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Regus Workspace Concept at 8000 Avalon Project Alpharetta
Posted By - - 04/08/2017

Regus' Workspace Concept to Open New Location at 8000 Avalon Project in Alpharetta

Hines, Cousins Properties Sign Spaces to 11-Year, 34,000-SF Lease

Spaces will open a new location in suburban Atlanta after reaching an 11-year deal with Hines and Cousins Properties for 34,000 square feet within the venture's 8000 Avalon office development in Alpharetta, GA. 

Regus' flexible workspace concept will open for business this fall at the 228,182-square-foot, nine-story office building scheduled to deliver later this month at 2660 Old Milton Pky. within Avalon, a mixed-use development set to feature more than 450,000 square feet of retail space, for sale and lease residential space, and the 325-room Marriott Autograph - Hotel Avalon with accompanying 40,000-square-foot Alpharetta Conference Center. 

Hines and Cousins entered into a joint venture in early 2016 to develop the $73 million 8000 Avalon project - the only high-rise office building in Avalon. Spaces will join Microsoft in the property, and with its deal brings 8000 Avalon to 40% leased.

By CoStar




Venture Closes on 1,033-Unit Apt. Portfolio
Posted By - - 04/08/2017

Besyata-Scharf Venture Closes on 1,033-Unit Apt. Portfolio in Louisville, Atlanta

New York Firm's Pay $74 Million for Pair of Garden-Style Communities

New York-based firms Besyata Investment Group and the Scharf Group, in a venture with partners Pensam Residential and BH Equities, paid $74 million for a pair of communities including the largest apartment complex in Louisville, KY. 

Completed in 1976, the Park at Hurstbourne is a 689-unit multifamily community located on a nearly 42-acre site at 5555 Big Ben Dr. in Louisville's Fern Creek Multifamily submarket. 

Totaling 956,388 square feet, the multi-housing complex features one- to three-bedroom floorplans as well as studios across 50 garden-style buildings. On-site amentiies include an indoor pool, a basketball court, two clubhouses and a daycare facility. 

The venture also acquired Woodcrest Village, a 344-unit, garden-style apartment complex located in the Atlanta suburb of Lithonia, GA. That community delivered in 1989 on 30.5 acres at 2325 Woodcrest Walk and features one- and two-bedroom units. 

Besyata and Scharf Group plan to add value to the communities by creative modernization of the amenities and gradual unit renovations. This added value, combined with the strong market fundamentals, organic rent growth and both properties, should yield great risk-adjusted returns in the multifamily scene. 

BH Management, Besyata’s long-standing partner and a property manager of 65,000 apartments spanning across 23 states, will oversee the day-to-day property management and leasing for both assets.

By CoStart

 




Flurry of Dept. Store Closures
Posted By - - 04/08/2017

RETAIL NEWS SERIES: Flurry of Dept. Store Closures Forcing Mall Owners to Adapt, Reinvest or Die

News Series Examines Trends from Analyzing 1,195 Stores Slated for Closure by Sears, Macy's and JC Penney
Part 1:

Sears Discloses for First Time it May Not Survive, Marks Latest Blow to Dept. Store/Mall Sector



Part: 2:

Investors Still Willing to Bet Big on Mall Turnarounds, Even Those Hit by Triple Anchor Closures



In this two-part news report by Senior Editor Mark Heschmeyer, CoStar analyzed the stores being closed by the three major department store chains, Sears, Macy's and JC Penney. 

Over the last three years, the three chains combined have closed 1,195 locations in 860 cities. Among the hardest hit cities were: Jacksonville, FL, and Louisville, KY, each with seven closures; Philadelphia and Pittsburgh each have seen six; and Chicago, West Palm Beach and El Paso, TX, have each had five. 

Sears shows the most closures: 828, (with more than half those being Kmart stores). JCPenney has closed or announced plans to close 236 stores. Among those are 138 it identified for closure late last week. Macy’s has closed or plans to close 131, including 68 of 100 planned closures it announced two months ago. 

Six malls have the unfortunate distinction of having all three of the above retailers as anchors that have either been closed or announced that they will be closing: 
  • Vallco Shopping Mall, Cupertino, CA; 
  • The Boulevard Mall, Las Vegas, NV; 
  • The Mall at Cortana, Baton Rouge, LA; 
  • Upper Valley Mall, Springfield, OH; 
  • Gallery at Military Circle, Norfolk, VA; and 
  • Gulf View Square, Port Richey, FL. 

    While none of the department stores disclosed the specific criteria they use to decide which stores to close and which to keep open, CoStar research has developed a proprietary Location Quality Score (LQS) to evaluate more than 1.5 million retail properties in the CoStar database. 

    Using multiple variables, including trade area incomes, retail density and market competition to approximate the productivity of a given retail property, the CoStar Location Quality Score can provide insight as to whether the store closure is warranted by a location in a poor trade area, or whether it is in a good trade area but just too close to another of the retailer's stores, in which case the location could support a different retail user. 

    By CoStar



Freddie Mac's Focus on Affordable Housing Lending
Posted - 1 day ago

Freddie Mac's Focus on Affordable Housing Lending Provides a Lifeline to Manufactured Housing Values

UMH Properties Latest To Tap Freddie Mac Spigot for MHC Purchases

While not considered the sexiest property type, manufactured housing has nevertheless become an important source of affordable housing for thousands of Americans, which in turn has attracted renewed interest from investors. 

Now, bolstered by a recent Freddie Mac directive to increase financing purchases of manufactured housing communities (MHC), the values of communities with additional MHC capacity has increased. 

In the latest such transaction UMH Properties Inc. this week closed on the second tranche of its previously disclosed agreement to expand its MHC portfolio with the acquisition of six such properties. 

Freehold, NJ-based UMH purchased three communities in Indiana containing 1,254 developed homesites on 316 acres for $36.1 million, or about $28,787 per homesite. The weighted average occupancy rate for these communities is 56%. 

The sale follows closings for the first tranche for two communities in Ohio and one in Michigan, for a total of $32.5 million. Those three properties contained 897 developed homesites on 177 acres, about $36,231/pad. The weighted average occupancy rate for those communities was 69%. 

UMH obtained an $8.85 million loan from the Federal Home Loan Mortgage Corp. (Freddie Mac), at an interest rate of 3.96% and a 10-year maturity to buy the second tranche. 

UMH had previously closed financing for six manufactured home communities, including the three communities in the first tranche, for total proceeds of approximately $43.1 million. Five of those mortgages were with Freddie Mac and have 10-year maturities with a weighted average interest rate of 4.1%. 

With this closing, UMH now owns 98 communities containing approximately 17,800 developed homesites. 

 

Freddie Mac Manufactured Housing Lending Surpasses $1 Billion


With the loans, Freddie Mac has now purchased more than $1 billion in manufactured housing community (MHC) loans in the 18 months since launching the program. The deals back more than 25,000 home sites in 23 states. 

In those 18 months, the average sale price per manufactured home sites has jumped from $19,144 to $32,092 per pad site, according to CoStar COMPs data. 

"MHC loans are an example of how we are serving new geographic markets where added liquidity is critical and where manufactured housing provides an important source of affordable rental housing, especially in rural and non-metro areas," notes Kelly Brady, Freddie Mac multifamily vice president. 

Brady said the GSE adjusted its program to allow more rental units with its financing after hearing from community owners about increasing demand for rentals in their parks. 

According to Freddie Mac research, occupancy in manufactured housing communities has trended slightly upward for six years into economic recovery. 

“With an increasing affordability gap in the multifamily and single-family sectors, it seems that the manufactured housing sector is turning the corner,” Freddie Mac noted in last month in its multifamily outlook. “With the cost of this housing lower than in the conventional multifamily sector and single-family rental sector, manufactured housing offers a more affordable alternative for many households.” 

“The sector has seen an upward trend in occupancy and improvement in rent growth since 2012. The trend is likely to continue in the near to mid-term as demand for affordable housing is expected to increase," according to Melvin L. Watt, director of the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae. Watt said this week the agency would continue to exclude affordable housing properties from the agencies loan caps next year. 

"In 2016, we also plan to finalize a Duty to Serve rule, which will encourage Fannie Mae and Freddie Mac to innovate responsibly in the areas of affordable housing preservation, housing in rural areas, and manufactured housing,” Watt added.

By CoStar Group




Bankers Say Their CRE Lending Growth Likely Has Peaked
Posted - 1 day ago

Bankers Say Their CRE Lending Growth Likely Has Peaked

More Bank Executives Sound Note of Caution on Increasingly Competitive CRE Lending Business

While overall commercial real estate borrowing demand continues to increase, more banks this past quarter said they don't plan to increase exposure in the CRE category of their loan portfolios, saying increased competition from other banks and the Federal Reserve’s decision to hold interest rates, forcing banks to continue to compete on pricing, is making profitable lending difficult to achieve. 

During quarterly earnings conference calls in the past week, several bankers cited increasiing competition for borrowers, putting downward pressure on margins. In addition, credit standards have continued to loosen, a game bankers said they’re not as willing to continue playing. 

Richard Davis, chairman, president and CEO of U.S. Bancorp, flat out warned bank analysts not to expect CRE loan portfolios to continue growing a great deal. 

“The one area that we’re not growing right now is CRE,” Davis said. “It’s an area that we think has some undue risk in it. It’s a pretty overheated market in not just certain locations but the terms and the recourse/non-recourse decisions that some banks are making, and we’re not going to participate in that.” 

“We’ll probably hold our own and keep our market share, but that’s an area we’re going to keep particularly close eye on,” Davis said. 

Helping to drive that risk has been the growing number of lenders that have jumped into the market in the past few years. The added competition has made it more difficult for regulated banks to compete and keep up with their growth plans for this year, according to several bankers. 

Chicago-area based Wintrust Financial reported a 3 basis point drop in its CRE lending margin. While its overall CRE portfolio is still yielding about a 4% return, Wintrust is seeing the market repricing loans coming up for refinancing in the 3.5% to 3.6% range. 

“That is really something we don’t want to try to match,” said Edward Wehmer, president and CEO of Wintrust. “We will with existing customers and that is driving that [yield] down a bit. We’re trying to hold a line on commercial and CRE pricing." 

Wehmer added that he believes interest rates are going to stay low for some time. 

Even Bank of the Ozarks, a community bank based in Little Rock, Arkansas which has been growing and plans to continue growing its real estate lending, sounded a note of caution this past week. 

“We will continue add people as we add volume related to that, as well as people in underwriting and closing and other parts of the operation,” said George Gleason, CEO of Bank of the Ozarks. "However, we think we are getting in the later stages of a real estate credit cycle here, so we are being very defensive in what we are doing.” 

As an example, Gleason said the Bank of the Ozarks is beginning to require more equity from borrowers. 

“We want to be at lower leverage not higher leverage,” Gleason said. “We are just trying to get more defensively postured which we think is very prudent.” 

Multifamily was particularly singled out by bankers as being overheated. Chicago-based Private Bancorp grew its multifamily portfolio by more than $200 million in the past six months to end September at $704 million in total in that category. 

But, Larry Richman, its president and CEO, said it has probably turned down more business than it would have in the past.

By CoStar Group




Blackstone and Ivanhoe Cambridge Reach 5.3 Billion Deal
Posted - 1 day ago

Blackstone/Ivanhoé Cambridge Reach $5.3 Billion Deal for Stuyvesant Town, Prompting Some to See Similarities to 2006

11,227-Unit Stuyvesant Town/Peter Cooper Village Multifamily Complex Becomes Latest Billion-Dollar CRE Play for Pair of Investment Giants

The Blackstone Group is on a roll, queuing up one multi-billion-dollar deal after another. Its latest is a reported $5.3 billion agreement to buy New York City’s largest apartment complex, the massive Stuyvesant Town/Peter Cooper Village, out of foreclosure. The pair of adjoining, rent-stabilized complexes contain 56 multi-story buildings with a combined 11,227 units covering an 80-acre site on Manhattan's east side. 

Blackstone has sewn up a deal to acquire the property in a joint venture with Canada-based pension fund manager Ivanhoé Cambridge under an agreement with the City of New York that hinges on maintaining a portion of the affordable housing units in the complex for the next 20 years, while winning apparent approval to convert others to market rate rents. 

The sale price is just $100 million less than a joint venture of Tishman Speyer and Blackrock, Inc. paid to buy the properties nine years ago this same month. MetLife Inc., netted a $3 billion gain on the sale and years later would still be boasting of having identified the housing bubble early and bailing out of such investments and exiting sub-prime mortgaged backed securities prior to the collapse in housing values which triggered a global economic recession in 2007. 

While observers have noted similarities in market conditions between 2006 and 2015, Tishman/Blackrock was getting something in its deal from nine years ago that Blackstone won’t be: 20% more in annual revenue. The sprawling complex pulled in nearly $482 million in annual revenue in 2009. Last year, though, revenue was $383 million - and that was with 98% occupancy, according to mortgage-related documents. 

Blackstone is also getting something Tishman/Blackrock was never able to pull off: an agreement to convert the affordable, rent-controlled complex to market rate rents. Tishman/Blackrock turned over the keys to loanholders on the complex in 2009 when it lost court challenges for its plan to convert the complex to market rate rents. The complex has been tied up in foreclosures and court hearings ever since. 

Despite the drop in rent, financial analysts have called the new deal a "compelling transaction." Blackstone/Ivanhoé Cambridge is “paying 82% of peak 2007 valuation (including cap improvements),” said Mike Cyprys, a research analyst with Morgan Stanley Research. "All-in cost is about $500 per square foot, a significant discount to replacement cost that's well over $1,000 per square foot. The transaction accelerates the growth in Blackstone's core+ fund, an open-end structure currently with about $5.2 billion invested and $3.3 billion of dry powder." 

However, the most important aspect of the deal may be that Blackstone/Ivanhoé Cambridge have secured an agreement with New York City to allow the complex to convert a number of units, according to Dan Garodnick, New York City Council Member representing the East Side of Manhattan and Chair of Economic Development Committee. His district encompasses the complex. 

In the deal with Blackstone/Ivanhoé Cambridge, “we were able to preserve nearly half of all StuyTown/Peter Cooper units for middle-class tenants,” Garodnick said. 

As a result of previous litigation against Tishman Speyer, all of the units are currently subject to rent stabilization, at least until 2020. Roughly half of the complex’s apartments have already seen their rents increase to market-rate - currently as high as $10,000 per month. 

However, more than 5,000 traditionally rent-stabilized apartments remain with rents below-market which are being lost to de-regulation. The remainder of the complex, rent stabilized because of the litigation, will lose all protections under rent stabilization for occupants in 2020. 

About 5,000 of the units will be preserved as "affordable" for 20 years, with a five-year phase-in of the rent increases, according to Garodnick. Another 1,400 units that have their rents regulated until 2020 will now be regulated until 2025. 

The plan will halt the loss of more than 300 affordable apartments each year, according to the office of New York Mayor Bill de Blasio. Blackstone/Ivanhoé Cambridge will reportedly get a $225 million tax break in exchange for the agreement. 

“After years of battles, this sale puts StuyTown/PCV on a more stable and affordable path,” Garodnick said. 

“It is a tremendous honor and responsibility to become co-owners of Stuyvesant Town and Peter Cooper Village,” said Jon Gray, global head of real estate for Blackstone. “We and Ivanhoé Cambridge are pleased to have reached this agreement with the City of New York, the Mayor, Councilman Garodnick and the Tenants Association to preserve its heritage of affordable rental housing. We intend to own Stuyvesant Town and Peter Cooper Village on behalf of our investors for many years to come.” 

That deal allowing rent rate conversions will add significant upside to the value of the complex. The $5.3 billion reported price greatly exceeds the last appraised value of $3.5 billion from one year ago, according to commercial mortgage backed securities documents. The current amount outstanding on the first mortgage notes financing the last purchase is also $3.5 billion. 

According to analysts, Fannie Mae and Freddie Mac are considered probable contenders to finance the Blackstone/Ivanhoé Cambridge purchase through their large multifamily originators such as Walker & Dunlop. The GSE's strong market share could help provide attractive debt financing, particularly with the affordable units that are not counted toward either Freddie's or Fannie’s $30 billion multifamily lending limits. 

 

Blackstone’s Billion-Dollars CRE Queue


For Blackstone, it's been a busy couple of months. Earlier this month the PE giant announced a deal to acquire BioMed Realty Trust Inc. in an all-cash transaction valued at $8 billion. The REIT owns 18.8 million rentable square feet of office properties in the U.S. and the U.K. It also struck a deal to acquire hotel firm Strategic Hotels & Resorts Inc.’s portfolio for about $6 billion, including debt. The REIT owns 18 high-end hotels in the U.S. and Germany. 

Steve Schwarzman, chairman and CEO of Blackstone touted the strength of commercial real estate in his quarterly earnings conference call. 

Blackstone tied the first quarterly loss in nearly four years reported this past week to the sluggish private equity business. Private equity took a big hit during the quarter and was the firm's only losing sector posting a negative net income of $512.54 million. 

But the international investment behemoth has found a profitable counterbalance to the lagging segment. And that is U.S. commercial real estate. In its real estate segment, economic net income was a positive $10.46 million. 

Its real estate holdings show appreciation of 8.6% year-to-date. And its total real estate assets under management was up 16% year-over-year to $93.2 billion as a result of record level of fundraising activity and strong market appreciation. 

“Housing in the U.S. is strong and expected to get stronger,” Schwarzman said. “Office leasing is good; the auto and tech sectors are healthy and low oil prices too should be good for the consumer. In the lodging space, which has been one of the hardest hit sectors this year in terms of public market evaluations, revenue trends actually remain quite strong.” 

Overall, Blackstone has raised $100 billion in the last 12 months, giving it the largest amount of private equity raised for investment at a time of significant market dislocation. Commenting on the recent the Biomed and Strategic Hotels deals, Schwarzman said: "In real estate, for example, as public REITs declined 15% and lodging REITs went down unbelievably 30% peak-to-trough, as well as some individual companies, we pivoted to public to private transactions,” he said.

By CoStar Group




GSE Reform Could Dampen Multifamily Pricing
Posted - 1 day ago

GSE Reform Could Dampen Multifamily Pricing

Provisions in the comprehensive housing finance reform bill introduced by U.S. Senators Tim Johnson and Mike Crapo could modestly dampen prices of multifamily properties and increase refinance risk, according to a new report by Moody's Investors Service. 

The Johnson-Crapo bill proposes replacing Fannie Mae and Freddie Mac, government sponsored enterprises (GSEs) responsible for securitizing single- and multifamily home loans, with a new independent federal agency called the Federal Mortgage Insurance Corp. (FMIC). 

The bill also proposes creating a multifamily office within the FMIC that would insure mortgage-backed securities to facilitate the availability of multifamily loans. 

"If this bill becomes law, higher loan coupons on the FMIC-backed share of debt will exert downward pressure on multifamily property prices and increase refinance risk, but the impact would be moderate," said Tad Philipp, Moody's director of commercial real estate research. "U.S. government backing for multifamily debt that had been implicit and free would become explicit and bear a guarantee fee. While GSE-backed multifamily debt often had pricing advantages relative to private market debt, loan spreads on FMIC-backed debt would more closely align with those of private market originators." 

At the same time, provisions in the proposals could help spur issuance in the private-label residential mortgage-backed securities (RMBS) Moody's noted. 

Under the framework proposed in Johnson-Crapo, fewer residential mortgage loans would be eligible for inclusion in government-guaranteed securities because of changes in criteria establishing which securitizations can receive government guarantees. 

More issuance would likely result in the private-label and government-guaranteed securitization markets from the introduction of a common securitization platform. 

By Costar




Coldwater Creek To Liquidate Close All 360 Locations
Posted - 1 day ago

Coldwater Creek To Liquidate, Close All 360+ Locations

Coldwater Creek, a specialty retailer of women’s apparel, jewelry and accessories, filed a Chapter 11 voluntary bankruptcy reorganization petition and announced plans to wind-down its operations. 

The Idaho-based firm operates 334 premium retail stores, 31 factory outlet stores and seven day spa locations throughout the U.S. 

