Tips for investing in real estate

The business of selling real estate is being professionalize to keep up with new needs of investors, said Betty Sy, president of ReHaus, Inc., a real estate marketing and consultancy group. More than owning property, she said buyers now look into the prospect of the property appreciating in market value, expecting a return from it once it is either rented or sold.

“Once a developer begins a project, it carries with it a certain value which is what the buyers pay. Subsequently, the value multiplies as the project nears completion, when it is ready for occupancy, and years thereafter, since prime land increases in market value as the surrounding area develops,” she said. Ms. Sy added the increase in property value ranges from 30% to 50%.

One of the first things an investor must look into is to determine if the project is a sure investment winner. “This would require an expert’s analysis, evaluations and appraisal of a certain project,” she said.

“It is always best to consult real estate professionals to evaluate if the project has potentials for good investment, if the location is progressive, if the technical specifications of the project meet the standards, and if the price is competitive to other projects in the area. All these things should be considered carefully because it validates how much appreciation the property can reach,” she said.

Ms. Sy suggested would-be investors are still ahead even if they buy property through bank financing. She said property value appreciates faster than the loan interest in the bank. “Both industries (real estate and banking) enjoy a symbiotic relationship that makes it impossible for one not to consider each other,” she said.

Before You Donate to Charity

Americans donate $124 billion to charities each year, not merely for a tax advantage but to do some good.

Overall confidence in non-profit groups has been on the wane, however.

According to a Gallup poll, more than half of 1,000 respondents think charities have become less trustworthy during the past decade.

At one time or another, everyone wonders whether contributions will really wind up where intended. In some cases, a charity’s goals may be of the highest order but the organization may not be well-run.

Always know the non-profit group you’re contributing to and how your dollars are being used. The majority of charities are reputable and have nothing to fear from your heads-up attitude.

Industry experts say that fund-raising and administration should constitute no more than 50 cents of each dollar raised; the rest should go directly to programs.

“A controversy in recent years has been that a number of charities categorize part of their expenses for direct mail or other appeals as `program services’ and `educational tools’ rather than exclusively fund-raising,” says Bennett Weiner, vice president with the Philanthropic Advisory Service of the Council of Better Business Bureaus.

Middlemen can diminish the amount of money going to the cause.

“It’s best to donate to charity rather than to commercial fund-raisers, who can take a large percentage for themselves,” says Daniel Borochoff, president of the American Institute of Philanthropy, a watchdog group that rates charities.

“Whenever you’re asked to contribute, ask who’s doing the asking. If it’s an independent person, simply say `No thanks’ and instead give directly to the charity.”

Coin canister collections are risky, Borochoff warns, because money may not make it back to the charity. Don’t be bashful about contacting the charity to find out whether the person presenting the can is receiving a cut of the money or is even affiliated with the charity.

Some points to consider in charitable giving:

When solicited by phone, ask that an annual report and financial statement be sent. Never give out your credit card number.

Resist pressure to fork over money immediately.

Always make your contribution with a check made out to the charity, not to the individual collector.

Watch out for charities whose names sound impressive or closely resemble the names of more familiar organizations.

If you are sent items you never ordered (cards, key rings, or pens), you are under no obligation to pay or to return the merchandise.

Beware of solicitations that tug on your heartstrings but give no explanation of the charity’s actual programs.

More Must Be Done to Attract Investors to Options Trading

“My clients asked about options trading, but I told them to forget it,” said a broker. Such a comment is typical of the attitude of many investment professionals here towards the recently launched options trading.

One rationale for options is that players can hedge themselves against risks that come with volatile price movements.

A safe market equals low risks equals low returns, which everyone knows, is not the way to go if one wants to capture an investor’s interest and imagination.

The inclusion of more volatile stocks will draw both institutions and speculators – seasoned speculators would straightaway sniff out the opportunities present and institutions would join in to hedge themselves against price swings in the underlying shares.

With institutions adding liquidity and speculators creating opportunities for others to make money because of the risks they assume, it would be difficult for options trading not to take off.

Short of abandoning the safe market strategy, one way to boost institutional interest is to allow an index, such as the broad-based BT-MGA, to be traded. Fund managers who invest in such an index would then need options to hedge and enhance the value of their investment.

This is how a stock index option can work for the fund manager. He can write a call option to obtain the premium to improve yield in a falling market. He can also buy put options to protect the fund from price collapses.

If the price indeed collapses, the fund manager can then close his option position at a profit and thus outperform the index. The professional community should look into introducing index-linked funds.

