Southern California Industrial Real Estate Blog

State of the Commercial Loan Market

By Robert Schroell

The rough ride isn’t over the for the commercial loan market.

Community banks in particular will likely have a tough time in 2010. Hundreds of regional institutions have a significant chunk of their loan portfolios ― up to and exceeding a quarter in some places ― in commercial mortgages.

At the same time, commercial debt is coming due at a staggering rate. The market will need about $1 trillion to service more than $3 trillion in commercial mortgage debt, according to a recent forecast by Keefe, Bruyette & Woods, a well-known New York analyst.

That’s likely to make cash a disappearing commodity, primarily for the banking industry. In fact, experts at Keefe, Bruyette & Woods are urging banks to consider offering extensions to cash-strapped homeowners, many of whom have struggled to refinance their existing mortgages.

A significant slew of delinquencies in CMBS (commercial mortgage-backed securities) and bank loans is also expected to shape the course of 2010. It’s also almost difficult to imagine CMBS delinquencies getting any worse ― the rate skyrocketed an astounding 500 percent last year, jumping past 6 percent in December 2009 for the first time ever.

The governor of the Federal Reserve Board recently tried to rally optimism, noting that recovery should begin to take root as the year progresses. But those rosy projections didn’t include the commercial real estate market, which continues to flounder amid strained credit conditions and stagnant refinancing.

All in all, it’s a less than inspiring picture of what’s likely on the horizon.

“We estimate that the weighted average price decline for the commercial mortgage market is roughly 25%,” the experts at KBW state in their analysis. “This suggests that almost all the equity in the commercial sector has been wiped out.”

Fortunately… there’s pretty much no place else to go but up.

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http://www.mortgageloanplace.com/commercial-mortgage.html

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URGENT! CONTACT YOUR CONGRESSMAN TO AVOID COMMERCIAL REAL ESTATE TAX HIKES

Action to Oppose More Than Doubling of Taxes on Real Estate Carried Interests

Edited by Jodi Summers

In early December, Congressman Charles Rangel Ways, chairman of the Ways and Means Committee of the House of Representatives, introduced the “Tax Extenders Act of 2009″ (H.R. 4213). Wrapped in this legislation package is a proposal that would more than double the taxes on carried interest received by general partners in real estate partnerships. Under this legislation, carried interest would no longer be taxed as capital gains at 15 percent, but as ordinary income at rates as high as almost 35 percent…making everyone’s investment real estate holdings a lot less sexy.

Kick us while we’re down. Those investing in commercial real estate are already feeling economic distress because of the decline of property values and the lack of loans available. The proposed legislation would more than double the taxes imposed on many real estate entrepreneurs.

If H.R. 4123 enacted into law, this proposal could be the largest modification to the taxation of real estate since the Tax Reform Act of 1986.

This bill was past stealthfully, proposed on December 7^th, it bypassed the customary legislative process, bypassing the House Ways and Means Committee, and going directly to the House floor for a vote on December 9, reducing meaningful opportunities to amend the bill.

Safeguard your real estate assets; communicate with your Congressional Representatives and Senators! Let them know that this tax increase on carried interest will further damage the commercial real estate industry and undermine efforts in their own communities to spur job growth and economic recovery.

http://www.capwiz.com/naiop/issues/alert/?alertid=14439831&type=CO has letters ready to go to your congressmen.

Save your assets and contact them.

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http://www.capwiz.com/naiop/issues/alert/?alertid=14439831&type=CO

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COMMERCIAL LOANS SHOULD BE EASIER TO COME BY

PERHAPS COMMERCIAL LOANS WILL BE EASIER TO COME BY

The Federal Reserve authorized longer- term loans for investors buying securities backed by commercial mortgages in a $1 trillion emergency credit program, taking a step the industry said was needed to avert defaults.

Beginning in June, the Fed will offer five-year loans at higher interest rates than the three-year loans previously approved for the Term Asset-Backed Securities Loan Facility, the central bank in a statement from Washington. The Fed will also accept securities backed by loans designed to help small businesses buy insurance.

Get all the details @

http://www.bloomberg.com/apps/news?pid=20601068&sid=asH8tMd6ss4c

ECONOMIC STIMULUS FOR SMALL BUSINESS

 ECONOMIC STIMULUS FOR SMALL BUSINESS

 by Jodi Summers

Everyone is bitching about how the Economic Stimulus Bill does nothing to benefit small businesses. Okay, so maybe it isn’t everything the Republicans had hoped for, but as BusinessWeek.com astutely points out, President Obama’s bill contains several tax provisions designed to assist small businesses struggling through a tough economic times.

Net operating loss carryback. If your business operated in the red in 2008, but paid taxes on profits in the past five years, you can apply last year’s loss to prior-year taxes—and possibly get a refund on taxes you’ve paid in the past. It’s a bit like reassessing your property value.

 Deduct and depreciate equipment. Companies that bought new equipment in 2008 can treat it as an operating expense and immediately deduct the whole amount up to $250,000, a $117,000 increase over its previously scheduled limit.