As of the filing, the firm employed 339 full and part-time employees in their corporate headquarters in Sandpoint and 5,571 full and part-time employees in its retail stores, spas, design center, call center and distribution center. 

Coldwater Creek is seeking bankruptcy court approval to hire Hilco Merchant Resources and Gordon Brothers Retail Partners to conduct chain-wide store closing sales and liquidate inventory, property and leases. Store closing sales are expected to occur prior to the Mother’s Day weekend, which historically is a peak sales time for the firm. 

The news was not a major shock for retail analysts who had been watching the chain struggle through the recession, said Garrick Brown, research director for Terranomics. 

“After unsuccessfully seeking a potential buyer as early as late last year, they had been out trying to find additional financing to deal with their looming debt issues,” Brown said. “Sadly, there were no knights in shining armor riding to their rescue.” 

Coldwater Creek was a retailer with a decidedly mid-America, middle class clientele and had been dealing with the one-two punch of their target consumers having downsized and a strong encroachment of e-commerce, Brown noted. 

“Knowing bad news is coming certainly doesn’t lessen the blow,” he said. “This is clearly bad news for landlords.” 

Coldwater Creek stores generally range between 4,500 and 7,000 square feet. Assuming an average size of 5,750 square feet, this comes out to about 2.2 million square feet of space coming back to market. 

“Outlet centers will be fine-most will backfill this space quickly. Trophy malls will do the same. It is Class B and C locations and weaker lifestyle centers that might face a challenge,” Brown said. 

By Costar




Price Momentum Continues to Build for Commercial Real Estate
Posted - 1 day ago

Price Momentum Continues to Build for Commercial Real Estate

Latest CoStar Commercial Repeat Sale Analysis Finds Property Pricing Benefitting from Broad Recovery in Market Fundamentals
This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides more evidence of two broad trends in the commercial real estate investment market: the continued strong demand for top quality institutional-grade assets by big investors, and widening investor demand for mid- and lower-quality commercial property as the pricing recovery extended to smaller markets and secondary property types. 

Based on an analysis of 1,028 repeat sales in February 2014 and more than 125,000 repeat sales since 1996, the CCRSI found commercial real estate prices registered broad gains during that month. The two broadest measures of aggregate pricing for commercial properties within the CCRSI-the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index-gained 1.1% and 1.7%, both reached double-digit growth over the previous 12-month period. 

The value-weighted U.S. Composite Index, which is more heavily influenced by high-value property sales that have seen prices skyrocket over the last two years, has risen to levels not seen since early 2008, reaching to within 5% of its pre-recession peak. 

Meanwhile, the equal-weighted U.S. Composite Index, which is more heavily influenced by the more-numerous lower-value trades, remained 22.3% below its prior peak. However, pricing for lower-end properties appears to be gaining momentum. The index made its strongest annual gain in February 2014 since the current recovery began, advancing by 15.7% over the last 12 months as investors continued to expand their buying activity in non-prime markets. 

The momentum shift to lower quality and smaller properties also appeared in the recent growth of the General Commercial segment, which grew by a similar 15.7% over the previous year, while its counterpart, the Investment Grade Index, advanced by an equally strong 15% over the same period. 

In reporting on commercial property pricing trends, CoStar's CCRSI made note of the continued positive net absorption across the three major property types - office, retail and industrial - which totaled 378.2 million square feet, a 15.3% increase from the prior 12-month period. Consistent with recent pricing trends, net absorption within the General Commercial segment rose 48% during the same period, compared with a 5% annual gain for the same period in the Investment Grade segment. 

In keeping with the pattern set in previous years, the number of properties trading hands over the first three months of year is typically one-third lower than year-end sale volume. However, despite the slowdown, the CCRSI noted that transaction activity through February 2014 suggests that the year as a whole will be very active for commercial real estate investment. Having racked up a composite pair volume of nearly $10 billion through the first two months of the year, 2014 has already exceeded first quarter 2013 totals. 
Brought by CoStar



Multifamily Finance Industry Caught By Rollback of Fannie
Posted - 1 day ago

Plans by the federal agency overseeing mortgage giants Fannie Mae and Freddie Mac to scale back multifamily lending by about 10% this year have been met with concern and some alarm by the apartment industry.

That's little wonder, given that the two government-sponsored enterprises (GSEs) provide nearly half of all U.S. multifamily mortgage origination volume, even as they have lingered in conservatorship since being taken over by the government in 2008 at the height of the housing and financial crisis.

Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), re-affirmed in testimony before Congress on Tuesday that he is committed to the carrying out the administration's goal of rolling back Fannie Mae and Freddie Mac multifamily mortgage volume and building a new system that creates a healthier secondary mortgage market for single-family and multifamily housing in which private capital replaces taxpayer subsidies.

Unlike the GSEs' single-family business, their multifamily lending programs weathered the financial crisis in relatively good shape and generated positive cash flow for all the agencies, DeMarco said during a meeting interrupted by vocal protesters calling for homeowner mortgage forbearence and the reduction of principal payments.

Nine state attorneys general signed a letter this week calling on Congress and the White House to fire DeMarco for refusing to allow Fannie and Freddie, which own or manage 60% of U.S. residential mortgages, to allow the mortgage modifications to help homeowners struggling with foreclosure. The agency has refused, arguing such a move could harm cost more taxpayer bailout funds and harm the housing recovery.

Fannie Mae and Freddie Mac's multifamily loans already share credit risk with loan originators and securities investors, respectively, said DeMarco, who was appointed by former President George W. Bush and retained by President Obama.

"Given that the multifamily market’s reliance on the enterprises has moved to a more normal range, to move forward with the contract goal, we are setting a target of a 10% reduction in multifamily business new acquisitions from 2012 levels," DeMarco said. "We expect that this reduction will be achieved through some combination of increased pricing, more limited product offerings and tighter overall underwriting standards."



The prospect that government support of apartment and condo lending could be ending or sharply curtailed was met with warnings of higher capital costs over the long term by Wall Street analysts, and concerns in the apartment industry that private capital markets are not yet willing or able to take over lending from the GSEs.

The new goal first unveiled by DeMarco earlier this month as part of the FHFA's 2013 Scorecard, "lends credence to the notion that the abundant and inexpensive capital flooding the [apartment and condominium] sector is unlikely to remain indefinitely," Fitch Ratings said in a note last week.

Although multifamily REITs are not likely to be affected in the short term, a narrowed and more concentrated mortgage supply channel would likely lead to higher funding costs should the GSEs eventually exit from the apartment lending market, Fitch said.

Willy Walker, president and CEO of Walker & Dunlop Inc., which originated $9.5 billion in CRE financing in 2012 and services $35.2 billion of commercial mortgages and asset manages over 4,800 U.S. properties, called the FHFA action "misguided."

"It is very surprising that FHFA would focus on decreasing multi-family origination volumes by 10% to quote, 'bring more private capital' to the multifamily mortgage origination market," Walker told investors this month, noting that the two huge multifamily finance GSEs already have large-scale private capital participation. He noted that Fannie Mae requires private lenders to take the first-loss position on all loans originated in its DUS program and Freddie Mac only backs AAA-tranche securities with its guarantee, he said.

"Fannie and Freddie’s multifamily businesses are literally poster children for successful, public-private partnerships," Walker said. "And the fact that FHFA has decided to create a scorecard objective focused on trying to attract private capital to the multifamily finance space is misguided at best."

That said, the FHFA reduction of multifamily lending will have little impact on Walker & Dunlop’s business from a practical standpoint, Walker said.

“We have every intention of remaining one of the very largest Fannie Mae DUS lenders in the country, and moving up the rankings with both Freddie Mac and HUD in 2013."

Fannie Mae and Freddie Mac are a critical cog in the multifamily finance market, accounting for 45% of total mortgage debt outstanding as third-quarter 2012.

The elimination of a government guarantee for multifamily mortgages to be replaced by a private capital market "that has not shown itself to be ready, willing, able, disciplined or reliable would truly be a crisis of our own making," and "is not supported by the facts," said Peter Donovan of CBRE and immediate past chairman of the National Multi Housing Council (NMHC).

GSEs' market discipline, underwriting standards, origination system and alignment of interests are precisely the attributes needed for the future of multifamily lending, said Donovan, speaking on behalf of NMHC at the American Enterprise Institute (AEI).

The Fannie Mae and Freddie Mac multifamily programs, unlike those for single-family, use stringent underwriting that has resulted in a default rate of just 0.25%. Private-market sources of multifamily capital like CMBS, on the other hand, have a default rate of 15%, Donovan noted.

In addition, the enterprises ensure that capital is available for apartments in all markets at all times, not just top-tier properties in major markets, Donovan said, a presence that helps balance the bifurcated investment sales market.

The agencies backstopped the private lending market throughout the crisis as their combined multifamily loan portfolio ballooned by $85 billion, compared to a decrease of $91 billion for all other participants, according to the Mortgage Bankers Association (MBA).

Fitch and other ratings companies and equity analysts have long analyzed the impact of a growing number of longer-term risks to the multifamily sector, including the future role of the agencies.

Bolstered by the profitability of the Fannie and Freddie platforms, many market participants believed the multifamily lending programs would emerge relatively unscathed from GSE conservatorship, until recently at least.

"The recent [FHFA] goal contradicts that notion, and reaffirms that the multifamily sector could be negatively affected by the far-reaching strategic and structural changes regarding the GSEs," Fitch wrote.

While noting that management teams of the multifamily REITs Fitch tracks have made a concentrated effort to reduce their reliance on GSE and other secured debt due to the uncertainty of their future market presence, they and other multifamily owners would eventually be affected by softening capital values driven by properties and borrowers that have up until now been dependent on abundant cheap capital, a low-interest rate environment and the ability to refinance loans, Fitch said.

While the FHFA has long been clear about wanting to reduce Fannie and Freddie’s significant mortgage footprint, the focus in previous years was on gradually raising fees for loan guarantees to encourage competitive private capital to enter the market, not cutting loan volume.

The FHFA strategic plan in February 2012 asked the GSEs to evaluate how their multifamily operations would work without government guarantees.

The main action in the GSE reforms is the FHFA’s plan to create a new business entity called New Mac that Fannie Mae and Freddie Mac will own initially and will replace the companies’ legacy infrastructure. Over the next 12-18 months, the GSEs are likely to transfer some back-office functions to the new entity.

DeMarco this month laid out several other actions to accelerate the process of making the GSEs smaller, including guarantee fees, which are currently 50 basis points, double what they were in 2011.

The government would sell 5% of the GSEs’ private-label security portfolio, enter into $30 billion of credit risk sharing transactions and reduce multifamily business volumes by 10%.

Moody's said the FHFA’s goals to reduce the GSEs’ influence over the mortgage market remain modest given the Mortgage Bankers Association’s forecast of $1.4 trillion in single-family originations this year, and the GSEs’ current market share of approximately 79%.

"The FHFA’s modest goals highlight the balancing act the agency faces in attempting to shrink the GSEs without disrupting a recovering, but still fragile, housing market," Moody's Senior Vice President Brian Harris said in his report.

"In managing these conflicting goals, we expect the FHFA to err on the side of supporting the housing market. The federal goals will ramp up only when the housing rebound gains traction, and "it to take many years to wind down Fannie Mae and Freddie Mac," he said.
Multifamily Finance Industry Caught By Surprise In Govt.'s Rollback of Fannie-Freddie Lending

Critics Say GSEs Already Have Ample Private Capital Participation And Federal Guarantees Are Needed to Meet Rising Multifamily Demand

Courtesy of Costar



American Realty Makes 9 Billion Offer to Buy Cole Holdings
Posted - 1 day ago

POWER PLAY: American Realty Makes $9 Billion Offer to Buy Cole Holdings REIT

Transaction Would Create Market's Largest Publicly Traded Single-Tenant Lease REIT

 
In a bid to create the largest publicly REIT in the net-lease property sector, American Realty Capital Properties, Inc. (Nasdaq: ARCP) on Wednesday went public with an offer to acquire Cole Credit Property Trust III (CCPT III) for $5.7 billion, or more than $9 billion including assumed debt.

ARCP's unsolicited offer comes two weeks after CCPT III announced its own deal to buy-out its external adviser, Cole Holdings Corp, and pursue a listing on the New York Stock Exchange.

In a letter sent to Cole Credit’s board of directors, ARCP offered to acquire all of the Phoenix-based non-traded REIT’s outstanding common for at least $12 per share, or 0.80 of its common stock, for each Cole Credit share, for a minimum price of $5.74 billion. The $12-a-share consideration represents a 20% premium to Cole’s original offer price. Debt assumed by ARCP would value the deal at over $9 billion.

The deal would bring considerable integration and operating savings for the companies estimated by ARCP at a minimum of $30 million annually. The majority of CCPT III’s real estate assets are net lease properties similar to ARCP’s existing portfolio, resulting in "seamless integration and minimal additional resources or ongoing expense requirements."

In the pitch letter to the CCPT III board of directors, ARCP Chairman and CEO Nicholas Schorsch said the offer is designed to provide shareholders with instant tax-free liquidity and no lockup of shares, as all ARCP shares will be immediately tradable on the NASDAQ Stock Market.


The deal provides shareholders with "certainty of execution, timing and value," since the cash portion is fully funded by cash on hand and existing borrowing capacity under ARCP’s line of credit.

The transaction calls for CCPT III to put off consideration of the March 6 offer to buy its adviser and sponsor, Cole Holdings, in an internalization transaction earlier this month. In the letter, Schorsch said its own offer would provide a higher level of consideration delivered sooner and with greater certainty to Cole Credit shareholders.

Schorsch said ARCP had communicated its interest in potentially buying CCPT III prior to the announcement of CCPT III’s proposed acquisition of Cole Holdings, but was "surprised to not have received any response."

Schorsch further contends that Cole's internalization transaction raises "significant conflict issues." Under the terms of that deal, CCPT III would make an upfront payment to management and Cole Holdings founder Chris Cole of $127 million in cash and stock.

Schorsch said the internalization deal compares unfavorably to other recent market transactions, including the announced merger between another Cole Holdings non-traded REIT, Cole Credit Property Trust II, Inc. (CCPT II) and Spirit Realty Capital, Inc., as well as the successful merger of American Realty Capital Trust III, Inc. with ARCP, and American Realty Capital Trust, Inc.’s merger with Realty Income Corp.

In the Cole/Spirit deal announced in January,  the boards of Spirit Realty Capital Inc. and Cole Credit Property Trust II approved a merger of their companies that would create the second-largest publicly traded triple-net-lease REIT in the U.S. That deal is scheduled to close in the third quarter.

The heavy property and M&A activity among non-traded REITs reflected efforts by those entities to provide returns to their investors on previously illiquid assets. Many of the non-traded players entered the marketplace as active buyers during the last real estate boom and are now nearing deadlines to launch liquidity events for their investors.

ARCP has engaged Barclays Capital Inc. and RCS Capital, a division of Realty Capital Securities, LLC, as financial advisors and Proskauer Rose LLP and Weil, Gotshal & Manges LLP as its legal advisors in the Cole Credit transaction. 

Courtesy of CoStar



Appeal Keeps Building for Rental Housing Market
Posted - 2 days ago

Appeal Keeps Building for Still Unproven Investment In Rental Housing Market

Whether Fad or Fundamental, Major Firms such as Blackstone, Colony Financial Continue to Embrace Single-Family Rental Market.

One of the most significant real estate investment trends of 2012 has been the tremendous amount of institutional capital directed into single-family housing rental investments. And while it’s still too early to tell whether it’s all a passing fad or 'the next big thing,' some have begun questioning whether the burgeoning industry will see long-lasting returns in rental income and property value appreciation.
If a fad, then the investment activity over the past few weeks could be the zenith of the trend. If part of a long-term housing recovery play, then the recent developments may well represent an inflection point as several new domestic and international institutional players have placed big bets on the market, including Blackstone and Colony Financial, which have stepped up their earlier efforts to expand their single-family holdings. 
Blackstone formally launched its Invitation Homes last month as its national single-family rental platform.

“The single-family rental market has always existed with 12 million homes for rent but there never has been a national, institutionally-managed, single-family rental platform,” Blackstone said in announcing the launch. “In addition, household formation and population growth in the U.S. are solid but new housing supply is 63% below the historical average, creating a compelling opportunity to invest.”

This week, Colony Financial commenced a secondary stock offering to raise up to $195 million. Colony said that intends to use $150 million of the money raised to to make an additional investment in CSFR Operating Partnership LP, its investment vehicle created for the purpose of investing in single-family rental homes.

Also, this past week, Two Harbors Investment Corp. entered into an agreement with Silver Bay Realty Trust Corp. as part of Silver Bay's plan to acquire a portfolio of more than 3,100 single-family residential properties simultaneously with the closing of its initial public offering.

And North Carolina-based U.S. Residential Asset Fund launched its unique program in the REO-to-rental market promoting its rent-to-own program.

The market opportunity has also attracted a number of international investors, including Sydney, Australia-based U.S. Masters Residential Property Fund, which is seeking to raise up to $80 million in additional funding to continue its aggressive purchase of New York metro area homes.

Examples of the recent entry of significant private equity players focused on bulk purchases of foreclosed homes in 2012 include:

- Blackstone: 6,500 homes in AZ, SoCal;
- Waypoint: 2,400 homes in CA, AZ;
- Colony Financial: 3,600 homes in CA, AZ, NV, TX, GA, CO; and
- KKR: 200 homes in AZ, NV.

First, Caveats Anyone?


Last summer, Oliver Chang, former head of U.S. housing strategy at Morgan Stanley, started his own asset management company, Sylvan Road Capital, to invest in distressed single family rental homes nationwide. This past week, Chang issued Sylvan Road Capital’s first housing market perspective analyzing whether “the fledgling businesses deserve the hype.”

“It’s hard to believe that it has only been nine months since the first true institutional capital to enter this market was announced by Waypoint Homes and GI Partners,” Chang observed. “Over the course of these nine months, we have seen the entrants of half a dozen additional large private equity firms, hedge funds, REITs and institutional investors, including Sylvan Road Capital. Despite the surge of activity, it looks like there is currently more hype surrounding this investment than substance. There seems to be more news articles, research reports, conference panels and press announcements than there are actual investments in actual houses.”

Accordiing to Chang, “The highest estimate of institutional capital raised or ring-fenced for this investment that we’ve seen is $8 billion. While this is a substantial amount of money by most measures, it is a miniscule percentage of the total supply of distressed inventory… We believe that the $8 billion is less than 1% of any reasonable estimate of the size of this actual opportunity. And yet the hype keeps building.

“While the attention to the industry is generally positive, one of the issues with hype is that it often glosses over the details, with reporters and analysts alike lumping all participants into the same bucket,” Chang continued. “This has led to some misperceptions about not only this opportunity, but the entire emerging industry being developed to serve institutional investments in single family rentals. And the biggest misperception is this: that all investments in single family rentals are the same. The truth is, this couldn’t be farther from the truth.”

Those differences are evident in the three latest investment plays in the single-family rental housing market.

A Long-Term Inflation Hedge


Silver Bay Realty Trust Corp. commenced an initial public offering of common stock seeking to raise up to $265 million. After closing on the offering, Silver Bay expects to acquire an initial portfolio of more than 3,100 single-family residential properties through entities associated with Two Harbors Investment Corp., a publicly traded REIT and Provident Real Estate Advisors LLC, a private capital management firm, in exchange for equity interests in Silver Bay, in its operating subsidiary, or for cash.

Silver Bay intends to use the net proceeds of the offering to purchase and renovate additional single-family properties and add them to its rental portfolio in markets where it sees an oversupply of properties available at attractive prices. Its current target markets are Phoenix, Tampa, Atlanta, Las Vegas, Tucson, Orlando, Northern and Southern California, Charlotte and Dallas.

“We view the single-family rental business as a long-term opportunity that is sustainable through economic cycles,” Silver Bay wrote in its offering prospectus. “As the housing market recovers and the cost of residential real estate increases, so should the underlying value of our assets. We believe that rental rates will also increase in such a recovery due to the strong correlation between home prices and rents. This trend also leads us to believe that the single-family residential asset class will serve as a natural hedge to inflation.”

