Long, but very, very informative. this report gives a very sober view of the current Commercial Real Estate and banking Situation.

Download it and take a few minutes to scroll through and just look at the many excellent graphs and charts in it (Open in Adobe Reader and press Ctrl+L to get a full screen view and use the "Page Down" button on your keyboard to rapidly page through it).

Periodically, Bruce Yandle of Clemson University's Economics Department issues a concise report on the economy. He does a nice job of being brief, yet informative.

Click here for the March 2010 version.

The Economic Situation - March 2010

Like everybody else in real estate, I am constantly talking to the banks about their properties. The general wisdom is that the banks have lots of properties they must dump on the market and this will cause the prices to plummet. So it is interesting to consider the actual actions of the banks and the positions they take regarding their bank owned property.

Two years ago, when banks we actually making loans to buy investment property the situation played out something like this:

You go to a bank to borrow money to buy investment real estate, and you must demonstrate to the bank how that property will generate sufficient cash to pay the debt service plus a healthy 25% safety margin (DCR = 1.25). They have no interest in pro forma profit and loss statements, don't care to hear your optimistic projections and are downright pessimists.

Generally, to borrow money to buy investment properties we have to show at least two years of financials for the property, showing appropriate reserves, good management, and plenty of cash to pay the note. They subtract 6% of your gross income to cover vacancies and apply a debt coverage ration (DCR) of 1.25% to the NOI further reducing the amount of money they will loan you against the property.

Some banks deviated from these general guidelines, and they are by and large the ones in trouble.

Fast forward to today - The banks have foreclosed on many properties, now own them, and are trying to sell them (or sell the notes if they haven't foreclosed yet).  However the deals they are offering, they themselves wouldn't finance. The general suggestions I get is that the buyer should use a forward looking (24 month) pro-forma P&L to justify the purchase.  Ludicrous at best.

The Fed is allowing banks to hold many of these properties on their books for 3 years (in the recent past they had to get rid of them immediately) and it appears that the banks are going to take a wait and see attitude.

Investors are beginning to show an appetite for bonds backed even by the weakest real estate sector and no government support.  The commercial mortgage bond securitization window that has been closed for nearly two years during this recession has reopened for business in the last few weeks and investors have lined up encouragingly to take advantage of a new round of CMBS offerings. Several investment banks have announced that they are firing up their conduit lending programs and will begin to originate and warehouse loans for multi-borrower securitizations, said Chris Moyer, an associate with Cushman & Wakefield Sonnenblick-Goldman in New York.

At least three have publicly announced, or are actively discussing, such programs, while others, have brought on senior managers who have experience building conduit-lending platforms. The active banks are Goldman Sachs, Bank of America and JPMorgan. Word on the street is that RBS and Deutsche Bank are also ramping up securitization activity. As CoStar reported recently, Developers Diversified Realty Corp. and Goldman Sachs Commercial Mortgage Capital got the ball rolling through a new $400 million securitization backed by bricks-and-mortar assets. That deal was driven in part by the availability of inexpensive funds from the federal government's Term Asset-Backed Securities Loan Facility (TALF), which the Federal Reserve initiated to help "jump-start" the securitization market. The DDR deal was significant in that even though it was backed by retail, one of the weakest performing properties in this recession, it demonstrated strong investor demand and set a benchmark for potential issuers considering similar transactions. In fact, since then, two new deals have either come to market or will shortly, but importantly, neither is relying on government support.

Next up is a new CMBS for the $500 million senior portion of a $625 million JP Morgan deal for Inland Western Retail Real Estate Trust Inc., which will also be issued without utilizing the TALF program and again is supported by retail property. Inland Western Retail obtained the newly secured loan from JPMorgan Chase Bank on a portfolio of 55 retail properties in 23 states in a joint venture owned by Inland Western and principals of The Inland Real Estate Group Inc. The portfolio contains 22 grocery-anchored centers (32.3% by allocated loan amount). "The closing of this non-recourse secured debt financing is a significant accomplishment, as we have now addressed virtually all of our 2009 maturing debt and a substantial portion of our debt maturing in 2010," said Steven Grimes, CEO of Inland Western.

