Higher sales prices, shrinking inventories, and growing construction costs are creating urgency for businesses looking for commercial space.

San Jose,Calif.,February 1, 2007— 5-4-3-2-1 Liftoff! That thundering you hear is the sound of lease rates onSilicon Valleycommercial real estate leaving the launching pad and climbing back toward sustainable levels. No one expects rents to go through the stratosphere, but after being exceptionally low for the past five years or so, lease rates on commercial real estate are due for a significant rise. Business owners and property investors who are sitting on the sidelines trying to time the market would be well advised not to wait any longer.

Let’s turn back the calendar a few years to understand what is going on. Following decades of steady appreciation in property values and healthy rental levels, the dot-com explosion of the mid- to late-1990s sent commercial real estate rents through the roof. The belief that almost any idea involving the Internet was a money-maker created a tremendous demand for commercial space inSilicon Valleyby venture capital-based dot-com startups. But as so often happens, when the dot-com bubble burst in 2001, the overheated market cooled off quickly, driving rents down. Enormous amounts of inventory—at one point as much as 60 million square feet of space by some estimates—stood vacant. It was a renter’s market; companies leasing space felt they had the upper hand in negotiations with property owners.

Today, there are clear signs the commercial real estate market has come back into balance, after the rollercoaster ride of the past decade.

• Lincoln Property just purchased the four-building, 15-acre former Acer Computer campus on Trimble Road in San Jose for $27 million—handing Apollo Real Estate a tidy $8 million profit on the property it had bought less than a year earlier for $19 million.
• A joint venture between Westbrook Partners and Four Corners Properties just laid out $94 million forMontagueParkinSan Jose, providing the previous owners a $19 million profit in just 15 months.
• Significant rent increases of up to 30 percent have taken place over the past 12 months—with the upward trend especially noticeable on incubator spaces of 5,000 square feet or smaller.

“The evidence is indisputable,” said Ralph Borelli. “Big real estate companies are buying again inSilicon Valley. The bottom of the market for commercial real estate in the Valley was most likely reached in 2004 or early 2005. The rebound began in earnest last year, and this is fueling the rise in rents now being felt throughout the Valley.”

Multiple Contributing Factors

What is causing the recent increases in property values and rents? In Borelli’s opinion, there are several contributing factors:

• Strengthening job market—According to the Association of Bay Area Governments (ABAG), theSouthBayexperienced significantly stronger job growth than had been expected in 2006, increasing by 1.8%. TheSan Josearea outperformedCaliforniaand the nation, and in fact only trailed the combined San Francisco/San Mateo/Marin area andSolanoCountyin the creation of new jobs last year. ABAG expects the upswing to continue in 2007, with theSouthBaypredicted to add another 11,500 jobs—many in the technology sector.
• Rapidly decreasing inventories—With the job market on the rise, planning departments have approved the conversion of obsolete commercial and industrial property into residential space. Perhaps 25 percent of the vacant standing inventory has been or will be torn down for new housing by leading homebuilders such as KB Home, according to Borelli. At the same time, big-name businesses such as Google, Yahoo, and Apple have collectively purchased millions of square feet of space over the past several years—effectively removing these buildings from the rental base. This has decreased the vacancy rate for office space from 20 percent or more to approximately 10 percent, according to CoStar Group, the number one provider of information services to commercial real estate professionals in the U.S. and U.K. Industrial and “flex” space still shows slightly higher vacancy rates, but is definitely trending lower.
• Limited land—The Valley floor is largely built out. Unlike in the wide-openSacramentoarea or theCentral Valley,Silicon Valleyhas natural geographic obstacles to growth—the foothills on either side of the Valley—placing a finite limit on where building can be done. Open space regulations have slowed growth on hillsides, and areas such asSan Jose’sCoyoteValleyare still being held for future development. With so little vacant land available, land prices can’t help but increase.
• Rising construction costs—The cost of construction has also risen. It is simply more expensive today to build buildings than it was a decade ago. And the cost of new construction is considerably higher than renovating existing commercial/industrial space.