Rent To Own


The investment strategy of US Residential Asset Fund LLC in Huntersville, NC, differs from other investors in that it plans to offer tenants a rent-to-own option.

Tenants, who might otherwise be long-term renters, can work with the fund’s strategic partner, Sagamore Home Mortgage, to resolve their credit challenges, qualify for a mortgage, and purchase the home they are renting.

US Residential Asset Fund was founded by Christopher Crippen, who was previously and FDIC ORE division manager with Prescient Asset Management and an REO sales representative with Fannie Mae.

The fund expects to invest more that $20 million distressed single-family housing over the next two years, beginning in Charlotte, Memphis, and Chicago metro areas. Phase two acquisitions will be in Atlanta, Indianapolis, Tampa and Orlando.

Buy and Hold New York


U.S. Masters Residential Property Fund in North Sydney, Australia, is unique among entrants this year in that it is the first Australian-listed property trust focused on the U.S. residential property market and so far, the only major player focused on the New York metropolitan area with a buy-and-hold approach.

U.S. Masters Residential Property Fund has acquired more than $165.4 million of residential properties in Hudson County, NJ and also Brooklyn and Harlem, NY, since its IPO in June 2011. It went back to market this week looking to raise up to another $80 million.

The fund is trying to capitalize on what it views as unsustainable current dynamics in the housing market:
· Monthly mortgage payments that are lower than rents for first time since 1981;
· Mortgage rates that are at historic lows;
· Housing starts that are at a 30-year low; and
· Valuations that have collapsed while rents continued to rise… significantly increasing yields to investors.

U.S. Masters Residential Property Fund has purchased a mix of freestanding and townhome properties. Any renovations it undertakes are not geared so much to a potential renter but to a potential re-sale of the property.

REO-to-Rental Structures Present Analytical Challenges


Fitch Ratings began receiving inquires for potential securitizations of single-family rental properties earlier in 2012 and published a commentary in August discussing its views. It noted several key challenges to the concept, including the lack of historical performance data and track records of property managers.

“One of the key challenges is the limited performance data at both the property and market level. The lack of performance history and track records of the managers’ also presents risks,” Fitch wrote. “While we have had conversations with some of the market-level data providers, one of which we found to have a robust data warehouse, the history only dates back to 2008-2009.”

For these reasons, Fitch said it was too soon to pass judgment and would be “unlikely to assign a high investment-grade rating to such transactions.” 

Article by CoStar



Rent Perks for Landlords
Posted - 2 days ago

Rent Perks for Landlords: Transit-Oriented Apt. Developers Reap Occupancy, Income Premiums
Shift Among Apt. Renters from Suburbs to CBD Paying Dividends for Landlords and Investors

Stubbornly high gas prices and gridlocked freeways have compelled younger workers and retiring Baby Boomers to rethink the suburbs as a place to live and work. As the apartment pipeline again fills to pre-recession levels, recent construction data shows that cities and forward-thinking multifamily developers are getting the message.

A CoStar analysis of apartment construction data since 2000 shows a significant shift over the last couple of years toward new multifamily projects located within walking distance of rail and bus lines. It also found that landlords such apartments collect higher rents and have higher occupancies than non-transit-oriented properties. These communities are often part of larger, pedestrian friendly transit-oriented developments (TODs) featuring a mix of office, shopping and entertainment districts encouraged by municipal planners as a key strategy to lure businesses, residents and visitors to revitalize urban and outer-ring neighborhoods.

From 2000 to 2010, less than 20% of new apartment units built were within walking distance of mass transit stations and stops. But the new wave of multifamily development is very different. Of the units under construction today across the nation, about 42% are within a few minutes’ walk of trains and buses, according to data presented recently at CoStar's Third Quarter 2012 Multifamily Review and Outlook.

CoStar analysts also found that developments near major transit fetch higher rent premiums and tend to have higher occupancies than non-TOD properties.

"Developers are smart. They are delivering [new apartments] into strength because these projects command higher rents," said Erica Champion, senior real estate economist with CoStar Group’s Property & Portfolio Research, (PPR) division. "One reason landlords have been able to achieve higher rents with these properties is that renters can afford more [rent] when they don’t have the added expense of a car payment every month."

In metros with mass transit available, effective rents per square foot for existing properties located outside of a realistic walking distance to transit are about $1.42 per square foot, while "transit walkable" properties average about $2.20 per square foot. New properties within walking distance of transit command an average of $2.70 per square foot -- a striking 90% rent premium over non-transit-oriented properties.

Not all of the projects along transit routes are upscale apartment communities with luxury amenities such as dry cleaning and concierge service. Luis Mejia, director of research/multifamily, noted that the new apartment supply "comes in different flavors," including properties with more affordable rents to accommodate the wave of younger households coming into the marketplace and other people with lower or moderate incomes. Mejia's comment underscores the need for owners and developers to diversify their portfolios by building size, amenities and design to meet the requirements of renters who prefer to trade luxury for location, especially if that location gives them an attractive transit solution.

Even properties where renters have to get into their cars and drive to work or shop have high occupancies of 96% in today’s tight apartment market. However, occupancies at newer transit-proximate communities are even tighter at 97.2% occupancy, a 120-basis-point increase.

Public Transit Helps Create Economically Prosperous Communities


The strong appetite for units located near transit is likely to remain strong, Champion said, pointing out that use of public transit has been steadily increasing over the past six quarters, with use of light rail (4.3%) and heavy rail (2.5%) up the most over the past year, according to a September report by the American Public Transportation Association (APTA).

Nearly 60% of the trips taken on public transportation are work commutes, noted APTA President and CEO Michael Melaniphy.

"Public transportation not only enables people to get to work, but development around public transit helps to create an economically prosperous community," Melaniphy said.

Not surprisingly, transit ridership is up in regions and local areas where jobs are increasing and the economy is rebounding, including the San Francisco Bay area, Los Angeles, Pittsburgh, Louisville, Salt Lake City, Denver, Boston, Chicago and Phoenix, Melaniphy said.

In those markets and others around the U.S., TOD projects are finding a warmer reception from state and local governments and planning agencies than apartment projects received in past economic cycles.

In the Boston metro area, for example, a state-approved incentive program to encourage "smart-growth housing" projects by paying communities to set aside land passed by the state of Massachusetts in 2004.

While it took time for initial construction to begin due to the recession, initial construction has started as of this year in more than half of the 33 smart growth "zoning districts" approved by the state, according to the Greater Boston Housing Report Card, released by the Dukakis Center for Urban and Regional Policy at Northeastern University. Altogether, over 1,200 housing units have been built with another 700 unit under construction or soon to be under way under previously issued permits.

Studies in the U.S. and Europe support the TOD investment premium findings. Great Britain’s Network Rail organization found in a report called "The Value of Station Investment" that among other economic benefits, transit stations at Manchester Piccadilly and Sheffield created a positive climate for investment for
office space as well.

At Manchester, new and renovated offices are seeing rents increase by nearly $16 million annually, and values in the area are rising by 33%. Values near Sheffield Station rose by 65% between 2003 and 2008 near improved stations -- three times the appreciation of the Sheffield market as a whole. Overall, redeveloped urban transit stations can create value appreciation of 30% or more compared to those located elsewhere, according to the report.

According to a study on the impact of TODs in West Cook County, IL, by the Center For Neighborhood Technology (CNT), station areas where residents have low transportation costs and high buying power are most likely to support near-term TOD investment.

Certain station areas within the county have competitive advantages and could attract a greater variety of developments and promote greater mixing of land uses.

For example, while Rosemont, IL, has very low residential density, its abundant businesses and well-utilized transit station make for relatively low transportation costs for existing households. Developing more housing and retail within walking distance of transit would allow Rosemont to diversify and expand its sources of tax revenues, moving from a successful employment center to a more vibrant, mixed-use area in which people can easily get around without a car, according to the CNT study.

Article by CoStar.




Accounting Changes Could Harm Economy
Posted - 2 days ago

Study: Costs Linked To Proposed Lease Accounting Changes Could Harm Economy, CRE Values
Rule Changes Could Impact Corporate Borrowing Costs And Shave Up To $15 Billion In Property Values
Real estate businesses and property values could be adversely affected by the new accounting standards -- and the cost of complying with them -- according to a report backed by a coalition of real estate and business groups.

As international rule makers prepare to release another draft of proposed accounting changes that would require companies to capitalize real estate and equipment leases, a report warns that current proposals would impose huge costs on businesses, costs that could potentially offset at least 190,000 jobs, slowing U.S. economic growth and damaging the recovery of the commercial property sector.

Under a best case scenario in the report issued by Chang & Adams Consulting, the current proposal could increase liabilities for U.S. public companies by $1.5 trillion, with more than $1.1 trillion of that attributable to balance sheet recognition of real estate operating leases and the remainder coming from leases liabilities of equipment and other leases.

The accounting changes would result in higher spending and increased cost of capital for companies to comply with the new standards. Using an input-output economic analysis based on estimates using regional economic multipliers, the study reported the increased cost of compliance would result in the offsetting loss of 190,000 U.S. jobs in a best-case scenario and in the worst case, 3.3 million jobs. The study also reported the cost of compliance could lower U.S. GDP by $27.5 billion a year. The study was commissioned by the U.S. Chamber of Commerce, Real Estate Roundtable, NAIOP, Commercial Real Estate
Development Association, NAIOP Inland Empire Chapter, NAIOP Southern California Chapter, the National Association of Realtors and the Building Owners and Managers Association (BOMA) International.

According to BOMA, the objective is to ensure that the costs and benefits of the proposed lease accounting standards are thoroughly vetted and that the analysis includes a thorough consideration of the economics of commercial and industrial real estate leasing and development, so that changes "do not distort market behavior and cause damage to both the real estate market and the national economy."

"A failure to fully understand the economic ramifications of these accounting changes or to address these issues may harm businesses that own, invest, or rent commercial real estate or use leases for other purposes, from office equipment to construction machinery," said BOMA International Chair Boyd R. Zoccola, executive vice president, Hokanson Companies Inc.



Under the best case, public companies would face $10.2 billion in added annual costs from higher interest on borrowing. In the worst case, companies would reduce debt by nearly $174 billion annually, and lessors would lose $14.8 billion in the value of their commercial property.

Other effects, such as higher rents, further reduced property values due to shortened lease terms, administrative costs and problems resulting from obscured financial reporting, have not been calculated. Moreover, the Chang & Adams study did not attempt to estimate the impact from the recognition of non-real estate operating leases.

The report comes as the International Accounting Standards Board (IASB) and the U.S.-based Financial Accounting Standards Board (FASB) are preparing a new exposure draft on the proposed changes. The boards, which are tentatively scheduled to hold joint meetings next week on Feb. 27-29, expect to release the revised draft for public comment during the second quarter.
The FASB and IASB decided in July to issue a new exposure draft on the proposed new standard, first released in August 2010, in response to the heavy volume of complaints from business groups about the rule changes.

The delay in issuing the new standard has worked to the advantage of CRE functions for lessees, allowing an extra year of planning and improved preparation for the transition, according to a February business briefing on lease accounting by Cushman & Wakefield.

"This is truly a benefit as many companies and CRE functions have not had time to date to consider the effect of these changes on their lease processes and financial reporting," according to C&W.

While no one can predict whether the new standard will influence the length of term, purchase considerations and rent structure of lease agreements going forward, "it is virtually guaranteed that the processes necessary to maintain a strategic real estate portfolio or occupancy strategy will be more complicated, will require more sophisticated data bases and will introduce more steps into planning and approval cycles across CRE departments globally," Cushman & Wakefield said. "CRE will find itself front and center in the changes ahead."

The rule makers tentatively signaled at their meetings last October that they would exclude lessors and owners of investment propoerties
 from the proposed rules. However, CRE and business groups are concerned about the capitalizations of lessee lease arrangements as "right of use" assets on the balance sheet with a corresponding liability, and the increased complexity of measuring lessee lease expense for financial reporting.

While the goal of the changes is to improve financial reporting, the proposed "one-size-fits-all approach would have a considerable negative impact on the business operations of the majority of firms that faithfully represent their finances," according to the study.

While published comments to date have focused primarily on the accounting and administrative burdens that would result from the proposed standard, requiring lessees to recognize hundreds of billions of dollars in new liabilities would also alter the manner in which publicly traded companies manage their operations and finances.

"The capitalization of operating leases would impact a broad number of financial metrics that are used by investors, causing a number of firms to violate their lending covenants and retarding their ability to acquire new credit," the Chang & Associates study said, adding it would force firms to cut spending and cause losses in real estate value.

"Given the significant negative economic consequences that we project, we recommend further critical studies of these issues," the report said.
Courtesy of CoStar




Grubb and Ellis Files for Chapter 11
Posted - 2 days ago
 Grubb & Ellis Files for Chapter 11, Agrees To Sell Nearly All Assets to BGC Partners
Grubb Would Join Newmark Knight Frank In Howard Lutnick's Growing Platform of CRE Services Firms
 
Grubb & Ellis Co., of the country’s most recognizable CRE services brands which fell on hard financial times during the economic recession, has agreed to file for Chapter 11 bankruptcy protection and sell nearly all of the company's assets in a bankruptcy transaction to BGC Partners, the parent of Newmark Knight Frank.

In a statement, Santa Ana, CA-based Grubb & Ellis said it believes the acquisition by the investment firm headed by Cantor Fitzgerald CEO Howard Lutnick "will bring the much-needed scale and resources the company had been seeking through its strategic process” and will position Grubb & Ellis to "become part of a well-capitalized global platform."

"Following a thorough and rigorous process and the evaluation of all available options, we determined that a partnership with BGC provides the best platform for our brokerage professionals, employees and clients," said Thomas P. D'Arcy, president and chief executive officer of Grubb & Ellis. "We believe the transaction will be seamless for our clients and we expect no disruption to the company's operations.

"Furthermore, we believe our professionals and clients will benefit greatly by being part of the BGC organization, which, with its recent acquisition of Newmark Knight Frank, will bring together two strong brands to create a powerhouse in the commercial real estate space. BGC's purchase of the company's senior debt and its willingness to provide incremental financing to ensure the smooth execution of the sale process demonstrate its commitment to the success of the Grubb & Ellis business."

To execute the bankruptcy sale, BGC said it has acquired the outstanding secured debt of Grubb & Ellis and has committed to provide debtor-in-possession financing to fund Grubb & Ellis operations during the sale and bankruptcy process. Grubb & Ellis has filed motions requesting that the bankruptcy court approve sale procedures and set a hearing date to approve the sale.

Under the voluntary petition, Grubb & Ellis has entered into a letter of intent in which BGC Partners, acting as a stalking horse buyer, will submit a minimum bid to acquire substantially all of Grubb's assets and provide a senior-secured debtor-in-possession loan of $4.8 million to facilitate a successful sale.

"The expeditious sale of the assets is critical to continuing the debtors' businesses as a going concern, providing uninterrupted services to their valued customers and clients, preserving the jobs of thousands of employees, and maximizing value for all stakeholders," the parties argued in court documents.

The proposed sale will resolve the uncertainties of the debtors' present economic condition by stabilizing its businesses and client base, Grubb & Ellis CFO Michael Rispoli said in a declaration filed with the court.

The parties are executing the transaction under Section 363 of the U.S. Bankruptcy Code, in which a bankruptcy trustee or debtor-in-possession may sell the bankruptcy estate's assets "free and clear" of any interest in such property.



Lutnick, chairman and CEO of BGC, said the deal reflects the "deep and unwavering commitment" of BGC to build a premier position in real estate services.

"We agreed to acquire Grubb & Ellis because we believe Newmark Knight Frank's and Grubb & Ellis' broad knowledge and extensive brokerage expertise, combined with BGC's powerful proprietary technology and our strong financial backing, will enable Grubb & Ellis to thrive and grow as part of the BGC family of companies."

Barry M. Gosin, CEO of Newmark Knight Frank, pointed to the "tremendous" synergies between NKF's consultative approach to clients and Grubb's transactional and management services capabilities.

James D. Kuhn, NKF president, added that Newmark Knight Frank's business model has been "dramatically strengthened" upon becoming part of BGC and believes Grubb & Ellis's brokers, employees and clients would find the same opportunities to grow.

The announcement comes a week after longtime Grubb & Ellis Co. director C. Michael Kojaian resigned from the company's board of directors, in part to "avoid actual or apparent conflicts of interest" in connection with his affiliated companies.

Negotiations with several prominent companies in recent months, including BGC, C-III Capital Partners and Colony Capital, had failed to yield an agreement that would infuse enough cash into the company to continue operations.

However, talks continued with BGC after exclusive negotiations expired in January, culminating in the Tuesday announcement. If competing bidders emerge by March 9, an auction would be held March 21.

However, Brandon Dobell, an equity analyst with William Blair & Associates who follows commercial real estate services firms, does not expect other bidders to emerge and said BGC will likely end up with control of Grubb. Although it remains to be seen what will happen to the Grubb & Ellis brand, the company still has a decent-sized brokerage platform and property management business, Dobell said in a research note.

BGC Partners is among a handful of players, including C-III Capital Partners and UGL, that are most likely to take the leap in building a global real estate business in coming years and join the already established global brands of CBRE, Jones Lang LaSalle, and Colliers, he said.

"With a human capital-focused business model, two major U.S. CRE brands and broker platforms, and a smaller CRE platform in the United Kingdom through U.K. partner Knight Frank’s presence there, we believe BGC will continue to grow its CRE services presence," Dobell said. 
Courtesy of CoStar



CMBS Market Splits as Investors Avoid Taking on Risk
Posted - 2 days ago

CMBS Market Splits as Investors Avoid Taking on Risk

Long-Term Outlook Improves but Investors Still Looking for Short-Term Protection

After a promising first half of the year, the CMBS market finds itself back in uncertain territory with the more than $4 billion of new deals currently in the marketplace getting mixed investor interest.

The latest deals all involve public offerings that have been bolstered with extra credit enhancements to appeal to the higher level of class holders. And the appetite for the highest rate portion of those deals (dubbed CMBS 3.0) has been strong.

The downside, though, is that the demand for the lower-rated portions of the deals has been muted, prolonging the expected completion of the full deal.

Not surprisingly, industry analysts are also split over current conditions in the CMBS market and where it goes from here.

"CMBS was in recovery in the spring and it looked like things were on a roll. At the beginning of the year, we thought CMBS volume was going to be $35 billion or maybe $40 billion. We were on the conservative side of that. Right now, its looks like we'll be lucky to cross [the] $30 billion [threshold] for U.S. originations," said John Levy, founder of investment banking firm John B. Levy & Co. in his podcast this week.

"In the spring, things were going so well, we might have thought we could get $50 billion to $55 billion. While $30 billion (for 2011) is certainly less than what we saw in the spring, keep in mind it's triple what we had in 2010, when we only had about $10 billion. We're doing better but we've certainly slowed down; in fact most of the volume this year will be done in the first seven months. Are we as optimistic as we were in April? Nowhere close."

Borrowers looking for a CMBS or insurance loan will find a bifurcated market, Levy said, something that it has "never really seen that before."

"In the spring we could go to the CMBS markets or to insurance or pension fund markets and frankly the deals we would come up with would not be that [different]. CMBS would probably price 25 basis points (bps) or one-quarter of a percent higher than insurance companies, but they were fairly close, they were competitive," Levy said. "Now, we've seen a difference between CMBS and insurance companies of about 150 bps. If you want an insurance company loan, you could get rates in the 4 to 4.5% range. But if you want to go to the CMBS market, it's going to be in 6% range."

"What that has brought about is there are now two classes of borrowers, the haves and have nots. Obviously, to the extent you could access pension fund or insurance capital, why would you go to CMBS? You wouldn't," he said.

Barclays Capital, though, thinks there are some attractive opportunities to be had in the current CMBS market.

Barclays Capital and FundCore Finance Group this week established a new CMBS loan origination and securitization program. Barclays Capital will provide funding to originate conduit loans while FundCore will source loan opportunities. The partnership will look to originate and securitize 5-, 7- and 10-year fixed-rate loans secured by traditional commercial property types in major markets throughout the United States.