All three new issues have involved single borrower entities, which have not made up the bulk of CMBS deals in the past. And single-borrower deals likely will be the case going forward, according to analysis by Standard & Poor's. "In the near term, we expect to see single-borrower transactions as the first ones to be securitized," S&P wrote in a recent report. "The underlying loans will likely be to REITs and institutional owners/operators with unencumbered assets or assets with low leverage. Other potential issuers include finance and insurance companies with real estate holdings and seasoned loan pools on their balance sheets, or the ability to leverage their balance sheets to originate new loans." "We expect the loans to be smaller than in the recent single-borrower transactions, with lower all-in leverage, little or no additional debt held outside the trust, five-year loan terms with 25- or 30-year amortization schedules, and terms and conditions that are more lender-friendly. The properties are likely to be underwritten more conservatively, with higher vacancy assumptions and in-place rents (without the projected upside that may have been factored into recent-vintage loans). In fact, it is possible that property values will reflect a downward trend or an expectation that rents and occupancies may fall further," S&P wrote.

Only time will tell whether these welcomed new transactions will mark a return to more normal levels of availability of credit for commercial real estate, and the timing could not be better with billions of dollars of CMBS maturing next year and beyond.

This is from Brad Cox at Thomas D Wood and Company in his newsletter on December 14th.

If you are a small business owner and even considering purchasing commercial property, now is the time. Interest rates are at an all time low, SBA loans will allow you to get in with 10% down and property prices have rolled back 10 years.

The recent Sunday Edition of the St. Pete Times had a nice article on 504 and 7A loans (by Jeff Harrington). Excellent article and I wanted to add an important point. While the big banks have certainly curtailed SBA loans, the small banks seem to have stepped up and are writing more.

Based on my experience, Bank of America is one of the most difficult for the small business person to get any loan from, SBA or otherwise. And the recent recession has made that even worse.

The small local and regional banks, on the other hand, are working hard to pick up the slack.

In addition there are two local, non profit, firms, that facilitate the SBA 504 loans and they are doing a very good job.

Among those that I have talked to who are actively doing SBA 504 loans are:

• Regions Bank
• Suntrust Bank
• Florida Bank (Used to be named Bank of St. Petersburg)
• Bay Cities Bank
• 5/3 Bank
• Whitney Bank
• Grow Financial Credit Union
• The Bank of Tampa

There are two servicing organizations in the area that process the 504 loans. Both are non-profit, and pleasant to work with.

Gulfcoast Business Financing has performed a handful of these this year and can be contacted at:
Beverly Pringle (Pinellas based)
Gulf Coast Business Financing
7278952504
bpringle@gulfcoastbiz.com
www.gulfcoastbiz.com

Florida Business Development is in Tampa and has completed 50 - 60 this year. They can be contacted at:
Bill Habermeyer (Hillsborough based)
Florida Business Development Corp.
bill@fbdc.net
www.fbdc.net
813 348 0660

Published: 10-27-09

Despite fears of a looming crisis, at least one observer of the economy believes talk of a collapse in commercial real estate may be unfounded. Tuesday morning, John Augustine, the chief investment strategist for Fifth Third Private Bank, revealed his relatively bullish outlook for the economy and stock market for 2010. He spoke to a small group of Fifth Third bankers and guests at the Tampa Club in downtown Tampa.

In the near future, some $400 billion to $600 billion of commercial real estate loans are set to mature, Augustine said. With so many banks reluctant to refinance loans lately, many are predicting commercial landowners to default en masse when they can't get new financing. Augustine, who is based in Cincinnati, said that's not a certainty, though. For now, the stock market seems to believe in the future of commercial real estate, he said. For example, the Standard & Poor's BMI REIT index, which tracks the performance of stocks of real estate investment trusts, publicly-traded firms that hold real estate is up 4.7 percent over the past year, he said. Big REITs, such as mall-owner Simon Property Group, have raised cash by issuing stock and debt and now sit on "war chests," with which they can buy property,Augustine said.

To be sure, most of the commercial property in Florida is held by small private companies and investors, not big real estate investment trusts. However, Augustine said he believes banks today have returned to profitability and, moving ahead, will be more willing to refinance commercial mortgages. That should prevent a commercial collapse, he predicts. Among other observations, Augustine is predicting: Talk of the next "bubble" in emerging countries.