“The wild swings of the dot-com period are behind us,” Borelli remarked. “The most educated guess is that rents will quickly return to “pre-bubble” rates, as property owners look to get their economics back into line. Meanwhile, property values will resume their slow, but steady climb—makingSilicon Valleycommercial real estate a very good long-term investment.”

Important Implications for Business Owners

As business owners look to manage occupancy costs in the coming months and years, they have several viable options.

• Purchase space—Smaller companies and professional firms now have the same option of owning their own space as larger corporations. At business condominiums such as Borelli Investment Company’sJunctionOfficeCenteronJunction AvenuenearBrokaw RoadinSan Jose, down payments start at $29,900 with 90 percent financing available from the SBA. Sales prices for brand new office condos in the $10 million Junction renovation are actually below the replacement cost if that space had to be built from scratch. Further, business owners can take advantage of significant tax write-offs, and also enjoy the potential appreciation predicted for Valley real estate.
• Lease quality Class B space—Rents on much of the Class A space that has changed hands at large premiums over the past couple of years have already jumped. Now is the time to look for quality Class B incubator office space (5,000 square feet or less) and sign longer-term agreements that lock-in lease rates.

“As more property changes hands at increased prices, rental rates and property values are going to continue to climb,” Borelli commented. “The risk of less predictable markets is largely behind us. The time for businesses to act is now.”

Having celebrated its 50th anniversary last year, Borelli Investment Company is one of the oldest commercial real estate firms in the Santa ClaraValley. The company provides a full range of commercial real estate services—from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting www.borell-inv.com.

Having celebrated its 50th anniversary last year, Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley. The company provides a full range of commercial real estate services-from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting www.borell-inv.com.

Contact:
Ralph Borelli, CEO
Borelli Investment Company
1770 Technology Dr.
San Jose, CA 95110
Ph: 408.453.4700
Fax: 408.453.4636
E-mail: ralph@borelli-inv.com
http://www.borelli-inv.com

Higher sales prices, shrinking inventories, and growing construction costs are creating urgency for businesses looking for commercial space.

San Jose, Calif., February 1, 2007 — 5-4-3-2-1 Liftoff! That thundering you hear is the sound of lease rates on Silicon Valley commercial real estate leaving the launching pad and climbing back toward sustainable levels. No one expects rents to go through the stratosphere, but after being exceptionally low for the past five years or so, lease rates on commercial real estate are due for a significant rise. Business owners and property investors who are sitting on the sidelines trying to time the market would be well advised not to wait any longer.

Let’s turn back the calendar a few years to understand what is going on. Following decades of steady appreciation in property values and healthy rental levels, the dot-com explosion of the mid- to late-1990s sent commercial real estate rents through the roof. The belief that almost any idea involving the Internet was a money-maker created a tremendous demand for commercial space in Silicon Valley by venture capital-based dot-com startups. But as so often happens, when the dot-com bubble burst in 2001, the overheated market cooled off quickly, driving rents down. Enormous amounts of inventory—at one point as much as 60 million square feet of space by some estimates—stood vacant. It was a renter’s market; companies leasing space felt they had the upper hand in negotiations with property owners.

Today, there are clear signs the commercial real estate market has come back into balance, after the rollercoaster ride of the past decade.

• Lincoln Property just purchased the four-building, 15-acre former Acer Computer campus on Trimble Road in San Jose for $27 million—handing Apollo Real Estate a tidy $8 million profit on the property it had bought less than a year earlier for $19 million.
• A joint venture between Westbrook Partners and Four Corners Properties just laid out $94 million for Montague Park in San Jose, providing the previous owners a $19 million profit in just 15 months.
• Significant rent increases of up to 30 percent have taken place over the past 12 months—with the upward trend especially noticeable on incubator spaces of 5,000 square feet or smaller.

“The evidence is indisputable,” said Ralph Borelli. “Big real estate companies are buying again in Silicon Valley. The bottom of the market for commercial real estate in the Valley was most likely reached in 2004 or early 2005. The rebound began in earnest last year, and this is fueling the rise in rents now being felt throughout the Valley.”