"The CMBS business model has dramatically changed and we continue to look at numerous ways to take advantage of this opportunity," said Steve Ball, president of FundCore.

"We have been thoughtful about our expansion into CMBS origination and we believe that the current environment provides us with many opportunities," said Larry Kravetz, head of CMBS Finance at Barclays Capital.

In a global outlook Barclays published this week, the firm noted that investors have shifted to much more bearish positions over the past couple of months, "suggesting to us that parts of the market have sold off sufficiently to warrant some targeted long positions."

Long term, Moody's Investors Service said structured finance transactions such as CMBS deals will perform better than pre-crisis ones as a result of improvements in asset quality and transaction structures, both of which were responses to weaknesses revealed during the crisis.

"Loans included within the current generation of U.S. commercial mortgage-backed securities (CMBS) are considerably less risky than loans originated during the 2006-07 issuance peak," noted Tad Philipp, director - commercial real estate research for Moody's, this week in an extensive report Moody's published on the shifting credit markets post the current credit crisis.

"The financial crisis exposed the consequences of aggressive underwriting by driving CMBS delinquencies to high single-digit levels. The improving risk profile of current originations largely reflects more conservative underwriting applied to bottoming commercial property valuations," Philipp noted. 
Provided By CoStar.



Investors See Stability in Commercial Real Estate
Posted - 2 days ago

Investors See Stability In Commercial Real Estate Despite Weak Recovery

PwC Survey Finds Noticeably Darker Outlooks Compared With Six Months Ago, Despite Gains In Fundamentals

Investors surveyed by PricewaterhouseCoopers (PwC) continue to see commercial real estaate as a relative bright spot in the gloomy investment landscape. At the same time, stubbornly high unemployment and economic volatility has clearly dampened their enthusiasm for the asset class since the start of 2011, even as rents, values, absorption and occupancy levels have slowly improved.

Meanwhile, a different study of commercial property net operating income (NOI) by Fitch Ratings showed that the sector still has quite a ways to go before it completely shakes off the effects of the Great Recession. Overall NOI was still down by 1% from year-end 2009 to year-end 2010, but has shown an improvement from the prior year-of-year decline of 5%, and "one year of greater NOI stability does not mean a recovery," Fitch Senior Director Adam Fox noted.

Responses from the more than 200 institutional investors surveyed by PwC during the third quarter reflected the volatility in the financial markets, the global sovereign debt crisis, the U.S. rating downgrade, and fears by some economists of a possible double-dip recession.

"There is little doubt that we have entered a period of slower growth and greater uncertainty," leading to concerns that continued business and consumer insecurity will disrupt the slow-but-steady real estate recovery, said a respondent. "Today, many investors are less confident in the industry's future than they were six months ago," another respondent said.

Even as rent growth remains frustratingly feeble for most landlords, owners find overly aggressive rent growth assumptions by both buyers and lenders even more vexing.

"We are very worried about the prospects of rent growth, especially in the office sector," said an investor, while another fretted that "buyers are underwriting recovery whether justified or not." Another respondent chimed in that rent expectations "have gone from realistic to futuristic."

However, respondents overwhelmingly agreed that debt remains available for qualified buyers, especially for well-located core assets with reliable rent rolls.

"I feel good about the capital markets in that there is still debt available to do deals," said an investor. Overall, loan-to-value (LTV) ratios for the survey's 35 markets showed an average of 59.4%.

Others, however, believe that financing is more problematic for some office deals, especially where distressed remains an issue. The opposite is true for apartment investors, which has some of the highest LTVs of the quarter.

Average overall capitalization rates dropped in 26 of 35 markets during the third quarter, and respondents said they expect overall cap rates to either hold steady or decline in most markets over the next six months.

Competition among buyers is strong, with sellers are beginning to get the upper hand pricing in certain sub-sectors. About 31.4% of respondents indicated that they believe market conditions favor buyers, down from 58.6% a year ago in 2010 and 80% in 2009. More than one-quarter of survey participants view the market as favoring sellers, up from 12.3% in 2010 and 7% in 2009.

In its two-year study, Fitch Ratings analyzed the performance of 21,334 commercial properties from 2008 to 2010, which secure its current $270.4 billion fixed-rate CMBS portfolio. Just over one-third of the portfolio is secured by office, another 33% by retail, 14% multifamily, 7% hotel, 6% industrial/warehouse, and 6% other property types.

Hotels have seen the largest performance declines over the last two years, with NOI dropping 25% between 2008 and 2010, Fitch said. While overall hotel performance may have begun to show signs of improvement with one year of positive growth, many hotel properties, especially limited-service hotels located in secondary and tertiary markets, continued to report a lower NOI in 2010 than in 2008.

"The daily reset of overnight rates make hotel properties the most vulnerable to performance declines," said Fox.

On the other end of the extreme, apartment properties performed better, declining only 1% over the same two-year period, Fitch said. Property managers had been maintaining lower rents and offering concessions in an attempt to bolster occupancy, but some of these concessions are slowly going away.

Office and retail properties, which benefit from longer-term leases, experienced modest NOI declines of 4% and 3%, respectively, from year-end 2008 to 2010.
Provided by CoStar.



Data Center Landlords See Lease-Up Challenges
Posted - 2 days ago

Despite Boom, Data Center Landlords See Lease-Up Challenges

Internet Giants Building Their Own Enterprise Facilities As Supply Swing Brings Better Balance with Demand

Even as computing and social media giants embark on huge projects to keep pace with rising Internet usage, some investors and analysts say the supply of new wholesale data centers and colocation space is finally beginning to catch up with tenant demand, most notably in certain highly competitive markets such as Northern Virginia, Silicon Valley, New York and New Jersey.

Companies such as Apple Inc. and Facebook, Inc. are increasingly opting to build their own server and data center facilities rather than lease from large developers and landlords. Corporate users such as Chevron and Wal-Greens have decided to make their own capital expenditures for enterprise data center space to take advantage of tax benefits and avoid paying rent to landlords.

Amid concern from some analysts that the slowing economy may further dampen demand, particularly from financial services tenants, publicly traded REITs such as Dupont Fabros (NYSE: DFT) and Digital Realty Trust, Inc. (NYSE: DLR) and CoreSite Realty (NYSE: COR) have responded by focusing tightly on the lease-up of new projects coming onto the market. While Digital Realty logged the second-best leasing quarter in its history and CoreSite also reported solid second-quarter activity, Dupont Fabros reported slower leasing and also announced that Yahoo! would not renew a lease in Reston, VA.

"We did admittedly have a slower quarter in leasing," said Hossein Fateh, DFT co-founder, chief executive officer and president. "But we don't feel any different about the market or the growth of the Internet."

A slowdown in the overall economy could be another blow to the critical taking of space at new datacenter developments, "at a time when leasing is already slow and competition is fierce," said Citi analyst Emmanuel Korchman in a recent research note.

"Development yields and earnings are likely to take a hit as new developments are delivered with lower occupancy than originally anticipated and stabilization timeframes are stretched out."

Korchman noted that the current hyper-competitive market may be a short-term issue. Over the long term, however, he expects data center demand will remain strong as cloud computing and social media continue to drive demand.




The strong leasing momentum generated by San Francisco-based Digital Realty appears to be carrying over into the current quarter. The company announced this week that it has fully leased the first redeveloped building, a 105,000-square-foot facility built out as a multi-tenant data center facility with 13 megawatts of capacity, at its Datacenter Park-Dallas property in Richardson, TX.

However, according to a spring 2011 report on the U.S. sector by Jones Lang LaSalle, the gap between future supply and demand is currently shrinking as more players have gotten into the market.

Private users, consultants, developers and investors have increased their interest in and knowledge of data center real estate over the last year. Governments have actively courted capital investment and infrastructure development associated with data center growth.

"More and more municipalities, counties, regions, and states believe there are ancillary economic benefits to landing a data center development, and are drafting incentive legislation to attract mission-critical buildings and developers," JLL said in the report by Brian Oley, vice president, mission critical solutions, and Matthew Samler, lease associate with Jones Lang LaSalle in Dallas.

"All signs... anticipate that the gap between supply and demand in the data center marketplace will diminish over the next two to three years," JLL said.

"Current data suggests that the previous supply and demand imbalance is approaching a more balanced equilibrium," the Jones Lang report said. "Those in the public sector are realizing the benefits of attracting new data centers to their markets, thereby increasing incentives for developers, creating an environment for the private sector to begin to address data center supply shortages.

"While the imbalance continues, only those regions at the forefront of innovative legislation and those in the private sector with keen market acumen will fully capitalize on this growth industry."

Jim Kerrigan, executive vice president and director of Grubb & Ellis National Data Center Group, noted that it’s difficult to measure demand change in the broader data center market in smaller quarterly increment -- in part because the data center market is relatively small but also because many deals by private companies aren’t immediately disclosed due to confidentiality restrictions.

"Demand is measured market by market. One deal can make the difference between undersupply and oversupply in the data center sector,” Kerrigan said.

For example, new supply is flowing into Santa Clara, CA in the Silicon Valley, even though some analysts recently believed that the market was over built. The New Jersey market is now perceived as being slightly over developed -- largely because New York financial firms to date have not recovered and fulfilled space requirements as quickly as expected. But that could change quickly, Kerrigan noted.

One aggressive new player in the Silicon Valley is Vantage Data Centers, backed by technology focused private equity firm Silver Lake Partners, which hopes to invest more than $1 billion in wholesale data centers and has one of the best shots of eventually competing with industry leader Digital Realty, Kerrigan said.

While leasing may be slower at the three largest publicly traded companies, private wholesale providers like Vantage, Cincinnati Bell and CyrusOne have seen tenant interest and activity, Kerrigan pointed out.

“You could argue that the influx of new companies into the data center space has put pressure on the major publicly traded companies. There’s a lot more competition than there was a year ago,” he said.  Brought to you by CoStar.



Analysts Rethink Real Estate Outlooks for 2011
Posted - 2 days ago

On Second Thought: Analysts Rethink Real Estate Outlooks for Rest of Year

Just as the robust pace of recovery at the end of last year led
commercial real estate markets to believe the recovery was well-established, along came a barrage of disappointing economic and job growth setbacks, including downward revisions to gross domestic product, fiscal turmoil in Europe, the political gridlock in Washington over the debt-ceiling limit, Standard & Poor's U.S. debt downgrade, followed by a roller-coaster ride in the investments markets, have caused analysts and economists to temper their outlooks for the remainder of the year.

Fannie Mae led the way this week in its Monthly Economics and Mortgage Markets Outlook.

"While we expect the meager recovery to continue into a third year, we have downgraded our outlook substantially for the rest of this year and next. For all of 2011, economic growth is expected to downshift to 1.4% from 3.1% in 2010-nearly a full percentage point lower than our projection in the prior forecast."

"Growth is expected to pick up in 2012, but only to about 2%, compared with 3.1% projected in the July forecast. This downgrade reflects a substantial risk of recession in coming quarters," Fannie Mae wrote. "The sluggish pace of economic growth implies that the economy is vulnerable to additional shocks, especially the renewed concerns about the European sovereign debt crisis."

Lower mortgage rates are not expected to boost housing demand, which will likely remain sluggish until we see sustained, strong employment gains, Fannie Mae wrote.

"With modest improvement in home sales in 2012 and only a gradual improvement in inventory, we expect home prices to resume their declines in the second half of 2011 before stabilizing in early 2012," Fannie Mae said. "There is some risk that the stabilization in home prices will be delayed if the labor markets deteriorate further."

Freddie Mac, wasn't nearly as downbeat as its counterpart, and said this week that the likelihood of an extended period of both relatively low short- and long-term interest rates is helpful news for the housing market's recovery.

"While the capital markets have experienced sizeable movements up and down in recent weeks, these swings are unlikely to lead to whiplash or hospitalization for individual investors," said Frank Nothaft, Freddie Mac, vice president and chief economist. "Heightened uncertainty, unfortunately, can be harmful to the overall economy. Perhaps it's best not to look up or down, but keep one's eyes on the track ahead."

While the first half of the year saw a budding commercial real estate recovery, the downbeat news this summer is also threatening to delay that progress, accounting consultancy firm Deloitte wrote in a commercial real estate outlook it published this week.

With the economy unlikely to be a short-term catalyst, strategies based on more realistic expectations of a modest and gradual return to growth are key, said Bob O'Brien, Deloitte vice chairman and real estate sector leader.

"It's important to remember that commercial real estate was the first sector to be hit hard by the downturn so it is further along in rebounding than other businesses," O'Brien said. "At the same time, the wall of debt maturity that will come due between now and 2015 still may present short- and longer-term challenges for the remainder of this year and into 2012."

Christopher Lee, president and CEO of real estate consulting firm CEL & Associates, wrote this week that the prospects for a real estate recovery could wait until 2013.

"Life isn't about waiting for the storm to pass… it is about learning to dance in the rain," Lee wrote this week in his Strategic Advantage newsletter. "We are in a perfect storm of financial and economic turmoil and chaos that continues to create challenges for the country and the real estate industry."

According to Jones Lang LaSalle's Global Capital Flows report that also came out this week, cross-border commercial real estate transactions rose 50% to comprise half of the $103.5 billion of direct investment transactions completed in the second quarter of 2011,

Given the strong start to the year, Jones Lang LaSalle said it still expects market volumes to reach its full year forecast of $440 billion, so long as current market volatility and uncertainty abates and there are no further significant economic setbacks.

In an era of instability, good quality commercial property will benefit, but deals, particularly larger ones, will take longer to complete, JLL said.

"In the first half of this year, we saw firms investing domestically and the private equity and unlisted funds investing across borders," said Arthur de Haast, head of the International Capital Group at Jones Lang LaSalle. "Funds are being more cautious with a focus on investing primarily at home and trusting experienced managers with their cross border investments. This trend should continue through the second half of the year if the economic environment remains uncertain."

"Risk aversion has risen over the past few months, meaning large deals are taking longer to close," de Haast added. "While we're seeing more transaction flow, in the second quarter there was a notable absence of big ticket, single-asset transactions."

"While a significant number of large transactions are in the pipeline for the second half, the volatility of markets could cause further delay" de Haast said.  Brought to you by CoStar.




MORE CRE Shopping Begins
Posted - 2 days ago

As Era of "Extend & Pretend" Ends, More CRE Shopping Begins

Investors See More Opportunities in Distressed Investment Coming To Market Ahead of This Year's Glut of Maturing CRE Debt

As the "extend and pretend" period of the Great Recession wanes into a period of true loan modifications, lenders and note holders appear to be forcing more distressed loans into the marketplace. And in turn, institutional investors, who were disappointed in the relatively slim pickings available in the distressed markets after raising enormous sums targeted for acquisition in 2009 and 2010, seem to be back on the hunt for more opportunities in investment-grade commercial real estate.

SilverLeaf Financial, a private equity firm specializing in buying distressed debt, this week acquired six non-performing notes secured by various apartment complexes in Georgia. The aggregate unpaid balance of the notes totals $16.6 million. Shane Baldwin, a principal of SilverLeaf, said depressed market conditions coupled with overleverage factored into the default.

"We liked the collateral, and felt comfortable with the location of the apartment complexes. Our investment platform incorporates a strategy in which we acquire loans and loan portfolios that are priced below the intrinsic value," Baldwin said. "In the event we exhaust our work-out or restructuring options, the hope is we own the real estate at a very good value."

Taking title to a distressed property figured extensively in another transaction this week, Global Fund Investments and MMG Equity Partners foreclosed on Harbour Village, a 112,886-square-foot shopping center in Jacksonville, FL, anchored by The Fresh Market and Stein Mart. After acquiring the conduit loan from a special servicer in an off-market transaction in April, the Global / MMG partnership set about the foreclosure process to take title to the property.

Gabriel Navarro, MMG principal, said, "We're happy to have completed the foreclosure process and take title to one of the best-built and well located shopping centers in Jacksonville. This transaction is another example of our ability to move very quickly and work within nontraditional transaction guidelines and timeframes."

According to the latest CoStar Commercial Repeat-Sale Indices, transaction activity increased 24% from 2,176 sale pairs in the first quarter of 2011 to 2,690 sale pairs in the second quarter of 2011. Investment grade transaction activity drove most of the increase. Noteworthy in the investment grade index is that the percent of distressed sales increased to 34% of the activity in June 2011 from 32.2% in May 2011.

In March, CoStar Group forecast $45 billion to $60 billion worth of distress transactions in 2011.

Bank "extend and pretend" strategies through 2008-2010 moved a glut of loan maturities to this year. As of year-end 2010, CoStar forecasted more than $850 billion in commercial real estate loan maturities this year. And 2011 has produced a strong stream of newly delinquent loans on top of already significant increases in loan modification and liquidation activity.

Under such "extend and pretend" policies, lenders and servicers simply extended maturity dates as a way to wait out the Great Recession. Then in the second half of last year, the number of "true" modifications of principal and interest rate reductions began to make up an increased share of activity. This also opened the doors for banks to start releasing loans they did not want to modify back into the marketplace.

As a result, the opportunities for investors to acquire properties through foreclosures on attractive terms has also increased, according to a white paper Urdang, the real estate arm for BNY Mellon Asset Management, released this week.

David Rabin, managing director, private real estate, at Urdang Capital Management, and the co-author of the report, said, "With banks increasingly willing to sell these properties and with commercial mortgage backed securities (CMBS) delinquencies at an all-time high, we believe there will be increasing opportunities to purchase or recapitalize over-leveraged assets at an attractive cost basis."

"The ability to acquire these properties at attractive costs is possible because of the significant amount of commercial real estate debt that is scheduled to mature over the next four years," said David Blum, managing director, portfolio management, at Urdang Capital and the other co-author of the report. "Many of these properties have experienced deferred capital expenditures, which will require owners to invest additional equity or dispose of their assets."

Also contributing to the attractiveness of selectively acquiring commercial real estate is that, aside from a handful of high-end properties in top tier U.S. markets, commercial real estate values generally remain well below the pricing peaks reached during the 2005 to 2007 period, according to the authors. The report attributed this drag on commercial real estate to the downward pull exerted by sales of distressed properties.

"This drop in values has put many otherwise healthy properties in a position where they will require infusions of additional equity so maturing mortgages can be refinanced," Blum said. "This gives new investors the opportunity to have a lower cost basis than those who bought similar properties a few years ago, providing them with the ability to offer lower rental rates than comparable properties with greater debt burdens."  Brought to you by CoStar.



Money for CRE Deals Starting To Flow
Posted - 2 days ago

Money for CRE Deals Starting To Flow

Don't Expect a Gush, But Lenders Are Lifting Capital Constraints

Numerous indications over the past few weeks point to an easing of investment capital for real estate deals. Life insurers have become more active lenders; new CMBS offerings are hitting the street; syndicators are starting to assemble new CDO offerings; and bank loan officers are reporting the first easing of lending standards in years.

The ongoing recovery of the capital markets is being aided by an improving U.S. economic recovery. Employment appears to have entered a period of consistently stronger growth, manufacturing output is expanding robustly, and business confidence is up. Corporate profits continue to be a core source of strength for the U.S. economy and corporations are spending more on new technology and new hires, which should reinforce employment growth and bolster consumer confidence, according to Jones Lang LaSalle.

"From nearly every capital segment there are more active participants and the competitiveness among lenders has intensified markedly over the last few quarters," said Tom Fish, executive managing director and co-head of Jones Lang LaSalle's Real Estate Investment Banking team. "The CMBS market has re-emerged and is once again considered a viable component of the market."

Though commercial real estate lending is still down 75% from peak levels, it has rebounded in the past 12 months. It was up 88% in the first quarter of 2011 from the first quarter of 2010, according to CoStar Group.

Leading the charge have been life insurers. Their balance sheets are much further along the recovery path than their counterparts in the banking sector, and issuance since the third quarter of 2010 is running at about 90% of average 2005-2007 issuance in this sector, according to Mark Fitzgerald, a debt strategist for CoStar Group.

However, its composition has changed dramatically over the past two years, Fitzgerald said. Refinance activity averaged 12.8% of total lending volume from 2000 to 2008, but jumped to a little less than 30% in 2010. In addition, risk tolerance remains very low, particularly for new business.