Another way to attract the ever cost conscious investor is to reduce the margin requirement. The required deposit of 40 per cent of the underlying share price is viewed as too steep for the investor to take an interest in writing options. And if they do write the options, the margin would be priced into the premium. This means that the buyers would be buying above the fair market price and hence very few or no trades will be done.

The success of options trading would see the introduction of other sophisticated financial instruments. More instruments add to the breadth and depth of the market. It is therefore important that the rebirth of options be made a success and fast.

Money managers

Choosing a money manager is at least as daunting and critical a task as picking a stock or bond or deciding on the right mutual fund. Money manager is a person or a firm that, for a fee, invests your funds, generally in stocks and bonds. Unlike brokers, they don’t receive trading commissions, so they aren’t tempted to trade unnecessarily in your account. Trading commissions – usually at cheaper, institutional rates – are paid out of your account to whatever brokerage firm does the trades.

Money managers charge a fee based on a percentage of the assets in your account – anywhere from 0.5 percent to 2 percent, with 1 percent being a good benchmark – so their incentive is to increase the value of your portfolio. Also, money managers may have a minimum fee of, say, $5,000. That’s not bad if you have $500,000 to invest; it would equal 1 percent. But if you have only $250,000, then a $5,000 minimum fee comes to 2 percent. And your investments have to do just that much better for you to get a decent return.

People get so caught up in whether they’re getting an 8 percent or 9 percent or 10 percent return. Instead, small investors should be concentrating on saving in order to increase the amount of money they have to invest.

When you have saved some money, put it in a diversified group of well-managed mutual funds, and don’t get greedy. Remember, over the long haul stocks outperform most other financial instruments, but not always in the short run.

Then you’ve got to deal with the stomach factor. How much risk are you willing to take? I know people who can’t sleep at night unless all their money is safely in T-bills. Others can’t rest if they know that even 5 cents is lying around in less than the most exciting and risky investment they can find. You have to decide for yourself.

Then there’s asset allocation. How much of your money do you want in stocks, bonds and in cash? It’s a very difficult decision, and it’s related to your investment goals, your stomach for risk and to such unknown factors as what the markets are going to do in the future.

First Union Voices Dissent On Modernization

First Union, the nation’s sixth-largest bank, is voicing deep concerns about the current versions of financial modernization legislation, including provisions that the industry fears could greatly increase the cost of and unreasonably delay mergers and acquisitions.

In its comments to the American Bankers Association, First Union specifically referred to the House version of the bill, which contains a provision giving the Federal Reserve Board the authority to hold hearings in all communities affected by a potential merger. This will “expand the processing time for applications and give opposition groups unprecedented opportunities to inappropriately impede bank transactions,” a bank official said.

While some difficult language was watered down during committee consideration, First Union remains convinced that the legislation’s effect will be to mandate expensive, time consuming hearings in virtually every merger transaction.

The letter, signed by Marion A. Cowell Jr., executive vice president, general counsel and secretary of First Union, also voiced concerns about certain powers issues, especially as they deal with sales of insurance and other products and services. It also sought to prod the industry’s Washington lobbyists to back off from support of the bill.

The upshot of the letter is that banks might be better off with their current lot, relying on federal pre-emption power and the National Bank Act, instead of depending on the functional regulation proposed in the bills. It also says that while the legislation as currently written may benefit certain mega-banks, “First Union believes that any comprehensive review of the legislation will find very little in the way of new banking powers and instead reveals the imposition of significant, as well as unnecessary new restrictions on banks and bank holding companies.” Industry lobbyists said the banks First Union is talking about include institutions such as BankAmerica, Citigroup, Bank One and J.P. Morgan.

“We do not believe that this represents “modernization” for the banking industry and hope that the ABA shares our view,” the letter says. First Union added that “it remains disappointed” in the ABA’s “continuing support or non-opposition” to the insurance safe harbors contained in both the House and Senate versions of financial modernization legislation. The safe harbors would allow certain states to treat banks differently than other distributors in sales of insurance. “We have already seen these safe harbors that allow for discrimination against banks can cause problems in certain states and we believe that the ABA’s acquiescence to these provisions has been extremely counter-productive to the industry.”

The letter also says that First Union “continues to believe that the removal of the Office of the Comptroller’s agency deference will be a significant problem for the industry. The banking industry would not be able to offer the products and services that are offered today without the strong support of the OCC and the agency’s litigation success,” it says.

