bill to be passed.
The EB-5 Regional Center program continues uninterrupted.
Date of entry 29/09/2008
---------------------------------------------------------------
Record Number of Investors
No doubt prompted by the sun-setting of the Regional Center program, the UK has experienced another period of record demand with more investors in the eight months to September 2008 than for the whole of 2007, itself a record year.
American Life continues to be the most popular Regional Center investment manager attracting, on average, more than one investor every day. The company remains the only one with a substantial percentage of US investors and with a track record of returning its income to investors.
Date of entry 12/09/2008
---------------------------------------------------------------
American Life Executive Summary
Seattle, July 2008
The topic of the day seems to be how the subprime turmoil impacts real estate in general and SODO real estate in particular. First of all, subprime crisis is a symptom of a broader problem. My parents were able to support a family with one wage earner. By the 80’s it took two wage earners to support a family. By 2007 it took two wage earners and a car loan, credit card debt, a home equity loan, and a high loan to value house mortgage to support a family in the manner to which we’ve all now become accustomed. Things finally reached a point where there were no assets left to borrow against causing a collapse of the financial house of cards resulting in massive losses to money center banks, hedge funds and investment houses. At the same time US generally failed to invest in transportation and other infra-structure and fell behind many parts of the world in that regard. This creates inefficiencies that increase the costs of doing business.
Banks and investment houses took large write downs of their assets which reduce their ability to loan. To restore liquidity and to prevent further losses many banks called loans to a hedge funds, causing the funds to sell securities that collateralized the loan resulting in the stock market decline. On top of everything higher oil prices further reduce consumer spending. All of these events take money out of the system which means less money to loan, higher interest rates and decline of the price of investment assets. The more leverage one has the more severe the punishment. The Fed’s lowering of interest rates helps a few people but lower interest rates can’t fix loans that already went bad and don’t benefit companies and people who can’t borrow for more fundamental reasons.
It’s obvious that virtually all investment assets will suffer. The question is; what’s the best of the worst? While US economy may slow overall, we remain in a strong position to weather the storms. Seattle area is fortunate in that its major employers, Boeing, Microsoft, biotech, engineering, and resource extraction in Alaska are still healthy. Within Seattle, higher gas prices and traffic congestion favor close-in real estate. This dynamic makes SODO a more attractive investment locally than Kent, which is 15 miles to the South. Being debt free adds another layer of safety because we can reduce rents if needed and don’t risk losing the properties.
So far SODO land prices and rents haven’t declined. The number of transactions has dropped because many sellers in SODO can afford to wait, and there are fewer tenants willing to step up to new space in these uncertain times. Simply put it will take longer to lease buildings than in the past several years and rent concessions to win tenants that we think are good long term investments, may become necessary. The bright spot is that the cheap dollar has spurred traditional and modern industrial uses, which is a large part of our tenant mix.
My guess is that it will take three to five years before banks can recoup enough of their losses to resume more normal lending practices. First the legal system has to work out who holds the bag. Once we know who bears the losses, the system can work around bad credits. That is a 2 to 3 year process. At the same time banks and investment houses have to raise more capital and make profitable deals to restore their balance sheets. That’s a several year process also. Federal spending or loan guarantees for infrastructure would help employment and may even provide jobs for the 500,000 or so soldiers and contractors in Iraq who will come home at some point. This is a long term fix also.
The bottom-line is that this too will pass. We plan to continue acquiring strategically located and well priced properties with the understanding that full lease up may become more time consuming and difficult than in the past. This area of the world has a lot of growth left. There are simply too many human and natural resources for this down turn to be anything more than a pot hole in the road.
Sincerely,
American Life, Inc.
Managing General Partner
Henry Liebman
President
Date of entry 12/09/2008
--------------------------------------------------------------