Life insurers are focusing the vast majority of their new lending on large deals. While this has been a longer-term development since the early 1990s (as expected with increases in asset values over this period), this trend has ramped up significantly since 2008, despite sharp declines in CRE values. In 2010, just less than 75% of all new lending volume was on loans greater than $25 million.

The focus on larger assets in core markets has helped to fuel the divergence between pricing on large loans and that of the rest of the market, Fitzgerald said.

Meanwhile, many lenders are still dealing directly with the aftermath of the downturn. Legacy assets continue to restrict new lending availability, he said. For many of those with capital to deploy, the pain of the credit crisis remains front and center. However, history has shown that the most attractive lender returns are earned on the bottom-of-the-cycle vintage loans, Fitzgerald added, which is contributing to the greater availability of funding.

Brian Staffers, president of CBRE Capital Markets reported this week that loans that were virtually impossible to fund at the beginning of 2011, now command multiple lender bids. Loan-to-values are higher, debt yields are lower, interest only is coming back and even some special purpose assets and non-credit single tenant properties are receiving substantive lender attention.

"These are all the logical results of a more-competitive environment," Staffers said, adding however, "this does not represent exuberance. We see lenders making rational decisions based on valid inputs and thoughtful consideration."

Banks Easing CRE Lending Standards


Banks are slowly ramping up their commercial real estate lending, according to the Federal Reserve's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. In the recently released April survey, 5.5% of respondents said their banks eased standards for CRE loans in the prior three months, the first such loosening of bank credit since the fourth quarter of 2005.

Nearly 35% reported stronger demand for CRE loans from creditworthy borrowers, the largest quarterly jump in 13 years.

BB&T Corp., a major regional bank based in Winston-Salem, NC, is just one example. It has doubled the portfolio lending capacity of its BB&T Real Estate Funding group from $400 million to $800 million.

"We expect 2011 will be a very strong year for us," said Kirk Booher, manager of BB&T Real Estate, which sources all loans through Grandbridge Real Estate Capital. "We are seeing increased transaction activity and improved fundamentals in the marketplace, particularly for multifamily, our preferred property type."

That isn't to imply that all banks are out of the woods yet. For starters, the banks that indicated an increase in demand were almost all large domestic banks, noted Robert Bach, senior vice president, chief economist for Grubb & Ellis. Other domestic and foreign banks reported little change in demand for CRE loans on net, he said in a report this week.

The outstanding volume of bank CRE loans, at levels last seen in late 2006, continues to fall as the increase in REO properties outpaced the issuance of new loans, Bach noted in analyzing the Federal Reserve loan officer survey.

Overall, capital availability is increasing for commercial real estate across most sources of debt and equity, Bach noted. Although prices have moved higher for core assets in primary, supply-constrained markets, pricing for slightly riskier assets (older, more vacant space, secondary location, etc.) remains low, tempting investors and lenders with visions of buying low now and selling high down the road when the market fully recovers, Bach said.

Two Banks Going to Market Again This Year with New CMBS Deals


With liquidity building, the return of the CMBS market is continuing its comeback, too. Through April 2011, $9 billion in CMBS was issued, far exceeding the nominal amount issued in the same period a year earlier, and already more than three-quarters of the total issuance recorded for the whole of 2010. Current estimates for 2011 issuance range between $40 billion and $60 billion.

JP Morgan Chase and Wells Fargo Bank are both going to market this week with $2.9 billion of new commercial mortgage backed securities offerings (CMBS) - the second such offerings from both banks this year.

Wells Fargo Bank's WFRBS Commercial Mortgage Trust 2011-C3 commercial mortgage pass-through certificates are backed by 73 loans secured by 144 commercial properties having an aggregate principal balance of $1.45 billion. The loans were originated by Wells Fargo Bank, The Royal Bank of Scotland, C-III Commercial Mortgage, Basis Real Estate Capital II, RCG LV Debt IV Non-REIT Assets Holdings and RBS Financial Products Inc.

The master and special servicers will be Wells Fargo and Midland Loan Services Inc. respectively.

Retail properties represent the highest concentration of the pool at 49.5%, including nine of the largest 15 loans. The retail concentration is composed of regional malls, local shopping centers and a few single-tenanted retail portfolios. Three of the four regional malls in the top 15 loans are backed by malls in secondary markets. Office properties represent 20.2%.

The largest loan in the pool at $184.5 million is for the Village of Merrick Park, a 741,229-square-foot regional mall, as well as 116,312 square feet of office space in Coral Gables, FL. The mall anchors, Nordstrom and Neiman Marcus, own their stores and land thus are not part of the collateral. The sponsor is a joint venture between General Growth Properties, JP Morgan Strategic Property Fund and Cigna.

The second largest loan at $99.9 million is for the Hilton Minneapolis, an 821-room full-service hotel in downtown Minneapolis, MN.

The third largest loan at $99.1 million is for the Park Plaza Mall, a 532,149-square-foot regional mall in Little Rock, AR. The mall is anchored by two Dillard's stores, Men's & Children and Women's & Home, which own their stores and thus are not part of the collateral. The sponsor is CBL & Associates Properties.

The JP Morgan Chase Commercial Mortgage Securities Corp. 2011-C4 certificates are backed by 42 loans secured by 84 commercial properties also having an aggregate principal balance of $1.45 billion. The loans were originated by JPMorgan Chase Bank.

Midland Loan Services will be the master servicer and Torchlight Loan Services will be the special servicer.

Retail properties also represent the highest concentration of this pool at 41.6%; with office properties making up 35.6%.

The largest loan in the pool at $199.8 million is for the Newport Centre, a 1.15 million-square-foot (972,484 square feet owned), three-level regional mall in Jersey City, NJ. The property was built in 1987 and is anchored by Macy's, JC Penney, Sears and Kohl's. The loan, which refinances existing debt of $146 million, is sponsored by a joint venture between Melvin Simon & Associates and members of the LeFrak Organization.

The second largest loan at $174.9 million is for the Two Allen Center, a 36-story, 993,356-square-foot office building in downtown Houston, TX. The largest tenant is Devon Energy Production Co., which occupies 64.6% of the net rentable on a lease that expires in January 2020. The property was 97.1% occupied as of January 2011.

The third largest loan at $114.7 million is for a Sun Communities portfolio secured by nine manufactured housing communities and two recreational vehicle resorts across six states. The loan is sponsored by Sun Communities Inc., a self-administered and self-managed real estate investment trust (REIT) that owns, operates and develops MHCs across the Midwest, South and Southeast. The loan is a refinance $105 million of maturing debt.

Freddie Mac Marketing Second CMBS This Month


Just two weeks after completing a new multifamily mortgage backed securities offering, Freddie Mac has the streets with another in its series of structured pass-through certificates (K Certificates). This is its sixth such offering this year.

The company expects to offer $538 million in K Certificates (K-AIV Certificates) that are backed by 19 multifamily properties owned by Apartment Investment & Management Co. affiliates. This is only Freddie Mac's second single-borrower K Certificate; the previous was the March 2010 K-SCT transaction backed by the Starrett City property in Brooklyn, NY.

The K Certificates were expected to price this week.

The largest property backing the offering is for the Fox Chase Apartments, a 2,113-unit complex in Alexandria, VA, with a $217.8 million loan issued by Wells Fargo Bank.

As CRE CDO Delinquencies Pile Up, New Offerings Beginning to Re-Emerge


The 3-year plus absence of new U.S. commercial real estate collateralized debt obligations (CRE CDOs) may be coming to an end soon as well, Fitch Ratings reported.

On the heels of the CMBS market revival, Fitch has begun to receive inquiries regarding new CRE CDOs. The collateral contemplated is ranging from seasoned commercial mortgage backed securities (CMBS), newly originated CRE loans to a hodgepodge of CRE debt.

The difference in collateral is also likely to lead to equally different ratings, according to Huxley Somerville, Fitch group managing director.

"New issue CRE CDOs backed by whole loans may look very similar to traditional multi-borrower CMBS and therefore may be able to achieve high investment grade ratings," Somerville said. On the other hand, "CRE CDOs backed by a mix of lower quality loans or bonds may only be able to achieve ratings a notch or two above the level of their average asset rating, if they are even ratable at all." 

Brought to you by CoStar.



Investors Jump Back Into Rebounding Hotel Market
Posted - 2 days ago

Investors Jump Back Into Rebounding Hotel Market

With Hospitality Fundamentals and Profits Swinging Back Up, Investment Funds and Institutions Are Joining REITs In the Buyer's Circle

With the U.S. hotel sector firmly in recovery mode, the number of large hotel investment sales has continued to rise in the second quarter. More properties are coming onto the market in response to a growing amount of capital seeking hotel investment, with private-equity funds, institutional buyers and other types of buyers joining REITs in the competition for high quality lodging assets.

The already-hot pace of deals seems to have accelerated in recent weeks. According to preliminary CoStar data, approximately $4.21 billion in hospitality properties have sold or gone under contract in 132 sales since April 1 of this year. Nearly a dozen of those deals involve hotel portfolios or high-end properties that have closed at a price of $100 million or more.

"The transaction environment remains extremely competitive," said Douglas Kessler, president of Ashford Hospitality Trust Inc., which along with joint venture partner Prudential Real Estate Investors took ownership of the 28-hotel Highland Hospitality portfolio earlier this year through a consensual foreclosure for $1.277 billion.

"The depth of the buyer market is increasing and includes REITs, investment funds, insurance companies, pension plans, private equity and offshore buyers," Kessler said during the Ashford’s recent earnings conference call.

A new survey of hotel investors and lenders also reflects bullishness and optimism in the marketplace. According to the recent Hotel Investors' Gauge by STR (Smith Travel Research) Analytics and HotelNewsNow.com, 81% of investors surveyed are actively pursuing acquisitions -- even though 28% currently hold delinquent assets. More than half of respondant believes that occupancy will return to prior peak levels by 2012, with ADR recovering by 2013.

The results indicate that most investors are predicting a quick recovery for the industry, which is one of the factors driving the increased transaction activity in recent months,

"Moreover, despite the reported dearth of available debt for commercial real estate, roughly two-thirds of the lenders surveyed are willing to finance lodging acquisitions, albeit at more stringent terms than what was offered just a few years ago," said Stephen Hennis, director of STR Analytics.

The survey found 62% of lenders who responded are willing to fund new acquisitions, despite the fact that 62% have worked out delinquent loans, 38% have foreclosed upon properties, and 60% now control assets that have been foreclosed upon.

As hot as the office investment sales market has been of late, hospitality investment is even hotter, noted CoStar Senior Real Estate Strategist Chris Macke.

"First-quarter 2011 hospitality sales volume was 109% above the same period in 2010, making it the hottest property type based on sales volume increases versus 2010," Macke said.

"This makes sense as the 24-hour nature of hospitality leases results in hospitality net operating incomes (NOIs) more quickly reflecting improving economic conditions, providing investors with earlier insight into the income growth potential on the horizon than other property types," Macke continued. "Combined with the dramatic drop in NOIs and valuations during the downturn, this has made for an ideal environment to facilitate increased sales volume."

Hotel operators are clearly poised to take advantage of those big improvements in fundamentals. As of the first quarter, owners throughout most of the 54 largest U.S. markets tracked by CoStar and its forecasting unit, Property & Portfolio Research (PPR), had already started to push room rates upward.

The recovery remains uneven, with only a handful of metros sporting high occupancies showing consistent rent gains over the past year. Still, with occupancies much improved from their cyclical lows and increasing further, CoStar forecasts that room rates should increase across the board in 2011.

Occupancy gains alone have been enough to stoke sizable growth in revenue per available room (RevPAR) in the top 54 markets, according to CoStar. For the week ending May 21, the U.S. lodging industry reported its strongest weekly performance since early April, said Steve Hood, senior vice president at Smith Travel Research (STR).

The industry recorded an 11.6% gain in RevPAR, rising to $67.52 for the week. National hotel occupancy rose 6.2% to 65.4%, and the average daily rate (ADR) increased 5.1% to $103.23.

The RevPAR pop this year has attracted buyers looking to capitalize on the property type’s relatively quick recovery in asset-level performance, CoStar Real Estate Economist Jeff Myers said in a recent report on hotel fundamentals.

"The market for transactions is heating up rapidly," confirmed Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels, which has closed several large deals this year -- most recently the acquisition of two properties totaling 282 rooms by Texas-based FelCor Lodging Trust, Inc. from Morgans Hotel Group for $140 million, or $496,454 per room, on May 23.

With hotels bearing a disproportionate amount of distressed CMBS debt compared to other property types, a significant portion of lodging deals involve troubled properties.

In one of the largest of these transactions, Chatham Lodging Trust and Cerberus Capital Management, LP bought the Innkeepers USA portfolio of 65 properties from Innkeepers and Apollo Investment Corp. in a bankruptcy sale in May for $1.13 billion, or about $124,599 per room. Also last month, private equity fund KSL Capital Partners of Denver bought the 293-room Intercontinental Montelucia Resort & Spa in Paradise Valley, AZ, for $115.6 million, or $394,439 per room, in an REO sale from Eurohypo AG.

Though plenty of buyers are targeting heavily discounted distressed assets, well-located core-quality hotels are also selling regularly and the value of these deals has caused the average price per room in the market to begin trending upward.

"So far this year, there have been more than 35 upscale, full-service hotels traded in large urban areas throughout the U.S., with total transaction volume exceeding $4 billion, marking a staggering 250% increase, from $1.3 billion in the same period last year," Adler said. "Manhattan is on the forefront of hotel transactions, with year-to-date sales in the city topping $1 billion, representing a quarter of national upscale urban hotel trade volumes."

Texas based FelCor Lodging Trust, Inc. bought two properties totaling 282 rooms from Morgans Hotel Group for $140 million, or $496,454 per room, on May 23. 

brought to you by CoStar.




Excess Federal Property a Game Changer for Commercial Real E
Posted - 2 days ago

Excess Federal Property a Game Changer for Commercial Real Estate

Reducing Federal CRE Footprint Will Impact Rents, Construction, Supply

Through an aggressive push in Washington, DC, to cut costs and improve operational efficiencies, the federal government's listings of properties for sale could balloon from less than a hundred or so to include potentially thousands of properties - and also, reduce the government's reliance on leased space.

The effort is already influencing how landlords and brokers make decisions affecting commercial real estate.

With pressure building to lower the national deficit, the government is moving into a cost-cutting mode, and excess real estate has become one of the targets of the budget ax. The federal government is already exploring ways to house federal employees more efficiently in less overall space while at the same time, creating a potential source of revenue from the divestiture of excess property.

Last week, the House subcommittee on Economic Development, Public Buildings & Emergency Management approved a bill (the Civilian Property Realignment Act) that calls for setting up a commission to identify real estate properties that would be put out for sale. Rep. Jeff Denham (R-CA), chairman of subcommittee, sponsored the bill with the full backing of the President, who has directed federal agencies to accelerate efforts to eliminate unneeded properties, setting a goal of saving $3 billion by the end of 2012.

The proposed commission would have a structure similar to the Defense Base Closure and Realignment Commission (BRAC) to help facilitate the sale of unused or unneeded government-owned real estate. This commission, whose membership will be approved by Congress, will determine which properties should be sold based on real estate fundamentals and pricing.

The same day that the White House announced its intention to push this bill, it also released a map showing some 14,000 federal properties that could be targeted for sale. Currently only 21 of them are for sale, according to federal government officials.

"These excess properties are just the tip of the iceberg," said Jeffrey Zients, the Federal Chief Performance Officer and the Deputy Director for Management at the Office of Management and Budget and who is overseeing the Obama administration's efforts to restructure the government. "There are many more opportunities to cut waste and save taxpayer dollars by downsizing the federal government's footprint."

The 14,000 properties identified are controlled or serviced by the U.S. General Services Administration (GSA). Several other federal agencies, however, have the authority to handle the disposition of their properties internally and not go through GSA. For example, the bill in its current form charges the commission with identifying which federal field offices are in close proximity to existing postal facilities, and identify where there are opportunities to combine the two separate locations into the postal facility.

The Economics of Real Estate Restructuring


Brian C. Sullivan, executive director, Federal Practice Group at Cushman & Wakefield in Washington, DC, says you can't argue with Congress for trying to figure out ways to generate additional revenue and save money.

"The sale of federal assets is a two-bagger," Sullivan said. "It generates the sale proceeds and then puts the asset back on the local jurisdiction's payroll."

That said, Sullivan added: "The BRAC-like commission should not be a process to circumvent GSA. However, it should be a process where Congress brings OMB and GSA to the table, devises a business strategy based on best practices, leverages current market conditions, and then executes its strategy on behalf of the U.S. taxpayer, rather than to take its traditional stance that the law doesn't allow us to lease office space or structure real transactions like GE, Exxon, and even many municipalities."

A stronger argument to bottom-line savings is the sale of underutilized federal assets and continuing to focus on creating a more efficient work model, Sullivan said. "Assuming it costs you a $100,000 per year, with benefits, etc. to employ a federal employee, the elimination of a duplicate job saves you a $1 million over a 10-year term. On a 50,000-square-foot transaction, elimination of just one person provides you a 5% savings on your annual rent."

The Poster Child of Irresponsible Leasing


Tom Cafferty, president and managing principal of Cafferty Commercial Real Estate Services in McLean, VA, said the Securities & Exchange Commission's 900,000-square-foot, $415 million lease of Constitution Center signed last summer has served to focus Congressional and Administration officials on bringing efficiencies to government leasing. Three months after signing the lease, the SEC decided it would not need 600,000 square feet of the space and it has been trying to find subtenants ever since.

Last week, the SEC's internal inspector general issued a 94-page report sharply criticizing the agency for "the irresponsible decisions made with respect to the Constitution Center lease" saying the decision "represents another in a long history of missteps and misguided leasing decisions made by the SEC since it was granted independent leasing authority by Congress in 1990."

Decisions such as this occurred because of record level growth at federal agencies from 2008 through 2010, Cafferty said.

"The point being, many agencies started in essence "speculating" on leasing space with again the SEC being the "poster child" for irresponsible leasing at extraordinary space allocation ratios, quadruple or more, what private sector leasing ratios are at 1 person per 200 square feet," Cafferty said, adding that "the SEC leased space leaves a space occupancy allocation of 1 SEC employee per 850 rentable square feet."

"Add to that the $140 per square foot tenant improvement allowance the SEC spent at Station Place and there is no question why Congressman Denham and others are focused on revamping federal leasing due to the misuses of the government leasing authority," Cafferty said.

Undercurrents of Federal Supply & Demand on the Private Sector


The proposed federal cutbacks already has some landlords reassessing their desire to stay in the game, said Boyd J. Campbell, managing partner-associate commercial broker for century 21 Home Center in Lanham, MD.

Landlords "are employing their attorneys and brokers to review the strength of current leases," Campbell said. "Most, if not all landlords, will look at alternative tenants for their space and how to attract them. As never before, landlords will employ best practices to move through the unsettling period, before the market returns to center. Lastly, it's conceivable that some landlords will simply shuck it off as a myth."

Ann Page, managing director of KW Commercial in McLean said she thinks it is logical to expect that fewer buildings will be built to suit for government offices as more agencies stay in place and try to reduce rents.

"Since half of the spaces used by the government are owned and half are leased, I believe that more government buildings will come on the market for sale and more leases may propose renegotiation for savings in rent, as we are finding in the private market," Page said.

Judy London Murray, a distressed property expert with Remarkable Properties Inc. in Baltimore, said the federal downsizings initiatives could exacerbate existing problems regarding federal properties.

"Having worked for government agencies in the past with property ownership responsibilities, I have found them to be restricted by budgets to adequately maintain properties and defer maintenance and needed capital improvements," Murray said. "Removing the federal government as a "demand" influence on local real estate markets, will significantly reduce rental rates, potentially below those needed to adequately maintain structures. This will inevitably be followed by a reduction in values that may also influence the ability of owners to sell their properties and pay off all bank debt."