An ABA staff official said last week the trade group is taking no position on the bill–the same day, the ABA joined a group of securities, mutual funds and insurance industry trade groups in sending letters to the Senate leadership seeking prompt action on a version of the bill passed by the Senate Banking Committee March 11

Wall Street Panache Moves To Community Banks

Salomon Smith Barney contracted to open one of its own brokerage branches in a community bank last week, a move that appears to be the first of its kind by a Wall Street firm. It hopes to bring its expertise to smaller institutions nationwide.

The new so-called investment center is to be placed in a downtown Lewiston, Idaho-based branch of FirstBank, and could prove a major advantage to FirstBank and any other community institutions as they vie with larger competitors to offer a wide array of investment products.

Although hundreds of smaller institutions currently work with brokerage houses to bolster their investment offerings, Salomon is equipped to provide a unique level of service to its clients, according to the company. Further, the program is the first to bring the prestige and know-how of a major Wall Street firm into local community bank branches, said Jeffrey H. Champlin, a Salomon vice president.

"What it does is airlift community banks to the front of the brokerage business," Champlin said. "Now they can have a more sophisticated brokerage firm than many of the biggest commercial banks. Customers are requiring a lot more from their brokers than they used to and the average community bank program cannot do this anymore."

He said the program will help banks broaden and deepen their relationships with customers, so they do not look to invest with larger banks, and possibly transfer some of their traditional banking business there as well. Salomon hopes to establish several hundred additional centers in the next two to three years, Champlin said.

He continued that Salomon can offer banks better services because of the approximately 450 branch locations the firm has around the country. "In many cases, when banks work with brokerages, the firms can be located hundreds of miles away. But with us, the investment centers keep in direct contact with any of Salomon’s branches, which might be located right down the street."

He added that some brokerages leave much of the maintenance of such centers up to the bank. Salomon, however, provides them with all the necessary equipment and easy access to all of the latest research tools and facilities available to any of its representatives.

Clyde E. Coklin, president of FirstBank, said he welcomed the opportunity to offer securities, mutual funds and other non-insured products through a "well-respected company like Salomon. (Salomon) brings national recognition, has a large portfolio of investment products, and maintains a business approach respecting customers’ needs," he said.

Salomon began piloting the program in several community banks over a year ago. But Champlin said the firm is now prepared to roll out the service across the country. He said the firm is beginning to educate its regional representatives about the program and meet with bank managers to discuss a possible strategy. "We don’t want to helter skelter put this thing together," Champlin said.

Champlin said some banks have been wary of the service, fearing the firm may intrude on some of their existing business. "But what we do is sign an agreement with the bank not to sell any products they want to keep selling."

Salomon will also be selective when choosing banking partners, he said. "We want them to be strategic for us. We look for banks with a good reputation and ones that won’t be snapped up by a larger bank. We want banks that want to be in the community banking business for the long haul."

The investment representatives are jointly hired and managed by Salomon and the bank. The fee income is also split by both entities. Besides working with bank customers, the representatives will help the bank generate business in the local area.

The compliance issues arising from the program are similar to any instance in which banks offer brokerage services, Champlin said. "The physical space between the brokerage and the rest of the bank must be clearly defined. And we have a disclosure document for the customer explaining that the products are not FDIC insured, are not products of the bank and that you can lose all or part of the principle."

Hibernia To Open Merchant Banking Fund

American Banker/Bond Buyer Hibernia Corp. has just been granted approval by the Office of the Comptroller of the Currency to establish a de novo operating subsidiary to raise funds to invest in companies.

The new entity, called Hibernia ACP, LLC., is structured as a general partnership and has a goal of raising $20 million from corporations and wealthy individuals to invest in mezzanine debt, according to a company spokesman. The companies to be invested in will be located in the Gulf-area states, especially Louisiana, home base of Hibernia.

While commercial banks are not strangers to these types of funds, they have largely been the domain of investment banks. Nevertheless, the fund represents an opportunity for Hibernia to start up a new business and please its existing clients at the same time.

"Here’s an opportunity to stay with that (existing client company) that may be looking to go public at some point. It provides "angel" funding for a company with maybe $10 million in sales. They tend to be operating companies–not start ups–that need some capital to grow," said R. Harold Schroeder, an analyst and Keefe, Bruyette & Woods Inc. He added that the fund also provides the bank’s corporate and wealthy individual investor clients with another investment opportunity.

"First Commerce, which was Hibernia’s competitor across the street, had a fund like this before Hibernia bought it," Schroeder said. o J.H. & E.W.