Over the past year, investment in emerging countries such as China, India, Brazil and Eastern Europe has gotten super-charged. An index that tracks emerging markets, the MSCI Emerging Markets index, is up 71 percent over the year. Augustine didn't predict a bubble in emerging markets, but said he expects to see investors speculate about a bubble if things don't slow down. No double-dip recession.

This week, the government is expected to release gross domestic product figures that show a return to growth for the economy. Some economists worry that the country could exit the recession, only to fall back into another one. However, Augustine said that massive amount of stimulus money from the federal government should prevent such a double dip in the economy.

There is a relatively new SBA program out there that is really good and you should know about it., It is the SBA 504 program.

This is not the old SBA 7A program where the SBA guaranteed the loan for the bank. This old program is why SBA loans have a bad reputation. The new program is a dramatic improvement - so forget about the old program and welcome the new.

The basics are this:

• The buyer puts 10% down.
• The primary lender loans at 50$ LTV.
• The SBA provides a second mortgage of 40% LTV (20 year, fixed interest)

Only end users are eligible. Investors are not eligible

Typically, all of the closing and inspection costs can be rolled into the contract price and the Buyer pays 10% of this total, so the up front out of pocket costs are minimized. In the same fashion, building improvement, architectural, professional fees and capital equipment purchases can be rolled in.

Paperwork requirements are similar to those of a regular loan from a bank. In fact, you can generally submit the same paperwork prepared for the bank to the SBA group.

My experience so far suggests these take about 60 days from start to finish for deals under $1,500,000. This is far better than the old 7A program and a welcome change.

If you are considering a Commercial Real Estate Purchase for your business, this is the best game in town.

If you need more information, please call. I have the full application package available.

From the Tampa bay Business Journal

The winning bidder on unsold condominiums in two high-end Pinellas residential towers — Water’s Edge in downtown Clearwater and 400 Beach Drive in downtown St. Petersburg — is the lender, Wachovia Corp.

The bank, now part of Wells Fargo & Co., agreed to pay $30.6 million for the condos, plus undeveloped land adjacent to the $100 million Water’s Edge, in a deal expected to be complete by Oct. 16.

Wachovia, which holds an $82 million mortgage on the properties, was the highest bidder at an Oct. 1 auction in the District of Delaware, where developer Opus South Florida is liquidating through the bankruptcy court.

U.S. Bankruptcy Judge Mary F. Walmath approved the sales at an Oct. 7 hearing.

Three limited liability companies that have the same Charlotte, N.C., address as Wachovia Bank won the bids.

Water’s Edge Clearwater LLC agreed to pay $20 million for Water’s Edge where only 10 of the 156 units have previously sold, records show. The bank paid about $137,000 per unit.

The tower also has commercial space on the ground floor.

In addition, Redus Clearwater Bluff LLC will pay $1.6 million for adjacent undeveloped land.

On 400 Beach Drive, Redus 400 Beach LLC bid $9 million for about 21 unsold condos along with unsold retail space in the 93-unit building.

Atlanta-based Opus South, headquartered in Tampa until last year, filed for Chapter 11 on April 22, listing assets of $38 million and liabilities of $28.6 million.

It is one of five companies that form Minnetonka, Minn., real estate developer Opus Corp. Two others — Opus East LLC and Opus West Corp. — also have sought bankruptcy protection.

An investment group tied to the Tampa Bay Rays is the backup bidder on 400 Beach Drive. Downtown 400 LLC is managed by Randy Frankel and its address is Tropicana Field, home of the Rays, state corporate records show.

The back-up bidder on Water’s Edge is an entity connected to The Related Group of Miami.

NAI Tampa Bay broker T. Sean Lance said the investment groups were most likely testing the water to see how much Wachovia would pay for the properties.

“Those are two high-quality assets,” said Lance, managing director.

The Beach Drive units will sell for more than Water’s Edge, he said. “Downtown St. Petersburg is a much more vibrant downtown as opposed to downtown Clearwater, which is pretty sparse,” Lance said.

He expects the bank to evaluate the properties to determine the best way to minimize losses.

Wachovia will have to decide if it wants sell units individually or in bulk.

Most buyers, including The Related Group, are looking for huge discounts in today’s depressed market.

“The bid-ask gap is great,” he said.

The average home selling price in Detroit is now $11,500.