 Shorter holding period for S-Corps. “This shortens the period that S-corp assets can be sold without paying taxes on built-in gains,” explains BusinessWeek.com. “A built-in gain is the difference between the fair market value of the assets and their tax basis at the time the company put an S-corp in place. The impact of this is that many business owners will be able to retire earlier without facing two layers of taxation.”

http://www.realtor.org/RMODaily.nsf/pages/News2009022401?OpenDocument

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BARKER PACIFIC GROUP IS READY TO BUY AS VALUES READJUST

BARKER PACIFIC GROUP IS READY TO BUY AS VALUES READJUST

Barker Pacific Group has a new strategy. The LA-based investment and development firm has two new principals and plans to raise $300 million of new equity to acquire distressed and value-added commercial real estate notes and properties.

The company is targeting leverage ratios in the range of 50% and is looking for both performing and nonperforming properties and notes. It has already acquired a note that is performing but is going to be coming due, and it is considering another that is performing that it would acquire at a discount.

Although Barker expects that commercial real estate foreclosures will increase, he anticipates that most of the opportunities to acquire distressed assets will arise from the financing problems that borrowers will face when their loans mature. Borrowers who financed properties two or three years ago may find that those assets have declined in value, so they won’t be able to refinance them at the same loan-to-value ratios and may well face huge capital requirements, he points out.Barker says that other opportunities for value-add acquisitions may arise in a variety of situations, such as when a lease rolls over and a major tenant vacates a building. Value-add is a loosely defined term, he observes, but most people think of the phrase in terms of properties that require some work to be done, such as finding tenants for empty space or investing in capital improvements.

Get the whole story @

http://www.cityfeet.com/News/NewsArticle.aspx?Id=31664

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Industrial Real Estate News is Neither Good or Bad

Industrial Real Estate – the News is Neither Good or Bad

Industrial real estate is doing not much of anything these days, according to the National Association of Realtors Commercial Real Estate Outlook. As you’ve notice, commercial lending has all but halted and with the exception of cash transactions. Investment activity in commercial real estate sectors is nearly at a standstill, while job losses are curtailing the demand for owner/user space. Default rates remain low.

“Although access to residential mortgages has improved, the opposite is true for commercial loans,” confirms Lawrence Yun, NAR chief economist. “We need liquidity for commercial mortgage-backed securities not only to free the market, but also to rollover existing debt. At the same time, the loss of jobs has had a significant impact on the demand for commercial space.”

The industrial sector has been holding up fairly well based on the strength of exports, but the global economic slowdown will take a toll. Nationally, vacancy rates in the industrial sector are forecast to rise to 12.1 percent in the third quarter of 2009 from 10.7 percent in the third quarter of this year. Los Angeles, of course, is among the industrial markets with the tightest vacancy rates of 6.8 percent or less.

Areas with the highest vacancies include Detroit, Stamford, Conn., and Phoenix, with vacancies of at least 15.7 percent.

Annual rent is estimated to ease down 0.8 percent this year and decline another 4.0 percent in 2009.

With vacancies rising and rents declining, “The pendulum has swung from landlords to tenants for the first time since 2003 as…reduced demand is putting pressure on rents across the region,” director Delores Conway of the Casden Real Estate Economics Forecast observes. Conway says, “Credit-worthy tenants should be able to renegotiate leases to their advantage, and all-cash buyers will find well-priced properties in prime locations.”

http://www.realtor.org/RMODaily.nsf/pages/News2008121701?OpenDocument

http://www.626nlabreave.jodisummers.com

PRIVATE INVESTORS ARE DOING INDUSTRIAL LOANS

PRIVATE INVESTORS ARE DOING INDUSTRIAL LOANS

by Jodi Summers

Perhaps the reason foreign auto makers are surviving is because they’re getting more creative about their loans. An Orange county investor-developer has refinanced the 345,410-square-foot Nissan Motors building along the north side of the 405 Freeway, lending approximately $11.2 million -  despite the nearly frozen credit markets.

As GlobeSt.com reports, the borrower was able to secure the new financing for the 33-year-old property, a single-story industrial building that is 100% leased to Nissan Motor Corp. The silver lining is that although financing is difficult, a solid buyer and a good purchase team can still secure a number of competitive bids for the financing. The lender in this case was Minnesota Life Insurance Co. The SoCal Investment Real Estate Group can assist you in putting together a strong financing package. Please contact Jodi Summers -  jodi@jodisummers.com for more information.

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http://www.globest.com/news/1303_1303/orangecounty/175667-1.html

THE HISTORY OF THE FINANCIAL BUBBLE

THE HISTORY OF THE FINANCIAL BUBBLE

Allegedly, the first recorded speculative financial bubble occurred in the Netherlands in the 1630s when, according to Wikipedia, tulip contracts sold for 20 times the annual income of a skilled craftsman. When tulip prices came crashing down so did the economy, according to reports that have not been sufficiently documented for historians to conclude exactly what occurred.

sources:

http://www.flickr.com/photos/jimg944/2229214461/

http://www.inman.com/news/2008/10/23/dutch-toughen-downturn