Multiple Contributing Factors

What is causing the recent increases in property values and rents? In Borelli’s opinion, there are several contributing factors:

• Strengthening job market—According to the Association of Bay Area Governments (ABAG), the South Bay experienced significantly stronger job growth than had been expected in 2006, increasing by 1.8%. The San Jose area outperformed California and the nation, and in fact only trailed the combined San Francisco/San Mateo/Marin area and Solano County in the creation of new jobs last year. ABAG expects the upswing to continue in 2007, with the South Bay predicted to add another 11,500 jobs—many in the technology sector.
• Rapidly decreasing inventories—With the job market on the rise, planning departments have approved the conversion of obsolete commercial and industrial property into residential space. Perhaps 25 percent of the vacant standing inventory has been or will be torn down for new housing by leading homebuilders such as KB Home, according to Borelli. At the same time, big-name businesses such as Google, Yahoo, and Apple have collectively purchased millions of square feet of space over the past several years—effectively removing these buildings from the rental base. This has decreased the vacancy rate for office space from 20 percent or more to approximately 10 percent, according to CoStar Group, the number one provider of information services to commercial real estate professionals in the U.S. and U.K. Industrial and “flex” space still shows slightly higher vacancy rates, but is definitely trending lower.
• Limited land—The Valley floor is largely built out. Unlike in the wide-open Sacramento area or the Central Valley, Silicon Valley has natural geographic obstacles to growth—the foothills on either side of the Valley—placing a finite limit on where building can be done. Open space regulations have slowed growth on hillsides, and areas such as San Jose’s Coyote Valley are still being held for future development. With so little vacant land available, land prices can’t help but increase.
• Rising construction costs—The cost of construction has also risen. It is simply more expensive today to build buildings than it was a decade ago. And the cost of new construction is considerably higher than renovating existing commercial/industrial space.

“The wild swings of the dot-com period are behind us,” Borelli remarked. “The most educated guess is that rents will quickly return to “pre-bubble” rates, as property owners look to get their economics back into line. Meanwhile, property values will resume their slow, but steady climb—making Silicon Valley commercial real estate a very good long-term investment.”

Important Implications for Business Owners

As business owners look to manage occupancy costs in the coming months and years, they have several viable options.

• Purchase space—Smaller companies and professional firms now have the same option of owning their own space as larger corporations. At business condominiums such as Borelli Investment Company’s Junction Office Center on Junction Avenue near Brokaw Road in San Jose, down payments start at $29,900 with 90 percent financing available from the SBA. Sales prices for brand new office condos in the $10 million Junction renovation are actually below the replacement cost if that space had to be built from scratch. Further, business owners can take advantage of significant tax write-offs, and also enjoy the potential appreciation predicted for Valley real estate.
• Lease quality Class B space—Rents on much of the Class A space that has changed hands at large premiums over the past couple of years have already jumped. Now is the time to look for quality Class B incubator office space (5,000 square feet or less) and sign longer-term agreements that lock-in lease rates.

“As more property changes hands at increased prices, rental rates and property values are going to continue to climb,” Borelli commented. “The risk of less predictable markets is largely behind us. The time for businesses to act is now.”

Having celebrated its 50th anniversary last year, Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley. The company provides a full range of commercial real estate services—from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting www.borelli.com.
Having celebrated its 50th anniversary last year, Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley.  The company provides a full range of commercial real estate services-from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting www.borelli.com.

Contact: Ralph Borelli, CEO Borelli Investment Company 1770 Technology Dr. San Jose, CA 95110 Ph: 408.453.4700 Fax: 408.453.4636 E-mail: ralph@borelli.com http://www.borelli.com

Major Land Sales at Old Hacienda Gardens Shopping Center

Announcing the Approval and Sale of the North Half of the Hacienda Gardens Shopping Center on September 22, 2005 San Jose, California

Now called Willow Glen Place

A 206 Unit Residential   Townhome Community will be Developed by Toll Brothers

Borelli Investment Company would like to thank:

The Sellers: KT Properties The Buyers: Toll Brothers The City of San Jose

Brokered by: Ralph Borelli and Tom Zolezzi

Patricia Robinson and Ron Van Wagner Win Borelli Broker “Race”— Get Luxury Treatment and Exclusive Trackside View

The San Jose Grand Prix is indeed “more than a race” as its slogan declares. While Sebastien Bourdais was steering his #1 McDonald’s Ford-Cosworth/Lola/Bridgestone to victory on the tight 1.44 mile downtown circuit, Canary Foundation was raising approximately $1,070,000 to further its goal of finding new ways to detect cancer at its earliest, most curable stages.