"The federal government leases hundreds of thousands of square feet throughout state and local governments," she said. "If the government pulls out, in this economic environment, the vacant space may remain vacant for a long time. Businesses that rely on the employees working for the government as a significant customer base will experience a decline in revenues also threatening their viability."

CoStar Senior Real Estate Strategist Chris Macke said: "This is a concrete example of the increasing reliance landlords and the entire commercial real estate industry will have on corporate hiring and investment levels as opposed to government dollars. The key question is whether corporate America will pick up its rate of hiring and investment levels enough to offset the reduced demand?" 
Brought to you by CoStar.



Investor Hunger for Apt. Properties in 2010
Posted - 2 days ago

Investor Hunger for Apt. Properties Still Sharp in Second-Half 2010

Investment Capital Beginning to Fan Out Across Country In Search of Core Assets and Discounts on Distressed Properties

Multifamily property in major metro markets remains the asset of choice for many commercial real estate investors, with momentum fueled by a number of large late-summer sales transactions following a solid first half of 2010.

Public and private REITs have landed the largest deals of late, but private equity, pension funds, insurance companies, owner-developers and even private individuals are all getting into the action for both core and distressed multifamily projects in large metros around the country, according to CoStar Group sales data.

"Investors are continuing to hunt down deals in the apartment space," said CoStar real estate economist Dan Egan, citing plans announced this week by apartment real estate investment trust UDR Inc. (NYSE: UDR) to acquire six apartment communities in Massachusetts, Southern California and Baltimore for $455.1 million in one of the largest portfolio deals of the year.

UDR's purchase includes the $157.5 million purchase of the 583-unit Marina Pointe in Los Angeles's posh Marina del Rey, and the $98 million purchase of 160-unit Garrison Square at the intersection of Boston's Back Bay and South Hill neighborhoods at a stellar $612,000 per unit.

"Those are all really nice assets, and it speaks volumes about the sentiment of investors with regard to apartments," Egan said. "We haven't seen that kind of trading and confidence in the office market."

The UDR sale includes three communities recently developed by The Hanover Co. and acquired at a substantial discount to their cost, including the 266-home1818 Platinum Triangle in Anaheim, acquired for $70.5 million, or $266,000 per unit; Ridge at Blue Hills in Braintree, MA, 186 units, $40 million, or $215,000 per unit; and the 180-unit Domain Brewers Hill in Baltimore, $46 million, or $255,600 per unit.

Monthly rental income for all six communities acquired by the REIT averages just under $2,000 per occupied unit. UDR said it will finance the 1,614-unit portfolio with cash, funds from its credit facility and the assumption of $92 million of first mortgages on the Marina del Rey and Braintree properties.

UDR's entry into Boston "exemplifies our strategy of owning [properties] in markets characterized by low home affordability with superior growth prospects," said Tom Toomey, president and chief executive officer. "Collectively, these acquisitions will further enhance the overall quality of our portfolio as measured by average monthly income per occupied home, age and home size," Toomey said.

Other significant apartment property and portfolio sales of more than $100 million over the last several weeks include the following:

  • Grubb & Ellis Apartment REIT agreed to acquire nine multifamily properties totaling 2,676 units in three states from Oakton, VA-based MR Holdings LLC, as well as all of the assets of Mission Residential Management LLC, in a $182 million deal.

  • Cornerstone Real Estate Advisers LLC and Kettler sold the Metropolitan at Pentagon City, a 325-unit multifamily complex at 901 S. 15th St. in Arlington, VA, to Invesco for $125 million.

  • Eagle Rock Management LLC acquired seven apartment communities totaling 1,666 units in Carle Place, Hicksville, Mineola, Nesconset and Woodbury in the Long Island market's largest multifamily transaction this year. Fairhaven Properties Inc. sold the properties in an off-market deal for $229.75 million.


In another big REIT acquisition announced this week, AvalonBay Communities, Inc. (NYSE: AVB) Sept. 8 purchased the 628-unit Creekside Meadows in Tustin, CA for $98,5 million. AvalonBay Value Added Fund II, L.P., a private discretionary fund in which AvalonBay Communities, Inc. has a 31% equity interest, acquired the property. Fund II entered into a rate lock agreement with Fannie Mae on a $59.1 million, seven-year, 3.81% fixed-rate loan to be originated by Sept. 16. Creekside Meadows represents the fourth acquisition by Fund II, which now consists of 1,542 apartment homes for a total investment of about $234 million. Fund II has equity commitments totaling $400 million and can employ leverage up to 65%, allowing for an investment capacity of approximately $1.1 billion.

In keeping with the recent wave of acquisitions, Fund II is targeting apartment communities primarily in high barrier-to-entry markets of the Northeast, Mid-Atlantic, Midwest and West Coast regions of the U.S.

Mid-America Apartment Communities Inc. (NYSE: MAA) continued its multifamily buying spree, making at least four acquisitions over the last month. Mid America acquired the 313-unit Times Square at Craig Ranch near Dallas from the development loan lender for $31.25 million. The Memphis-based REIT in August also announced the acquisition of the Verandas at Sam Ridley, a 336-unit gated apartment community in the Nashville area, for $32 million; the Hue, a 208-unit apartment community in the Raleigh, NC area, acquired from the construction lender for $33.6 million and the 270-unit La Valencia at Starwood in the Dallas area for an undisclosed price. On Sept. 2, Mid-America completed the purchase of The Venue at Stonebridge Ranch, a 250-unit apartment community in McKinney, for an undisclosed price.

While the super-heated Washington, D.C. market had been the undisputed capital for multifamily investment earlier in the year, Boston and San Francisco are among a number of metros cited by CoStar economists as strong prospects for investors seeking to catch the next wave of value appreciation.

"Investors seeking to capitalize on the recovery in [Washington] D.C. have likely missed the boat by a few quarters, and as capital is beginning to fan out across the country, it's time for opportunistic investors to shift their attention elsewhere," Egan said.

CoStar studies show that sales transaction dollar volumes picked up significantly in multifamily, among other property types, during second-quarter 2010. While many investors are swooping in for core and core-plus assets, about 28% of all multifamily sales show signs of distress, eclipsed only by hotels at 35%, according to the CoStar Commercial Repeat-Sale Indices (CCRSI).

Meanwhile, an analysis of investment conditions by the Real Estate Research Corp. found that investors rated institutional-quality apartment assets a full point higher on a scale of 1 to 10 during second quarter 2010 from the previous quarter. The rating for apartment sector investment conditions increased from 6.1 in the first quarter to 7.1, the highest among the property types surveyed by RERC and the strongest multifamily rating in the survey since second-quarter 2001's 7.4.

"I wouldn't say the apartment sector is 'recession-proof,' but it is the sector that is regarded as most safe and also seems to garner the most demand when times are tough, whether it is in this recession or the last one," said RERC President Ken Riggs.

CoStar's Egan found appealing markets for opportunistic and value-add investors in looking at the increase in sales transaction dollar volume between 2009 and 2010, along with forecasted changes in property values between fourth-quarter 2010 and fourth-quarter 2014. Value appreciation of 25% and up is expected in Florida, Arizona and Texas, along with well-established coastal metros in the Northeast and the West. Investors may have to look hard, however.

"Since capital has not yet found its way to markets such as San Jose, Seattle, and Boston in 2010, investors would be wise to scour them for attractive pricing, as they will be rewarded with impressive value growth over the forecast," Egan said. However, with a bright recovery pending in those markets, most current owners don't want to sell at the bottom of the market unless they absolutely have to, Egan said.

Stepped-up sales activity and tighter bid-ask price gaps, however, suggest that opportunities may be more abundant in Phoenix, San Francisco, Atlanta, Orlando, Tampa and Dallas-Fort Worth. Growth markets such as Phoenix and Orlando in particular have seen transactions pick up in the first half and should also see above-average recovery in values over the next four years, Egan said.

That said, "if you're looking to invest in these markets, you should sharpen your pencils quickly; values in many of these markets are recovering rapidly," Egan noted.

The bullishness of investors is driven by the ongoing belief that home ownership and demographic trends will continue to drive demand for apartments and keep fundamentals strong. Lower average capitalization rates suggest that income growth potential is relatively high for multifamily versus office, industrial, regional mall and hotels, RERC's Riggs said.

"This, along with the relatively low risk associated with this sector as compared to other property sectors, makes it a particularly attractive investment," he said.

In other significant transactions:

  • A joint venture of The Prado Group and Angelo, Gordon & Co. this week acquired four buildings in San Francisco from a holding company of lender UBS in a distressed debt deal for $30.3 million The assets were part of a 51-building portfolio owned by Lembi Group and taken back by UBS in a deed-in-lieu of foreclosure transaction early last year. The properties totaling 250 units in Lower Nob Hill/Union Square, Hayes Valley, Lower Polk, and the Civic Center neighborhoods received extensive upgrades and renovation under prior ownership and are 97% occupied. "They are quality housing properties in well-located San Francisco submarkets," said Dan Safier, president of San Francisco-based Prado Group. "The properties fit squarely within our strategy to acquire and develop residential and mixed-use properties in vibrant, supply-constrained, 24/7 markets like San Francisco."

  • Private-equity firm The Bascom Group, LLC acquired The Retreat at Canyon Springs Apartments, a 32-acre, 360-unit luxury Class A property in San Antonio constructed in 2001, in a deal that closed Aug. 26. Bascom has been actively buying distressed multifamily properties in Arizona, California, Colorado, Georgia, Hawaii, Nevada, Texas, Utah and Washington. Terms of the deal were not disclosed.

  • Jackson Square Properties purchased the 200-unit multifamily property at 3185 Garrity Way in Richmond, CA, from Prudential Real Estate Investors for $32.76 million.

  • The Shoptaw Group of Atlanta sold the 336-unit Brassfield Park apartment complex in Greensboro, NC, to Bell Partners for $22.8 million.

  • New York-based REIT Home Properties Inc. purchased the Annapolis Roads Apartments at 1101 Lake Heron Drive in Annapolis, MD, from Dubin Development Co. for $32.5 million.

  • Chicago-based Heitman America Real Estate Trust purchased the Addison Park multifamily complex in Charlotte, NC, for $33.3 million.

  • Waterton Associates acquired the Brier Creek Apartments in Raleigh, NC, from Flaherty & Collins Properties for $28.3 million.

  • Hamilton Zanze & Co. of California acquired a seven-property, 1,566-unit multifamily portfolio in Arizona out of receivership for $46.5 million, or about $29,700 average per unit. Six of the properties are located in Tucson and one is in Sierra Vista.

  • BRE Properties Inc. purchased the Fountains at River Oaks in San Jose, CA, from FRG Fountains LLC for $50.3 million. BRE assumed an existing secured mortgage loan of $32.5 million for the acquisition.

  • Also in Silicon Valley, a private owner sold the Commons Apartments in Campbell, CA, to Essex Property Trust for $42.5 million.

  • Cornerstone Real Estate Advisors acquired The Highlands at Westwood, located at 7101 Cenrose Circle in Westwood, NJ, for $59.5 million, or about $278,000 per unit.

Source:  CoStar




NAR Advocates for Attainable Homeownership
Posted - 2 days ago
NAR Advocates for Attainable Homeownership 

Attainable and sustainable homeownership should be the goal for restructuring the secondary mortgage market, said National Association of REALTORS® President Vicki Cox Golder today at a Regional Conference on Housing Finance Reform. The conference, held in Cleveland, was sponsored by the administration and focused on the future of the nation's housing finance system.

"REALTORS® support strengthening the soundness and financial safety of the mortgage market so there are safe, flexible, and affordable options to meet borrowers' needs," said Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. "While fixing the mortgage finance system is critical, it's just half the challenge. We also need to continue to support policies that advance and sustain homeownership, which helps people build wealth over the long term."

At the conference Golder was joined by other industry and government officials, including Federal Housing Administration Commissioner Dave Stevens, Assistant Secretary for Financial Institutions Michael Barr, Under Secretary of Treasury for Domestic Finance Jeffrey Goldstein and Deputy Director of the National Economic Council Dianna Farrell.

One of NAR's recommendations is to reform FHA, which is bearing the brunt of the market share right now. "While some reforms have taken place, more needs to be done to strengthen its soundness and financial safety and protect taxpayers. Congress is working on legislation that would help FHA operate more effectively and reduce risk, and that legislation needs to be passed this session," said Golder.

NAR further recommends restuctring Fannie Mae and Freddie Mac from their current private-profit and public-loss structure into government-chartered, non-shareholder owned authorities. This will make the entities subject to tighter regulations on product, profitability, and minimal retained portfolio practices in a way that ensures they accomplish their mission and protect taxpayer monies.

"While we work to shore up this important aspect of the finance system, we also need to encourage the private market to step up and do their part to address current problem. Specifically, we need lenders to do a much better job of restructuring loans, approving reasonable short sales, helping people avoid foreclosure, and ensuring that standards are not overly stringent," said Golder. 

Source: NAR



What's new in Housing Design
Posted - 2 days ago
What's New in New Housing Design

Here are the products grabbing the attention of the home building and remodeling industries, according to Bill Millholland, executive vice president of sales and marketing at Case Design/Remodeling in Maryland, and Jamie Gibbs, a New York-based interior designer:

· Appliance Drawers. Small warning drawers, modest-sized dishwasher drawers for small loads, refrigerator drawers and microwave drawers.

· Counter-depth refrigerators. Some are only 24 inches deep.
· Motion-detecting faucets. Like you'd find in the restrooms of businesses.
· LED (light-emitting diode) lighting. These are used under cabinets and in ceiling fixtures as a longer-lasting, more efficient alternative to compact fluorescent lamps and incandescent bulbs.
· Electric heated floors. A nice touch in bathrooms,
· Showers with multiple heads and body sprays. Bathtubs are out.

source; Washington Post



New Fannie Mae, Freddie Mac restructures?
Posted - 3 days ago

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac should be restructured as government-chartered, non-shareholder owned authorities, the National Association of Realtors® said in congressional testimony today.


"We want to ensure a flow of capital into the mortgage market regardless of the state of the market or economy," Vince Malta, NAR vice president and liaison to government affairs, testified to the House Financial Services Committee. "The new Fannie and Freddie must ensure there is always mortgage capital available for creditworthy buyers and that taxpayer dollars are protected."


In outlining NAR's proposal, Malta cautioned Congress and the administration about moving too quickly in restructuring the GSEs. "The housing recovery is still too fragile for the government to completely step away, and any disruption in the marketplace now by doing something too radical would be harmful," he said. "Our goal is to help Congress and our industry design a secondary mortgage model that will serve America's best interest today, and in the future."


Neither a fully privatized entity nor a fully nationalized structure for the secondary mortgage market giants effectively addresses the critical issues of loan availability and taxpayer protection, he said. A fully private entity would foster mortgage products more aligned with business goals rather than the nation's housing policy for consumers. "In difficult markets, like today's, private lenders have not been willing to make loans without government backing," said Malta.


A fully federal structure would put taxpayers at risk. "We want to eliminate any scenario that would place taxpayers on the hook to protect these entities. And to combine the two, or merge them with Ginnie Mae, would remove competition in the secondary market, and the new entity could lose focus on it missions to serve low- and moderate-income families and maintain liquidity in the mortgage markets," he said.

The new authorities should be subject to tighter regulations on products, profitability and minimal, retained portfolio practices in a way to ensure protection of taxpayer monies. The new entities would also concentrate on standard mortgage products that are the foundation of the housing finance market.


"While that might curtail some private participation and alternative products in this market, we believe privates will offer innovations that meet consumer needs. The new entities would focus on safe mortgage products, including 15- and 30-year fixed rate mortgages and traditional adjustable rate mortgages."


Malta also submitted a list of further recommendations.


The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.




Vacation Home Sales UP! Investments down.
Posted - 3 days ago
Vacation-home sales recovered in 2009 while investment sales fell sharply, according to the National Association of Realtors®.


NAR's 2010 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2009, shows vacation-home sales rose 7.9 percent to 553,000 last year from 513,000 in 2008, while investment-home sales fell 15.9 percent to 940,000 in 2009 from 1.12 million in 2008. Primary residence sales rose 7.1 percent to 4.04 million in 2009 from 3.77 million in 2008.


NAR Chief Economist Lawrence Yun said, "The typical vacation-home buyer is making a lifestyle choice, with nine out of 10 saying they intend to use the property for vacations or as a family retreat," he said. "Investment buyers primarily seek rental income, with six in 10 planning to rent to others, although one in five wants a family member, friend or relative to use the home."


Only one in four vacation-home buyers plan to rent their properties to others, while one in five investment buyers plan to use their homes for vacations or as a family retreat. However, 26 percent of vacation-home buyers and 8 percent of investment buyers intend to use the property as a primary residence in the future.


The market share of homes purchased for investment was 17 percent in 2009, down from 21 percent in 2008, while the vacation-home share rose a percentage point to 10 percent. The total share of second homes declined from 30 percent of sales in 2008 to 27 percent last year. "First-time buyers were at record levels in 2009 with fewer sales of second homes," Yun said.


The median transaction price of a vacation home was $169,000 in 2009, compared with $150,000 in 2008. "The higher vacation home price may reflect increased sales in higher priced markets, particularly in areas of Florida and California where prices became highly attractive for buyers over the past year," Yun said.


Half of vacation homes purchased last year were in the South, 21 percent in the West, 17 percent in the Midwest and 12 percent in the Northeast. Seven out of 10 were detached single-family homes.

 

The median investment property sold for $105,000 last year, down 2.8 percent from $108,000 in 2008. There were more investment sales in the West in 2009, consistent with reports in California of a high share of all-cash purchases, notably in lower price ranges.


The distribution of investment sales was fairly close to the distribution of population: 35 percent in the South, 25 percent in the West, 24 percent in the Midwest and 16 percent in the Northeast. There was a higher share of condos in investment sales: 27 percent of investment homes were condos vs. 21 percent of vacation homes.
Similar to 2008, cash factored strongly in the second-home market: three out of 10 vacation-home buyers in 2009 paid cash for their properties, while half of investment buyers paid cash. Fairly similar ratios for each group indicated portfolio diversification or good investment opportunities were factors in the purchase decision.


The typical vacation-home buyer in 2009 was 46 years old, had a median household income of $87,500, and purchased a property that was a median distance of 348 miles from their primary residence; 34 percent were within 100 miles and 40 percent were more than 500 miles.


Investment-home buyers last year had a median age of 45, earned $87,200, and bought a home that was relatively close to their primary residence - a median distance of 24 miles. Roughly one in four investment buyers purchased more than one property in 2009.


Three out of four second-home buyers were married couples.


Demographically, the long-term demand for second homes looks favorable because large numbers of people are in the prime years for buying a second home. "Historically, people become interested in buying a second home in their mid 40s," Yun said. "The large number of people who are now in their 30s and 40s will dominate the second-home market in the coming decade with a strong underlying demand, although sales in a given year will vary depending on the economy. Mortgage lending for second homes was extraordinarily tight in 2009 but it is likely to ease a bit in 2010."


Currently, 40.1 million people in the U.S. are ages 50-59 - a group that dominated sales in the first part of the past decade and established records for second-home sales. An additional 44.4 million people are now in the primary buying demographic of 40-49 years old, and another 40.6 million are 30-39.


Buyers were more likely to purchase investment homes within a metropolitan area, while vacation homes were generally located in a rural area, small town or resort.


Vacation-home buyers plan to keep their property for a median of 16 years while investment buyers plan to hold their property for a median of 12 years.

 

NAR's analysis of U.S. Census Bureau data shows there are 7.9 million vacation homes and 41.1 million investment units in the U.S., compared with 75.0 million owner-occupied homes.


NAR's 2010 Investment and Vacation Home Buyers Survey, conducted in March 2009, includes answers from 1,930 usable responses. The survey controlled for age and income, based on information from the larger 2009 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.


The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.




Rent Trends Remain a Hot Topic Among Retail REIT Execs
Posted - 3 days ago
Retail REIT Executives Not Banking on Marked Improvement in Rent Spreads for 2010

Rent has been a hot topic among retail REIT executives as fourth quarter 2009 financial reports continue to roll in. Across the board retail REITs have reported challenged NOIs in looking back on 2009, driven by declines in occupancy and continued rent pressures.