Meanwhile, Borelli Investment Company was doing its part to support both the race and the fundraising efforts. Ralph Borelli auctioned rides in his vintage #22 Maxwell House stock car—a former pole sitter at the NASCAR Daytona 500—with all the money going to the charity.

In addition, the company offered a series of prizes for anyone who closed a deal or referred leads for office condominium sales, sales and leases of other Borelli properties, or property management contracts. First through third place awards included seats in Borelli Investment Company’s two-story, luxury trackside suite, pit crew access, cash vouchers, and for the grand prize winners—rooms for the weekend at the Hilton hotel. Everyone who closed a deal or made a referral got grandstand seats to see the race.

The top producers for 2006 were brokers Patricia Robinson and Ron Van Wagner of Grubb & Ellis, who worked together on a transaction to purchase office condo suites 128 and 138 at Borelli’s Junction Office Center in San Jose.

Congratulations to Patricia and Ron, and thanks to all who contributed to Canary Foundation or supported this great motor sports event that continues to gain traction in San Jose. See you at the starting line next year!

For years, Morgan Hill residents have had to do the majority of their shopping in neighboring communities to the north or south—San Jose or Gilroy. Little did they know that behind the scenes, Borelli Investment Company was quietly looking for a way to put together a land transaction that would lead to the largest retail project in Morgan Hill’s history.

In 1976, Ralph Borelli began talking to a group of landowners, including the Guglielmo family of the winery that bears its name, about selling their land for development. Various obstacles arose—complications due to land being passed from one generation to another, entitlement issues, and zoning changes—and nothing happened. At one time or another, other developers tried to build homes and then office buildings, but each time, failed negotiations and litigation caused the land to remain barren.

Then, not quite three years ago, Borelli saw another opportunity. Negotiations began again, with J.P. DiNapoli Companies, Inc. and Browman Development Company laying plans for a contemporary 650,000 square foot, 66-acre retail center anchored by a Super Target store. After nearly three decades of behind-the-scenes spadework, Borelli was finally able to bring together the patchwork of parcels to complete the land transaction and pave the way for construction to begin.

“One parcel had been owned by the Guglielmo family for more than 80 years,” said Borelli. “Another parcel had multiple owners with varying interests and concerns. Finding the right terms to ensure the transaction was acceptable to all the landowners and the developers, and would also meet the city’s general plan provisions, was not easy.”

Perfect Fit for Morgan Hill

The new shopping center will feature retail businesses that will minimize competition with Morgan Hill’s revitalized downtown. Its contemporary, art deco design will also set it apart from the traditional indoor mall or “big box” retail centers surrounded by acres of concrete and asphalt. The buildings will be very colorful, washed in bright earth tones that fit well with the surrounding hills and valley floor. Shoppers will enter off Cochrane Road by driving up a main boulevard that runs between the buildings. The buildings will also be connected by pedestrian walkways with courtyard-like gathering places.

In addition to the 127,000 square foot Target, major anchor tenants signed for the center include Petco, Staples, and Cost Plus World Market. Shoppers can also expect a choice of national restaurant chains. The center is scheduled to open in the summer of 2007.

“We wanted to bring the South Valley something unique,” said John B. DiNapoli, vice president of JP DiNapoli Companies. “This center will offer South Valley residents a shopping experience they can’t find elsewhere.”

Persistence Pays Off

The 30-year effort to secure a deal was the longest of Ralph Borelli’s career, which has been marked by numerous awards for his ability to complete complicated land transactions.