Many of the strategies shared by retail REIT execs focused on the balance act between securing the best retailers -- and the best rent.

"When supply is tight and demand is high, the last spaces to get leased at a shopping center are all about the rent. This is not the market today," said David Lukes, COO at Kimco Realty Corp.

Dennis Gershenson, president and CEO at Ramco Gershenson Properties Trust, is seeing "a renewed interest by national retailers in opening stores in the best positioned centers," however; this has yet to translate to positive rent spreads. "This is not to say that rental rate negotiations have swung back in favor of the landlord. Instead, we expect that tenants will use the current difficult economic climate as leverage for more favorable rental structures," he said.

At Inland Real Estate Corp., president and CEO Mark Zalatoris said, "Unfortunately, filling vacancies created by the big-box bankruptcies has taken longer, as supply of available retail space has increased and retailer demand has contracted. We made the difficult, but practical, decision to sign [some] replacement leases at rates lower than pro forma rents. However, those deals were executed with credit quality retailers that in an addition to paying rent, will also pay their share of shopping center operating expenses. In addition, the centers will benefit longer term from the improved tenant quality."

Brian Smith, chief investment officer, said that Regency Centers has been able to produce rent growth on renewals, while rent spreads on new leases have been negative. "Renewals have been a relative bright spot and should continue to be." Smith explained, "If you assume market rents are $22 per square foot, and current rents in the center are $26 per square foot, a new lease would most likely be signed at the lower rent for $22. However, chances are that the renewal will be executed at the higher number of $26. Successful retailers are understandably reluctant to walkway from sizable investment in their stores or to disrupt established shopping patterns."

Inland president and CEO, Mark Zalatoris explained why he believes taking a hit on rental rates to get the best tenant has been the preferred strategy,

"While market realities have dictated reduction in rental rates, there is an obvious accretion in replacing lost income, which includes the tenants' reimbursement of real estate taxes and operating expenses. Offsetting these rental declines is the prospect that, with better retailers and increased consumer traffic overall, retailer demand for our centers will continue to increase."

"If we lose a store, versus retaining it, then we get downtime and sometimes we have to make an additional investment to refit the space. So even though we don't like the fact that we have negative lease spreads, we're a lot better off working to retain the tenant," said Stephen Lebovitz, president and CEO of CBL & Associates Properties.

"We're competing heavily with other centers in the trade areas. What we're doing now is setting the table for growth by actively selecting the right tenants, so that the line up in foot traffic is the first choice for future leasing," said Lukes at Kimco. With the high number of junior anchor and small shop vacancies created during the recession, Lukes said that landlord have three choices -- "wait for a better day, sign the highest rent payer or sign the best tenant." Kimco believes that signing the best tenant, even if it's at a lower rent than ideal, is the best choice. "The shopper always follows quality tenants and the faster we can secure the best tenant lineup, the better the prospects for growth are on remaining vacancies. Tenants follow traffic and rent goes up with sales," explained Lukes.

Regency Centers CEO Martin Stein said, "I think today the focus is on getting the right tenant in there sooner rather than later. To the extent that we feel like the space is being leased at a rate that is below where we expect rents to be in several years, we are either starting rents at the lower level or signing short-term leases."

STRATEGY ON LEASE CONCESSIONS



Lebovitz said that CBL has been signing more leases at shorter terms (three years or less) than usual.

"We've done shorter terms so we're not locked in at the lower rates," said Lebovitz. As a trade-off for agreeing to shorter terms and lower rental rates, Lebovitz said that CBL has a checklist of items they might negotiate to make the lease a win-win for both parties, including improving the percentage rent and the breakpoint. When retailers' sales improve, CBL's chance to sign leases at higher rents will improve. Additionally, "As sales pick up, then we'll benefit from percentage rent as well," he said.

At Regency, Stein explained that the tables seem to be turning again in terms of what retailers are willing to give up in order to get lease concessions.

"In the past, whenever we were giving concessions to the retailers, we always got termination rights and we held those concessions to very short terms. Now, the retailers appear to not be willing to enter into those kind of lease modifications because they don't want the risk of losing the store. They are looking more long-term," he said.

Stein added, "They've survived this long; which means they've got a loyal customer base and they don't want to risk that. And frankly, we are seeing a lot of people talking about how they are not able to get any TIs at other centers and the lenders aren't keeping up the centers. So there is not only reluctance not to leave, but we're getting a fair share of people wanting to move into our centers because they know we take care of them."

Since demand has improved somewhat, so has retailers' requirement for tenant improvement allowances, said Lukes at Kimco. "TIs have definitely pulled in a lot from six to eight months ago. Where that might be different is if the building is very old and needs to have a lot of work done to it," he said.

At Inland, Scott Carr, president of property management, said when it comes to expectations for tenant improvement allowances, he hasn't seen a significant change in what national tenants request, but small shop tenants are requesting landlord participation more than in the past.

RENT RELIEF REQUESTS



Zalatoris said that Inland has seen the amount of rent relief requests decrease significantly, but added that smaller, "Mom 'n Pop" tenants remain under pressure. CFO Brett Brown added, "We've definitely seen a slowdown in the requests and we've always taken the aggressive posture in responding to them. With our Mom and Pop tenants, the ultimate price that we extract is a right to recapture their space. That's a tough decision for someone who has a successful business that just needs to carry them through. We're finding a lot of those Mom 'n Pop retailers seeing the light at the end of the tunnel and even backing off with some requests when we put them to that ultimate test."

"When a struggling small shop tenant's prospect for success appears limited, and given the decline in the formation of new small shop startup retailers, we often look to competing centers for replacement tenants," in dealing with such situations, said Zalatoris.

Michael Sullivan, SVP of asset management for Ramco said rent relief requests have gone "down to a trickle."

"Requests for rent relief are down substantially," said Coppola. "A year ago at this time, I think while nobody knew exactly where the failures were going to come, people were relatively convinced that they were coming. The profitability of retailers overall in our portfolio has dramatically improved [in comparison to] one year ago today, so our anticipation is that rent relief requests are going to be way down and unexpected failures will also be down from what they were last year."

WHERE IS MARKET RENT?



In addressing whether or not "market rent" has bottomed out yet, Stein at Regency said, "In most markets, it has bottomed. Obviously a lot of the rents that are out there have to reset to the new market, but it has bottomed. There are exceptions for that -- I don't think we've seen it in the deserts; but I think pretty much everywhere else, we feel bottomed and that the retailers would tell you that they've hit bottom."

At Inland, Carr said, "I would say we are closing in on a bottom, because we've dropped pretty far," adding that 10% to 50% drops have been observed, depending on the sub-market and spaces involved. He thinks the bottom has definitely been reached on small shop rents. "Retailers realize that they can only go so low if they are going to have a viable landlord that can participate in a deal in terms of building out space and TIs," said Carr. In looking ahead, Carr said that opportunities to push rents on renewals and new leases are just starting to peak through, but overall, we should not expect the trajectory of rents trending up to happen even nearly as fast as the trajectory coming down has been.

UPTICK IN LEASING ACTIVITY



Kimco said that fourth quarter 2009 brought a "large uptick" in small shop leasing activity, and while rents were "wildly divergent" depending on the characteristics of their respective markets, in aggregate, new leases signed were still slightly higher than the previous tenant in the space.

Demand has also improved for junior anchor space, said David Henry, president and CEO at Kimco. "A lot of retailers are now submitting Letters of Intent on junior anchor spaces that four or five months ago had no activity, but I certainly wouldn't expect the rent spread on the junior anchors to improve" soon, he said.

Inland said it is seeing an improvement in leasing activity. "The leasing velocity we are now experiencing and the quality of tenants with whom we are dealing, indicates that we are building a strong foundation for restoring occupancy and growing rental income within the portfolio," said Zalatoris.

Arthur Coppola at Macerich said while his firm isn't banking on it, he is hopeful that the recent increase in retailer interest will lead to an improvement in occupancy and rents spreads this year.

LOOKING AHEAD



At CBL, Lebovitz said that during 2009, retailers definitely had the upper hand in negotiations, but "as the economy improves, we will be able to get back to where we were, or even better with the retailers." Additionally, the lack of any new development puts landlords in a better position going forward, especially those that have made improvements to their shopping centers during this recession. That being said, Lebovitz does not believe rent spreads will improve dramatically this year, as the priority remains signing leases and improving occupancy.

Smith at Regency said, "Retailers are still struggling. Tenant failures and move outs remain a concern and pressure on rents is expected to continue until occupancy rates return to levels previously seen. This is particularly true in 'green' areas where [population] densities are light."

At Simon Property Group, David Simon said, "Part of what we'll suffer for in 2010 is the deals we did in 2009. When we did them, the retailer was feeling a lot worse about things than they are today," said Simon. However, retailers remain intensely focused on expenses and rents and continue to close stores. "2009 was a challenging year in the retail real estate world and 2010 is going to be a challenging year, too," he added.

Addressing when he expects rent spreads to return to historical norms, "I don't think we can get to historical numbers until there's a stronger economy and stronger demand from retailers," said David Simon, adding that we're not in that environment yet. On the heels of this comment, Richard Sokolov added, "sales, cash flow and profitability have been substantially better for retailers," so that will work in landlord's benefit for negotiations in 2010, he said.

Looking ahead this year, Zalatoris at Inland said, "While showing signs of the improvement, the operating environment for retailers still remains challenging. We expect additional re-entrenchment in certain retail segments this year and potentially some national chain failures as well."

At CBL, Lebovitz said, "As retailers reformulated their business plans in 2009 to focus on controlling inventory levels and reducing cost, they reported improving margins and better profit ability. Despite the negative sales comps today, many of these retailers are better able to [manage] current occupancy cost, which goes well for the easing of the rent pressure, as we progress through 2010." 

Information provided by CoStar.




Distressed CRE Assets Jump at Nation's Banks
Posted - 3 days ago
CRE Assets Quality Continue To Be a Thorn in Banks' Side Even As Fewer Report Losses

The amount of distressed commercial real estate assets on the books of the nation's banks and thrifts approached $60 billion as of year-end 2009. That is up from $52 billion just three months earlier, a 15% increase.

The $59.9 billion includes loans on multifamily and nonresidential income producing-properties that were 90 or more days past due, or in nonaccrual or foreclosure status.

The year-end numbers are contained in the Federal Insurance Deposit Corporation's latest Quarterly Banking Profile, released this week. And they confirm that commercial real estate troubles are eroding the balance sheets of the nation's banks.

As the CRE distress numbers went up, so did the number of troubled institutions on the FDIC's "Problem List." At the end of December, there were 702 insured institutions on the Problem List, up from 552 on Sept. 30. In addition, the total assets of "problem" institutions increased during the quarter from $345.9 billion to $402.8 billion. Forty-five institutions failed during the fourth quarter, bringing the total number of failures for the year to 140, the highest annual total since 1992.

The FDIC does not release the identity of the banks on its Problem List.

Loans on nonresidential income-producing properties that had been foreclosed on increased from $5.84 billion to $7.05 billion - a 21% increase.

Loans on multifamily properties that had been foreclosed on increased from $1.44 billion to $1.75 billion - a 22% increase.

Loans on nonresidential income-producing properties that were 90 days or more past due or were in nonaccrual status increased from $37.05 billion to $41.74 billion - a 13% increase.

Loans on multifamily properties that were 90 days or more past due or were in nonaccrual status increased from $7.75 billion to $9.39 billion - a 21% increase.

Reserves for loan and lease losses increased by only $7 billion (3.2%) in the fourth quarter, as institutions added $8.1 billion more in loss provisions to their reserves than they took out in net charge-offs.

Total net charge-offs totaled $53 billion, an increase of $14.4 billion (37.2%) over the same period in 2008. The annualized net charge-off rate rose to 2.89%, up from 1.95% a year earlier and 2.72% in the third quarter of 2009. This is the highest quarterly net charge-off rate reported by the industry in the 26 years for which quarterly data is available. Banks charged off 0.77% of their loans on nonresidential income-producing properties, up from 0.62% in the previous quarter. Banks charged off 1.11% of their multifamily loans, up from 0.92% in the previous quarter. This was the sixth increase in as many quarters in both categories.

The average coverage ratio of reserves to noncurrent loans and leases fell from 60.1% to 58.1%, ending the year at the lowest level since midyear 1991. In contrast, the industry's ratio of reserves to total loans and leases rose from 2.97% to 3.12% during the quarter, and is now at its highest level since the creation of the FDIC.

Not surprisingly, the total amount of commercial real estate loans on bank books was flat. Banks posted only $2 billion more in CRE loans at $1.092 trillion. The total amount of multifamily loans decreased slightly from $216 million to $211 million.

Despite the troubles in their CRE portfolios, commercial banks and savings institutions reported an aggregate profit of $914 million in the fourth quarter compared to $37.8 billion net loss a year earlier. More than half of all institutions (50.3%) reported year-over-year improvements in their quarterly net income.

Almost one-third of all institutions (32.7%) reported net losses for the quarter, compared to 34.6% a year earlier. For the full year, banks reported net income totaling $12.5 billion - up from $4.5 billion in 2008. 

Information is provided by CoStar.



Buying Bank Portfolio's the Hot Ticket!
Posted - 3 days ago
Lennar Corp. in Miami, FL, closed on the purchase of two structured loans transactions with the FDIC. The transactions represent the purchase of two portfolios of loans with a combined unpaid balance of $3.05 billion.

Lennar acquired indirectly 40% managing member interests in the limited liability companies created to hold the loans for $243 million (net of working capital and transaction costs), including up to $5 million to be contributed by its subsidiary Rialto Capital Advisors. The FDIC is retaining the remaining 60% equity interest and is providing $627 million of non-recourse financing at 0% interest for seven years. The transactions include 5,500 distressed residential and commercial real estate loans from 22 failed bank receiverships.

Rialto Capital is a real estate investment management company focused on distressed real estate asset investment, management and workouts. Rialto will conduct the day-to-day management and workout of the portfolios.

"Acquiring and working out distressed real estate loans was a large and extremely profitable part of our business during the last major real estate down cycle in the early 1990s," said Stuart Miller, president and CEO of Lennar. "We take great pride in understanding market cycles and identifying the opportune point of entry. As we have noted on our quarterly conference calls, we have been carefully preparing to invest in this space for the last two years. Our strong cash position and proven track record in this area enables us to capitalize on this market cycle and create long-term value for our shareholders. We expect these transactions will be accretive to 2010 earnings." 

Information provided by CoStar.



Lenders slowly opening vaults to CRE lending again
Posted - 3 days ago
Even as banking regulators and politicians deal with the fallout from the collapse of commercial real estate values and the subsequent impact on the banking systems, it appears that an increasing number of lenders are more inclined to jump back into the sector.

Total renewals of existing commercial real estate accounts increased 57% from November to December of last year, according to numbers released this week by the U.S. Department of Treasury. Treasury completes a monthly tally of lending activity of the nation's 20 largest bank, which control 57% of all U.S. banking assets.

While seasonality contributed to the increase -- as year-end is an active time for renewals -- new lending also more doubled in December from the previous month. Total new commercial real estate commitments increased 157%. That was the first increase in four months.

Citigroup's new CRE lending increased eightfold in December to $294.4 million. Loan renewals more than doubled to $282.3 million, reflecting an increase in capital?raising activities by real estate investment trusts, Citigroup said.

Even with new and renewals increasing, the big banks also increased their disposal of CRE assets on their books. Citigroup noted, for example, that its average total CRE loan and lease balances totaled $22.8 billion at the end of December, 3% lower than it was in November. The outstanding balance of CRE loans of all respondents fell 1% in December, and the median change in outstanding balances was a decrease of 1%.

Fifth Third Bancorp's average CRE balances decreased by approximately 1.3% in December compared to November. New CRE commitments originated in December 2009 were $196 million, which was up almost 50% from $132 million in November 2009. Renewal levels for existing accounts increased significantly in December 2009 to $1.2 billion versus November 2009 at $471 million due to normal year-end seasonal trends.

Even though Fifth Third's combined originations and renewals were higher in December than November, payments and dispositions of troubled CRE outpaced the higher levels of activity causing the overall balances to continue to decline. As commercial vacancy rates continue to rise, Fifth Third said it continues to monitor the CRE portfolios and continues to suspend lending on new non?owner occupied properties and on new homebuilder and developer projects in order to manage existing portfolio positions.

"We feel this is prudent given that we do not believe added exposure in those sectors is warranted given our expectations for continued elevated loss trends in the performance of those portfolios," Fifth Third reported.

Other Banks Follow Lead

What is happening among the majors also seems to be the route other banks say they will be more willing to take this year. According to findings from Jones Lang LaSalle's annual 2010 Lenders' Production Expectations Survey, bankers are predicting that loan production will increase this year.

The number of respondents that said they expect their loan production to range from $2 billion to $4 billion in 2010 doubled from last year to 43%. Showing even more future optimism, nearly 70% of respondents said their loan production will ramp up to $2 billion to 4 billion in 2011. In another encouraging metric, the number of lenders that expect to lend more than $4 billion jumped up 6% from 9.3% in 2009 to 15.2% in 2010.

"Lenders we spoke with say they'll be giving borrowers 24+ month extensions in order to avoid foreclosure on high quality, well-located assets," said Bart Steinfeld, Jones Lang LaSalle's managing director of the real estate investment banking practice. "With more than $1 trillion worth of commercial real estate loans expected to mature between now and 2013, it's no surprise that a majority of borrowers are placing significant importance on restructuring those loans. However, many financial institutions don't want to hold on to assets and now are coming to terms with the fact that they can no longer 'extend and pretend.' They're now realizing it makes good sense to move these assets off their balance sheets to create greater ability to originate loans this year."

The number of lenders willing to lend greater sums toward single-asset acquisitions is also shifting. In 2009, the majority of respondents indicated they would lend only $10 to 25 million on a single asset acquisition. In 2010, the greatest percentage of respondents was split evenly at 28% each among those willing to lend $50 million to $100 million and $100+ million (hence 56% will lend $50 million and more for single-asset purchases). In 2011, the number of lenders willing to lend $50 to $100+ million rises by 8% to 64% of respondents.

"A few life companies and investment banks we spoke with indicated that they're willing to lend $150 [million] to $500 million on large, single-asset acquisitions in 2010," said David Hendrickson, managing director of Jones Lang LaSalle's real estate investment banking practice.

Approaching maturities will continue to share the stage in 2010, with more than 67% of life company respondents acknowledging 40% to 60% of their portfolios will be allocated to the refinancing of maturing loans.

While liquidity within the capital markets is expected to turn from a trickle to a slow-but-steady flow in 2010, borrowers can expect the same tightened underwriting standards they experienced from life company lenders in 2009.

Loan to value ratios in 2010 will fall predominantly in the 50% to 70% range, according to more than 74% of life company respondents, and that number is expected to remain steady in 2011.

As for new conventional commercial real estate loans in 2010, 59% say most loan terms will range five years or greater, with an additional 28% indicating a preference for three to five year terms.

As for the sectors that lenders would most prefer to lend, a majority of respondents (27%) said they would single out multifamily for their loan dollars, while another 21% said they would focus on the office sector in 2010. The hotel sector stood out as the sector to which lenders are least likely to lend.

There was a significant increase in the number of lenders who said they are selling performing and non-performing loans. In addition, these lenders said they are prepared to accept significant discounts in 2010 to create liquidity and to rid themselves of these non-core or problem assets. For performing loans, 29% of respondents indicated they are selling performing notes at 90 cents on the dollar and another 24% are selling performing loans between 70 cents and 80 cents on the dollar.

"There is also increased interest in selling sub-performing, or "scratch and dent" loans," said Noble Carpenter, managing director of Jones Lang LaSalle's real estate investment banking practice. "Depending on the remaining term, interest rate, property type and market, over 45% of survey respondents indicated a willingness to sell these loans below 0.60 cents on the dollar.

Many lenders also said they have started or are considering asset, REO and loan sales.

"We're definitely seeing the bid-ask spread between buyer and seller narrow, and in many cases reach equilibrium. That alignment should be the impetus many lenders need to bring large and small balance loans and REO to market," added Wes Boatwright, managing director of Jones Lang LaSalle's real estate investment banking team. 