“Sometimes, it just takes time,” commented Borelli. “Very few land transactions in Silicon Valley are simple any more. Fortunately, our firm has the skills and experience to keep working on a transaction like this and help make a much needed shopping center a reality.”

 Named Best Renovated Building of 2006 by Building Owners and
Managers Association – Silicon Valley

San Jose, Calif., October 18, 2006 — Borelli Investment Company’s Junction Office Center, a two-building, 77,000 square foot office condominium complex at 2051-2055 Junction Avenue in North San Jose, has been named Best Renovation of 2006 by the Building Owners and Managers Association (BOMA) Silicon Valley. Offering 52 units from 750 to 3,000 square feet,JunctionOfficeCenterhas been another in a series of successful business condominium projects for Borelli, with more than 50 percent of the complex already sold or in escrow. Businesses can buy—not lease—space at Junction, and enjoy all the tax benefits and potential long-term appreciation usually available only to larger organizations capable of purchasing an entire building.

Originally built in 1984, the two two-story buildings set around a central courtyard had aged significantly over the years. Borelli Investment Company invested nearly $10 million in the renovation, completing a sweeping upgrade that included a new roof, sophisticated new heating and air conditioning system that offers better zone control and greater efficiency, upgraded elevators, completely redone restrooms with showers, ADA improvements, a full seismic retrofit, a new parking lot, and extensive landscaping. A new facade brought out the sweeping glasslines and saw the addition of awnings over the two entrances. The elegant lobbies feature high ceilings and polished granite floors, with a number of works of art as added touches.

“Borelli Investment Company has a distinguished reputation for the work they do in commercial real estate development and management,” said Robert Jacobvitz, executive director of BOMA Silicon Valley. “The judges were impressed with the high quality of the retrofit.JunctionOfficeCenterhas a unique role as an office condominium created from old concrete tilt-up buildings. This is a very good example of Borelli’s innovative business model, and may be the wave of the future inSilicon Valley.”

Many Business Conveniences

Each of the 52 office suites is fully carpeted and includes a coffee bar with sink and cabinets. Condo owners are provided individual controls for heating and air conditioning, have separate metering for electrical usage, and enjoy high-speed web browsing and Internet access over the building’s T1 line as part of their regular association dues. Additional customizing is easy, because businesses own, not rent, the space.

All owners can use the state-of-the-art common conference room with the latest meeting support tools such as large-screen video, Web-based videoconferencing, audioconferencing, and PowerPoint capabilities.

JunctionOfficeCenter’s location in the heart of the technology-rich Golden Triangle—formed by the intersections of I-880, Hwy 101, and Hwy 237—reduces commutes and makes it easy to see clients any time of the day. The complex is close to a VTA light rail station and a short drive toMinetaSan JoseInternationalAirport. The generous parking ratio of 5.3 spaces per 1,000 square feet provides plenty of spots for employees and customers, and on-site services include UPS, FedEx, and US Postal Service drop boxes.

“We are so enthusiastic aboutJunctionOfficeCenterthat we recently purchased several units and moved our company into 5,500 square feet of space there,” remarked Tom Purtell, chief operating officer of Borelli Investment Company. “We are pleased to have been chosen by BOMA Silicon Valley for this honor, and think this speaks to the quality and attention-to-detail owners will find at Junction. This is an office smaller businesses will want their customers to visit, again and again.”

Interested businesses can learn more about JunctionOfficeCenterby contacting Larry Bengiveno at Borelli Investment Company at (408) 453-4700 or larry@borelli.com.

About BOMA Silicon Valley
BOMA Silicon Valley has served the commercial real estate industry for over 22 years. Founded in 1983, BOMA Silicon Valley today represents well over 75 million square feet of commercial real estate inSilicon Valley. The Association is dedicated to professional, ethical property management and provides its members with legislative advocacy, industry information, educational opportunities, and a forum for networking with peers.

Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley, with more than 50 years of experience. The company provides a full range of commercial real estate services—from development and property management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or going to www.borelli.com

Contact:
Buddy Parsons, President
Borelli Investment Company
2051 Junction Avenue, Suite 100
San Jose, CA 95131
Ph: 408.453.4700
Fax: 408.453.4636
E-mail: info@borelli.com
http://www.borelli.com

Borelli’s Junction Office Center Wins BOMA Award Named Best Renovated Building of 2006 by Building Owners and  Managers Association – Silicon Valley

San Jose, Calif., October 18, 2006 — Borelli Investment Company’s Junction Office Center, a two-building, 77,000 square foot office condominium complex at 2051-2055 Junction Avenue in North San Jose, has been named Best Renovation of 2006 by the Building Owners and Managers Association (BOMA) Silicon Valley. Offering 52 units from 750 to 3,000 square feet, Junction Office Center has been another in a series of successful business condominium projects for Borelli, with more than 50 percent of the complex already sold or in escrow. Businesses can buy—not lease—space at Junction, and enjoy all the tax benefits and potential long-term appreciation usually available only to larger organizations capable of purchasing an entire building.

Originally built in 1984, the two two-story buildings set around a central courtyard had aged significantly over the years. Borelli Investment Company invested nearly $10 million in the renovation, completing a sweeping upgrade that included a new roof, sophisticated new heating and air conditioning system that offers better zone control and greater efficiency, upgraded elevators, completely redone restrooms with showers, ADA improvements, a full seismic retrofit, a new parking lot, and extensive landscaping. A new facade brought out the sweeping glasslines and saw the addition of awnings over the two entrances. The elegant lobbies feature high ceilings and polished granite floors, with a number of works of art as added touches.

“Borelli Investment Company has a distinguished reputation for the work they do in commercial real estate development and management,” said Robert Jacobvitz, executive director of BOMA Silicon Valley. “The judges were impressed with the high quality of the retrofit. Junction Office Center has a unique role as an office condominium created from old concrete tilt-up buildings. This is a very good example of Borelli’s innovative business model, and may be the wave of the future in Silicon Valley.”

Many Business Conveniences

Each of the 52 office suites is fully carpeted and includes a coffee bar with sink and cabinets. Condo owners are provided individual controls for heating and air conditioning, have separate metering for electrical usage, and enjoy high-speed web browsing and Internet access over the building’s T1 line as part of their regular association dues. Additional customizing is easy, because businesses own, not rent, the space.

All owners can use the state-of-the-art common conference room with the latest meeting support tools such as large-screen video, Web-based videoconferencing, audioconferencing, and PowerPoint capabilities.

Junction Office Center’s location in the heart of the technology-rich Golden Triangle—formed by the intersections of I-880, Hwy 101, and Hwy 237—reduces commutes and makes it easy to see clients any time of the day. The complex is close to a VTA light rail station and a short drive to Mineta San Jose International Airport. The generous parking ratio of 5.3 spaces per 1,000 square feet provides plenty of spots for employees and customers, and on-site services include UPS, FedEx, and US Postal Service drop boxes.

“We are so enthusiastic about Junction Office Center that we recently purchased several units and moved our company into 5,500 square feet of space there,” remarked Tom Purtell, chief operating officer of Borelli Investment Company. “We are pleased to have been chosen by BOMA Silicon Valley for this honor, and think this speaks to the quality and attention-to-detail owners will find at Junction. This is an office smaller businesses will want their customers to visit, again and again.”

Interested businesses can learn more about Junction Office Center by contacting Larry Bengiveno at Borelli Investment Company at (408) 453-4700 or larry@borelli.com. Businesses can also visit the web site at www.junctionofficecondos.com.

About BOMA Silicon Valley         BOMA Silicon Valley has served the commercial real estate industry for over 22 years. Founded in 1983, BOMA Silicon Valley today represents well over 75 million square feet of commercial real estate in Silicon Valley. The Association is dedicated to professional, ethical property management and provides its members with legislative advocacy, industry information, educational opportunities, and a forum for networking with peers.

Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley, with more than 50 years of experience. The company provides a full range of commercial real estate services—from development and property management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or going to www.borelli.com

Contact: Buddy Parsons, President Borelli Investment Company   2051 Junction Avenue, Suite 100 San Jose, CA 95131 Ph: 408.453.4700 Fax: 408.453.4636 E-mail: info@borelli.com

http://www.borelli.com

If you are a real estate investor, here’s a question: when did you last review your real estate portfolio? Just like your stock portfolio or insurance policies, your real estate investments should receive an annual review.

Markets change, properties age, interest rates move up and down — all these factors make it a good idea to sit down with a professional and review your real estate investments regularly. In this issue of Borelli Investment Company’s Commercial Real Estate Insider, we provide four tips for your next review.

“It just makes good sense to do a comprehensive review of your real estate investments, from time to time,” explained Ralph N. Borelli, chief executive officer of Borelli Investment Company. “This will better enable you to decide whether to stand pat, or reposition or redeploy any of your invested capital.”

Tips for a Successful Real Estate Investment Review

• Learn the ABCs about ROE
• Estimate projected income going forward
• Evaluate capitalization rates
• Go beyond the numbers

The ABCs of ROE

The first thing you should do is analyze your return on equity (ROE) on an annual basis. This is really the return on imputed equity—based on the expected sales price of a property, less debt and closing costs. By dividing your current cash flow by the imputed equity you have in a property, you can calculate your current ROE.

“Many people will hold a property for years, never realizing that the annual ROE is two or three percent,” Borelli explained. “Holding a property for another year is a little like buying it again; there are other investment opportunities for that money. So, if you’re aware of what your return is, you can make better decisions.”

Crystal Ball Gazing – With Help

The next step involves evaluating a property’s rent prospects going forward, over perhaps one to five years. This type of crystal ball gazing is best done with the help of a real estate investment professional you trust.

“If you anticipate that rents will rise or fall—driving your ROE higher or lower—this could impact your decision of whether to hold or sell a property,” commented Borelli. “Looking ahead is critical, because it helps to stay ahead of the herd when buying or selling.”

Other important considerations include whether major capital expenditures will be required for roofs, mechanical systems, structural improvements, parking lots, or similar upgrades. In addition, lease roll-over exposure can significantly impact your operating cash flow.

Calculating the Cap Rate

Step three in a detailed analysis involves computing the capitalization (cap) rate, another measure of value in real estate investments. The cap rate is calculated by dividing a property’s annual net operating income over its projected sales price.

While it was common a few years ago for cap rates to be 8.5 to 9.0 percent, those rates have declined recently as investors appear willing to pay more to buy properties producing less net operating income. The cap rate can be very helpful in gauging the appetite of buyers before deciding whether to sell or hold a property.

Going Beyond the Numbers

The final step in analyzing your real estate investments has nothing to do with numbers. Instead, it has everything to do with you and your life objectives and circumstances. Sometimes, a decision to sell may be driven by estate planning needs, or gifting desires. You may simply be at a point where you want to slow down a bit, and reduce your risk, or the opposite—where you are willing to assume more risk in hopes of earning a higher return. Or, you may simply decide it’s time to do something else with your money. Any of these reasons could be valid considerations in reviewing your real estate portfolio.

“At Borelli Investment Company, we work with many clients to help them review their holdings as needed,” Borelli said. “A regular review of your investments will help ensure that your portfolio keeps working hard for you, through up and down cycles year after year.”

Fall has arrived, and with it, the certainty that the end of another year can’t be far away. If you’re like most people, you know you should be doing tax planning to reduce your tax liability if possible, but you’re not sure where to start.

“One of the best deductions available today is for purchases of business real estate,” said Buddy R. Parsons, president of Borelli Investment Company. “And there’s no easier way for companies and professional firms of all sizes to invest in real estate than by buying their own business condominium.”