Information provided by CoStar.



Risky CRE Lending Deadly for Banks
Posted - 3 days ago
The autopsy of 16 bank fatalities completed this year have identified commercial real estate lending as the primary killer in more than half (nine) of the cases, and an accomplice in one other.

In the seven cases in which CRE was not specified, the primary culprit for the bank failures was identified as lending for acquisition and construction of development projects.

When the FDIC's Deposit Insurance Fund incurs a material loss at an insured depository institution, the FDIC Inspector General is required to make a written report identifying the causes of the loss. A material loss is defined as anything more than $25 million or 2% of an institution's total assets.

In reviewing the 16 material loss reports completed this year on banks that all closed last spring and summer, it becomes clear just how much of a toll commercial real estate took on these financial institutions. The closing of those banks has resulted in losses so far for the FDIC of $2.34 billion. The 16 banks audited had total assets of $7.62 billion at the time they were shut down. They were based in states from coast to coast including: Washington, Wyoming, California, Nevada, Utah, Colorado, Texas, Illinois, Georgia and North Carolina.

Last year in total, 140 banks failed with total assets of $170 billion. While the total cost to the Deposit Insurance Fund has not been tallied, losses have been averaging about 30% of assets. That would calculate to losses for the fund of about $52 billion for last year.

"Federal Reserve examiners are reporting a sharp deterioration in the credit performance of loans in banks' portfolios and loans in commercial mortgage-backed securities (CMBS)," Jon D. Greenlee, associate director, Division of Banking Supervision and Regulation for the Federal Reserve Board, told the Congressional Oversight Panel at a Field Hearing in January. "Of the approximately $3.5 trillion of outstanding debt associated with CRE, including loans for multifamily housing developments, about $1.7 trillion was held on the books of banks and thrifts, and an additional $900 billion represented collateral for CMBS, with other investors holding the remaining balance of $900 billion."

"Of note, more than $500 billion of CRE loans will mature each year over the next few years," Greenlee continued in his testimony. "In addition to losses caused by declining property cash flows and deteriorating conditions for construction loans, losses will also be boosted by the depreciating collateral value underlying those maturing loans. These losses will place continued pressure on banks' earnings, especially those of smaller regional and community banks that have high concentrations of CRE loans."

The U.S. Congress created the Congressional Oversight Panel in the fall of 2008 to review the current state of financial markets and the regulatory systems overseeing them. The panel was empowered to hold hearings, review official data, and write reports on actions taken by Treasury and financial institutions and their effect on the economy.

The Congressional Oversight Panel compiled extensive research and data on the state of commercial real estate and took comments from Greenlee and many others before issuing a 189-page report this past week entitled: Commercial Real Estate Losses and the Risk to Financial Stability.

The report is starkly downbeat in its assessment of CRE risks on the banking system.

"Over the next few years, a wave of commercial real estate loan failures could threaten America's already-weakened financial system. The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation's mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy," the report concluded.

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans are expected to reach the end of their terms. By Congressional Oversight Panel estimates nearly $700 billion of that debt is presently 'underwater,' a situation in which the borrower owes more than the current value of the underlying property.

"It is difficult to predict either the number of foreclosures to come or who will be most immediately affected," the report concluded. "In the worst case scenario, hundreds more community and mid-sized banks could face insolvency. Because these banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession."

The problems facing commercial real estate have no single cause, according to the Congressional Oversight Panel. The loans they identified as most likely to fail were made at the height of the real estate bubble when commercial real estate values had been driven above sustainable levels and loans. The panel also noted that many loans were made carelessly in a rush for profit.

Other loans were potentially sound when made but the severe recession has translated into fewer retail customers, less frequent vacations, decreased demand for office space, and a weaker apartment market, all factors that increased the likelihood of default on commercial real estate loans.

Even borrowers who own profitable properties may be unable to refinance their loans as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit.

The FDIC material loss reports also made it clear that most of the failed banks were either too aggressive in growing their commercial real estate lending portfolios and/or too ill prepared to manage the consequences. Specifically the FDIC auditors questioned the banks' loan underwriting standards on chasing deals either out of their territories or not consistent with their business plans. Those actions, in turn, prompted banks to pursue risky transitory and costly deposits to fund their growth.

The following is a summary of the reports examining the 16 banking failures.

  • New Frontier Bank, Greeley, CO; $1.8 bil. in assets New Frontier failed because its board and management did not implement adequate risk management practices pertaining to rapid growth and significant concentrations of residential acquisition, development and construction (ADC) and agricultural loans.

  • First Bank of Beverly Hills, Calabasas, CA; $1.3 bil. in assets First Bank failed because its board and management did not adequately manage the risks associated with the institution's heavy concentrations in commercial real estate (CRE) and ADC loans and investments in mortgage backed securities (MBS).

  • Cooperative Bank, Wilmington, NC; $973.6 mil. in assets Cooperative Bank failed because its board and management did not adequately manage the risk associated with the institution's aggressive real estate lending, particularly in the area of residential.

  • Strategic Capital Bank, Champaign, IL; $537.1 mil. in assets Strategic Capital's failure can be attributed to the board and management's speculative and ill-timed growth strategy involving high-risk assets and volatile funding. Strategic Capital's rapid growth strategy was in contravention to long-standing supervisory guidance related to CRE concentrations and securities.

  • Cape Fear Bank, Wilmington, NC; $466.8 mil. in assets Cape Fear failed because its board and management did not implement effective risk management practices pertaining to rapid growth and significant concentrations of CRE and ADC loans.

  • Mirae Bank, Los Angeles, CA; $410 mil. in assets Mirae failed because its board and management pursued an aggressive growth strategy centered in CRE lending and failed to ensure sound loan underwriting practices.

  • Southern Community Bank, Fayetteville, GA; $380.6 mil. in assets Southern Community failed because of a rapid deterioration in asset quality that led to loan and operational losses that quickly eroded the bank's capital. The majority of Southern Community's lending was in CRE, with a particular focus on ADC loans.

  • Westsound Bank, Bremerton, WA; $324.1 mil. in assets Westsound failed because its board and management did not implement risk management practices commensurate with rapid asset growth and a loan portfolio with significant concentrations in higher-risk ADC loans.

  • America West Bank, Layton, UT; $310 mil. in assets America West Bank failed because the bank's board and management deviated from the bank's business plan and did not effectively manage the risks associated with rapid growth in CRE and ADC lending.

  • FirstCity Bank, Stockbridge, GA; $291.3 mil. in assets FirstCity failed because its board and management pursued a strategy of aggressive growth centered in ADC lending.

  • Great Basin Bank, Elko, NV; $228.8 mil. in assets Great Basin failed because its board did not ensure that bank management identified, measured, monitored, and controlled the risk associated with the institution's lending activities. The institution's loan portfolio included, but was not limited to, out-of-territory purchased participation loans from areas that experienced a significant economic downturn starting in 2007, and a concentration in CRE loans.

  • Bank of Lincolnwood, Lincolnwood, IL; $217.4 mil. in assets Lincolnwood failed because the bank's board and management did not implement adequate risk management practices pertaining to a significant concentration in ADC loans.

  • Millennium State Bank, Dallas, TX; $121.4 mil. in assets MSB's failure can be attributed to inadequate management and board oversight, an aggressive growth strategy centered in CRE lending, weak loan underwriting and credit administration, poor earnings, and an inadequate funding strategy.

  • American Southern Bank, Kennesaw, GA; $113.4 mil. in assets American Southern failed because its board and management materially deviated from its business plan by pursuing a strategy of growth centered in ADC lending.

  • MetroPacific Bank, Irvine, CA; $75.2 mil. in assets MetroPacific, a de novo bank, failed primarily because it lacked stable and consistent management and oversight as a result of significant turnover in key management positions. The bank's board and management were particularly ineffective in implementing risk management practices pertaining to adherence to the bank's business plan and rapid growth and concentrations in CRE and ADC loans.

  • Bank of Wyoming, Thermopolis, WY; $72.8 mil. in assets The Bank of Wyoming's failure can be attributed to the board and management's pursuit of loan growth funded significantly with brokered and other non-core deposits. The bank's loan portfolio was concentrated in CRE and ADC loans made to out-of-area borrowers, obtained through loan brokers and participations purchased.

Information provided by CoStar




New Year! New Tax Assessment?
Posted - 3 days ago
The Atlanta Journal & Constitution has been running an excellent series of articles on property tax valuations in the various counties of the Atlanta metro area.  The AJC's analysis shows that most residential properties in the Atlanta area have experienced declines in value with many areas posting double digit losses.  However, the county tax commissioners have been unwilling or unable to adequately reassess the values of these properties and as a result most of us are paying tax bills that are based on unrealistically high values.

 

     Very few people are aware that if a property tax valuation remains the same as the previous year's bill the owner must file a "Property Tax Return" with their tax assessor's office after January 1, 2010 (deadlines vary) in order the have the right to appeal their 2010 property tax assessment.  These forms can be obtained from each of the metro county tax assessor's offices and we have provided links to the forms and/or instructions for various counties below. If your county is not included, you can search for the respective office online by using the search words: "_________ [insert the name of County] County Tax Assessor". Most sites include a section for "Frequently Asked Questions or FAQ's, which will include this information.  Remember that this is simply a first and necessary step to appeal your taxes where there has not been an increase in assessment from the previous year; it is not the actual appeal.

 

Cobb County:

 

www.cobbassessor.org/content/pdffiles/Tax%20Payer's%20Return%20of%20Real%20Property.pdf

 

Once the "Taxpayer's Return of Real Property" form (link to form provided) is filed, the appraisal staff will review your stated opinion of value to determine if any adjustments should be made. A tax return is not an appeal. If your opinion of value is not accepted, you will be sent a Change of Assessment Notice, indicating the county's current and prior year valuation. If you are not satisfied with this proposed value, you must then file a written appeal within 45 days of the date the Change of Assessment Notice was mailed. For further questions, call Cobb County Tax Assessor's office at 770-528-3100.

 

Dekalb County:

 

You must file a "Taxpayer's Return of Real Property" form (PT-50R return of value form) between January 1, 2010 - April 1, 2010.  The form is not available online and can only be obtained by calling the Dekalb County Tax Assessor's office at 404-371-0841 and requesting the form after the first of the year.

If the county board of tax assessors disagrees with the taxpayer's return, the board must send an assessment notice which gives the taxpayer information on filing an appeal.  
Taxpayers may challenge an assessment by the county board of tax assessors by appealing to the county board of equalization or to an arbitrator within 30 days from the date of the change of assessment notice that is mailed by the board of tax assessors.

Fulton County:

 

www.fultonassessor.org/content/pdffiles/HomesteadFormFront.pdf

www.fultonassessor.org/content/pdffiles/HomesteadFormBack.pdf

 

After completing the top of the form (links provided), look for #3 to complete the "taxpayer assessment" or "TPA". This number is your opinion of the Fair Market Value. Note that the form must be mailed via certified mail and post-marked between 1/1/10 - 4/1/10.  The return must be accompanied by a copy of your photo i.d.  For further questions, call Fulton County Tax Assessor's office at 404-224-0102.

 

Gwinnett County:

 

You must file a "Taxpayer's Return of Real Property" form between January 1, 2010 - March 1, 2010.  The form is not available online and can only be obtained by calling Gwinnett County Tax Assessor's office at 770-822-7200 and requesting the form after the first of the year.

 

You can start the appeal process by completing and mailing or hand-delivering the "Taxpayer's Return of Real Property," to the Board of Assessors' Office at 75 Langley Dr., Lawrenceville, GA 30045. Once the "Taxpayer's Return of Real Property" form is filed, the appraisal staff will review your valuation to determine if any adjustments should be made. The "Taxpayer's Return of Real Property" form lists a summary of the information concerning property identification, ownership, mailing address and previous year's value. In the column headed "Current Year Taxpayer 100% Stated" you declare what you believe to be the fair market value of your property. A tax return is not an appeal.  Upon the assessor's review of your property valuation, you will be sent notification of the results in April via an assessment notice. The assessment notice will indicate the county's current and prior year valuation. The assessment notice will give you a 30-day period in which you may file an appeal. Instructions for filing an appeal are in the assessment notice which will be sent to you in April.

 

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Keep coming back to get more up to date news on todays Real Estate Market.

Ron Farber
Manafing Broker
Beacon Realty of Georgia
404-925-5002




Walkability - The New Feature
Posted - 3 days ago

An upcoming trend in home marketing is based on an old-fashioned idea: walking.  

Walking is a terrific way to maintain a healthy lifestyle and according to a new study, "walkability" also contributes to increased home values.

"Walking the Walk: How Walkability Raises Housing Values in U.S. Cities" reports that homes in areas where shopping and social destinations are in walking distance command anywhere from $4,000 to $34,000 more than homes that aren't.

The study measures a neighborhood's walkability by using the Walk Score algorithm.  The more consumer destinations within walking distance of the home, the high the Walk Score; Walk Scores range from 0 to 100. 

Featured Property offered by Beacon Realty of Georgia -  3092 Nichols Street, Smyrna, GA 30008. Nestled in the Medlin Place subdivision, this prestigious home features "Walkability".  It is located only blocks from the popular Smyrna Market Village!  Check out the local attractions and the upcoming Smynra Market Village Events.




Liberty Square Park Features Beautiful, Affordable Homes in
Posted - 3 days ago

Featured in Atlanta New Homes Directory
Liberty Square Park, presented by Beacon Realty of Georgia, is located in Henry County, one of the fastest growing counties in the nation! Offering beautiful, affordable homes and an outstanding amenities package.

 
Featuring a sparkling pool, children's playground, community clubhouse, sidewalks & more!
 
Conveniently located near I-75, Tara Boulevard (Highway 19/41) and right across from the popular Atlanta Motor Speedway NASCAR track.
 
Prices start in the $120s / Call Ron at 404-925-5002 for more information



ADA expands mortgage assistance programs
Posted - 3 days ago

Officials with the City of Atlanta recently expressed concerns that foreclosures and more stringent lending requirements may cause a decline in the city's home ownership rate, which was estimated to be 50 percent in U.S. Census data from 2007.

Recognizing that two of the biggest obstacles to home ownership are household income and the ability to make a downpayment, the Atlanta Development Authority (ADA) is ramping up its mortgage assistance programs and pursuing federal dollars in order to expand its program.

Through its HOME Atlanta program, the ADA has provided downpayment assistance to nearly 400 families since 2007.  The ADA reports that its housing finance department closes eight to ten loans per week as prospective buyers scramble to take advantage of the deflated real estate market and the $8,000 federal tax credit for first-time homebuyers.  The deadline for the tax credit was recently extended until April 30, 2010.

ADA targets its programs to middle-income working families. The average family income among program participants is $46,500, and the average purchase price of homes that have closed is $161,200.  Participants  are buying single family detached houses, as well as townhomes and condos.

What makes a $161,000 home affordable to someone earning just $46,000?  The homebuyer can take out a smaller loan since the development authority is subsidizing the downpayment. This reduces their monthly payment to somewhere around 35 percent of their income and allows them to qualify for a conventional 30-year, fixed rate mortgage.

Based on an analysis of where the homes are located, the most popular neighborhoods are Greenbriar/Campbellton Road (NPU R), those around Lakewood Amphitheater, Downtown/Old Fourth Ward (NPU M), South Atlanta/Amal Heights (NPU Y), and the historic neighborhoods around Turner Field (NPU V).  The kinds of jobs the buyers have are what one might expect; teachers, healthcare workers, government workers and retail/hotel/restaurant managers. Unfortunately, only one percent of the 400 closings have included law enforcement officers. ADA would like to see more police officers and firefighters participate in the program going forward and is working with the Atlanta Police Foundation to help increase awareness.




Georgia Dream PLUS offers more options
Posted - 3 days ago

The Georgia Department of Community Affairs announced a new down payment assistance option to its Georgia Dream Homeownership Program. The Georgia Dream "Plus" option offers down payment and closing cost assistance for first time home buyers with incomes up to 100% of their Area Median Incomes (AMI). Georgia Dream's down payment assistance options are normally restricted to borrowers whose incomes are at or below 80% AMI. This assistance comes in the form of a second mortgage loan, with a zero percent interest rate and requires no repayment until the home is sold, refinanced, or no longer used as the principal residence of the borrower.

The Georgia Dream "Plus" option provides $5,000 for down payment and closing costs to borrowers whose total annual household income does not exceed the following:

In the Atlanta MSA:
     One to two person household- $71,000
     Three or more person household- $82,000

In all counties outside the Atlanta MSA:
     One to two person household- $61,000
     Three or more person household- $70,000

"We are excited about the Georgia Dream "Plus" option. We hope this additional incentive for Georgia's home buyers will help continue the current momentum in the home buying market," says DCA Commissioner Mike Beatty.

Georgia Dream's "Plus" option can be used in conjunction with the Federal & State tax credit for first time home buyers. The "Plus" option is available to eligible borrowers through Georgia Dream participating lenders and must be used in conjunction with a Georgia Dream first mortgage loan.

There is limited funding for Georgia Dream "Plus," therefore, all interested borrowers are encouraged to check with a Georgia Dream participating lender soon.




Five Year NOL Carryback added for businesses
Posted - 3 days ago

On Friday, November 6, President Barack Obama signed into law a bill that extends unemployment benefits and the first-time homebuyer tax credit.  The bill also includes a provision that both extends and expands net operating loss (NOL) carryback for businesses.  The bill received strong bipartisan support, passing 98-0 in the Senate and 403-12 in the House.

The new NOL provision allows any business with a loss in either 2008 or 2009 to claim refunds of taxes paid within the prior five years.  There is no limit on carrybacks for the first four years of the carryback period.  For year five, the carryback is limited to 50 percent of a company's taxable income in that year.

A limited NOL provision was enacted in February as part of the American Recovery and Reinvestment Act (ARRA).  It excluded businesses with more than $15 million in annual gross receipts and allowed only a two-year carryback of losses.  

The National Association of REALTORS® and its coalition partners favored extending and expanding NOL carryback, arguing that it would give all U.S. companies access to a much-needed and quick infusion of cash and would be particularly helpful to real estate companies struggling to make payroll, maintain commercial properties, and stave off foreclosure or bankruptcy.




Realtors help with Short Sales
Posted By - System Admin - 3 days ago

San Diego, November 15, 2009

Not all buyers are suited for a short sale. This was one of the messages delivered at "Short Sales from the Buyer's Perspective" during the 2009 REALTORS® Conference & Expo today.

According to the latest Realtors® Confidence Index, one out of 10 recent buyers purchased a home through a short sale. The survey also showed that Realtors® are concerned about the hurdles buyers face in short sales.

"As short sales become more commonplace, both buyers and sellers need the help of seasoned, experienced professionals to help them navigate the complexities of a short sale transaction," said National Association of Realtors® President Charles McMillan. "As the first, best source for real estate information, Realtors® provide valuable insights and experience that can help buyers realize their homeownership goals, whether through a short sale or other means."

During the session, Realtor® Lynn Madison, who co-authored NAR's new Short Sales and Foreclosure Resource (SFR) Certification Program, detailed the primary reasons that short sales fail, including an incomplete short sale package, an offer that is too low, and inaccurate appraisals. According to Madison, buyers who are good candidates for short sales are very patient - it can take some lenders four months or longer to approve a short sale - have their financing in order, and don't have any contingencies in their purchase offer.

"Short sale buyers need to have the time to be able to wait for the lender's approval; some lenders get several hundred contacts every day," said Madison. "Buyers must also be willing to make an offer that has a reasonable chance of closing and take guidance from their agent. If the offered price is too low, there is a good chance the lender won't approve the contract."

To help Realtors® address the evolving short sales market, NAR launched the SFR Certification Program earlier this year. Offered by the Real Estate Buyer's Agent Council of NAR, the program includes training on how to manage short-sale, foreclosure, and real-estate owned transactions, and provides resources to help Realtors® stay current on national and state-specific information. More than 250 Realtors® have earned the SFR certification since the program was first offered in September. For more information, visit www.realtorsfr.org.

The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.




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