Borelli Investment Company is a leader in business condominiums, with a wide range of office condos of all sizes at Junction Office Center and AirTech Office Condominiums in San Jose. With a down payment of as little as $36,500, companies can own rather than lease space and gain a number of significant financial benefits, which include:

IRC Section 179 Deduction

This section of the tax code allows business owners to deduct up to $108,000 from company profits for a business asset in the first year it’s placed into service—whether that asset is computer equipment or an office condominium. One way to take advantage of the Section 179 deduction is to use an accounting method called cost segregation. This is the process of identifying and segregating building components by their true useful lives—5, 7, 15, or 39 years—for accelerated depreciation. Under Section 179, you can deduct the cost of certain classes of assets against taxable income in the first year—up to the $108,000 maximum.

And here’s the best part. For a Section 179 deduction (you can also read about Section 179 from the IRS website) all you have to do is place the asset in service before the end of the year, and you qualify for a full-year deduction. That makes closing a transaction on a business condominium in the coming weeks one of the best things you can do to reduce your taxes!

Additional Benefits of Cost segregation

In addition to supporting IRC Section 179 deductions, cost segregation enables you to depreciate the portion of a building’s costs that support personal property or are directly related to your business activities over much shorter lifetimes than the standard 39 years for commercial property.

Accelerating the depreciation of a substantial portion of your office condominium’s value can significantly increase your write-offs in the early years, generating considerable upfront savings. This savings—plus the Section 179 deductions—has reduced the effective out-of-pocket costs for the down payment for many buyers to nearly zero. Imagine purchasing a business condominium with no net out-of-pocket costs!

Businesses also can deduct loan interest and other typical costs of doing business from their taxes.

Long-term appreciation

Owning your business property also lets you enjoy the expected appreciation over time that has long been associated with prime real estate in Silicon Valley. An office condominium gives you a much more affordable way to “get in” and start enjoying the benefits of business property ownership.

For more information about how tax and other financial opportunities apply at Borelli Investment Company’s Junction Office Center and AirTech Office Condominiums, contact Larry Bengiveno at (408) 453-4700 or larry@borelli.com. Be sure to check with your CPA about how specific benefits will impact your personal financial situation before buying.

Borelli Investment Company Relocates to Junction Office Center

Buying into Business Condominiums Benefits

How do you know if a real estate firm is giving you a straight story? When it follows its own advice! For several years, Borelli Investment Company has been extolling the benefits of property ownership through business condominiums. In mid-September, the company became one of the many satisfied owners at the 2006 BOMA award-winning Junction Office Center—relocating to the ground floor of the two-story building at 2051 Junction Avenue, Suite 100, near Brokaw Road in San Jose.

“We no longer owned or managed the building we had occupied for a number of years on Technology Drive in San Jose,” said Buddy R. Parsons, president of Borelli Investment Company. “We realized Junction Office Center provided the perfect answer. It’s in a great location. The space is first class, so it will project a highly professional image to our clients. And, as owners, we’ll get all of the benefits we’ve talked about since we began selling business condominiums: tax advantages, including special tax credits, equity growth, potential appreciation, and more.”

5,500 Square Feet in Offices

Borelli Investment Company occupies approximately 5,500 square feet, about the same amount of space it had been using at its Technology Drive offices. In addition to its own space, company employees will enjoy access to amenities such as large common conference rooms with the latest video and other high-technology equipment, showers in the brand new multi-stalled restrooms, high-speed Internet service, the latest heating and air conditioning systems for a comfortable work environment year-round, and new elevators. Other improvements as part of Junction’s $10 million renovation include ADA accommodations, extensive landscaping, and a new roof.

Borelli clients will enjoy plenty of convenient parking, right at the door. The two-building office center is located in the heart of the famous Golden Triangle, formed by the intersections of I-880, Hwy 101, and Hwy 237. This will make for easy commutes by car—with light rail only a few blocks away.

“We really do believe that business condominiums make absolute sense for companies of any size—including ours,” Parsons explained. “When we got the opportunity to ‘put our money where our mouth is’, so to speak—we made the move.”

Junction Office Center offers a total of 52 office condos in the two, two-story buildings set around a central courtyard. More than 50 percent of the project is already sold or in escrow. For more information, contact Larry Bengiveno or call (408) 453-4700. Interested parties can click on the Junction logo at the bottom of this page.