Southern California Office Real Estate Blog

COMMERCIAL REAL ESTATE LENDING SNAPSHOT

edited by Jodi Summers

Allow us to present a really interesting synopsis of current commercial loan trends from a variety of banks, from an article on CoStar.com. The information is from first quarter, but it gives an idea of the ebb and flow of the commercial loan marketplace. Banks are presented in alphabetical order…

* Citigroup — In March, new commercial real estate loan commitments increased more than tenfold to $1.4 billion, compared with $132.4 million in the previous month. Loan renewals increased to $112.1 million, from $25.8 million in February. Average total CRE loan and lease balances rose to $23.8 billion, up from $23.3 billion in February.

*

* Comerica Inc. — Commercial real estate renewals increased in March from February 2010. The increase was concentrated in the Western states and Texas markets, partially offset by a decrease in the Florida market. Commercial real estate new commitments decreased.

*

* Fifth Third Bancorp — Average CRE balances decreased by approximately 0.7% in March 2010 compared to February 2010. New CRE commitments originated in March 2010 were $288 million, compared to $102 million in February 2010. Renewal levels for existing accounts increased in March 2010 to $964 million versus February 2010 at $392 million. Payments and dispositions of troubled CRE outpaced the volume of renewals and new originations in March causing the overall balances to continue to decline. As commercial vacancy rates continue to increase, Fifth Third 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.

*

* KeyCorp — There was no change in loan demand trends in the CRE segment during March. The CRE market outlook continues to be weak. KeyCorp continued to extend and modify existing credits given the lack of liquidity and refinancing options available in the CRE market. Renewal volume doubled from the February level to $560 million and is comparable to levels experienced in April and May 2009. Three-fourths of the renewal volume, totaling $420 million, was related to performing development projects for which refinancing options remain constrained. For CRE development projects, KeyCorp created a fixed-rate 3-5 year loan program to modify and extend qualifying loans for existing customers.

*

* Marshall & Ilsley Corp. — Construction and development concentrations continued to decline in-line with its goal of reducing credit exposure in this sector. Average CRE balances are expected to continue contracting due to portfolio amortization.

*

* Regions Financial Corp. — The focus in commercial real estate lending continued to be on renewing and restructuring real estate loans with existing clients versus active pursuit of new real estate loans. Renewal activity includes loan restructuring, remargining and repricing, based on the current credit quality of the sponsor, the performance of the project and the current market.

*

* SunTrust Banks Inc. — Average Commercial Real Estate loans decreased $192 million, or 0.9%, compared to the February average. Total CRE renewals and originations in March increased $252 million, or 77.5%, compared to seasonally low February activity. The majority of originations were associated with large commercial or corporate businesses.

**

Thank you, http://www.costar.com/News/Article.aspx?id=359D8A406145159176A40807B924DC84

http://www.equipmentleasebackfund.com/bd05297_.gif

http://www.lighthousebank.net/Portals/97/Apartments.jpg

http://aexcfgllc.com/resources/commercial-loan-help.gif

http://static.move.com/trends/US_Economy-large.jpg

http://www.kingcommercialcapital.com/images/tacoma_commercial_real_estate_lending_picture_8.gif

State of the Commercial Loan Market

By Robert Schroell

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

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

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

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

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

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

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

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

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

**

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

http://www.newagedesign.com.au/library/scales.jpg

http://www.acumenlawgroup.com/wp-content/uploads/2009/11/commercial-loan.jpg

http://www.sandiegocommercialfunding.com/xSites/Mortgage/AxisRealEstateMortgageInc/Content/UploadedFiles/office_building_commercial_loan.jpg

http://www.sbasmallbusinessloans.com/moneywalk.jpg

COMMERCIAL LOANS SHOULD BE EASIER TO COME BY

PERHAPS COMMERCIAL LOANS WILL BE EASIER TO COME BY

edited by Jodi Summers

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

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

Get all the details @

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

COMMERCIAL REAL ESTATE FINANCE TAKES A HIT

COMMERCIAL REAL ESTATE FINANCE TAKES A HIT

by Jodi Summers

Those involved in commercial real estate are feeling confident that the marketplace won’t take anywhere near as hard a hit the residential real estate market…but the fallout has certainly begun. Some companies, such as Anthracite Capital, may not survive to benefit from the Federal Reserve’s effort to resurrect the U.S. financial markets with cash.

Forbes.com, the rock for reliable statics and information, reports that BlackRock-managed Anthracite Capital invests in high-yield (read: junk) bonds and loans that finance commercial real estate. Recently, the company announced a mammoth fourth-quarter loss - financial problems ranging from busted loan covenants to unpaid margin calls - and a warning by its auditors that its demise may be imminent.

The experts perceive that when times are tough and market conditions are deteriorating, banks behave differently. As markets deteriorate, bank loan portfolios erode in value putting pressure on bank capitalization ratios.

“Undercapitalized banks shift their attention to short-run capital preservation rather than long-run profit maximization, and this change in goals has several undesirable effects,” observed Eric S. Rosengren, president and CEO of the Federal Reserve Bank in Boston. “Perhaps the most undesirable is that undercapitalized banks, finding it difficult to raise additional capital, are forced to improve their capital ratios by shrinking assets.”

“Since loans are usually the bank’s most significant asset, lending becomes more restrictive,” he said. “And, because undercapitalized banks seek to shrink without incurring additional losses, the specific form the asset shrinkage took could be perverse. For instance, some banks would support troubled borrowers in an effort to avoid loss recognition, while reducing credit to more creditworthy borrowers with whom the bank could curtail credit without incurring a loss.”

Anthracite’s Problem goes back to the company’s business model, which call for a steady stream of outside funding. Issue is, the company has been shut out of the financial markets by the subprime-spawned disaster, and this issue subsequently affected the company’s commercial sector. Anthracite Capital reported a loss of $3.49 per share, miles below the 25 cents per share gain Wall Street had expected. Sales meanwhile were only $26.3 million, 69.6% below the $86.5 million consensus forecast. During the 2007 fourth quarter the company earned 24 cents per share.

In response, It lost half its value on March 18th, closing at 40 cents. The shares began to falter in the middle of 2007, when the subprime crisis started to freeze up credit markets; the stock traded above $12.50 at the time and spun off an annual dividend of about $1.20.

Forbes.com concludes: “Anthracite is a perfect example of what can go wrong with real estate-related businesses. As financing for the sector evaporated, it caused prices to drop, leading to reduced demand for the securities and loans in which Anthracite dealt.”

Original content @

http://www.forbes.com/2009/03/18/anthracite-capital-blackrock-markets-equity-commercial_print.html

http://www.costar.com/News/Article.aspx?id=A8CD2AA8205D4246D8EF8B4AAA852644&ref=100&iid=123&cid=383F14EEE265B182474DA2442BACBBBF

http://www.flickr.com/photos/fox-orian/2561000243/

http://www.cramerproject.com/info.php?symbol=AHR

http://fs.silobreaker.com/thumbs/p/q/pqmhr2vjgdx.jpg

http://www.kfwimer.com/images/ss-subprime.jpg

OFFICE REAL ESTATE UPDATE

OFFICE REAL ESTATE UPDATE

By Jodi Summers

In case you were looking for an official statement, the National Association of Realtors® has determined that the commercial real estate market will be slow this year.

The most recent Commercial Leading Indicators Report confirms that losses in the job market continue to reduce demand for office space, thus eroding office building lease rates and sale prices. Vacancy rates are projected to increase to 16.7% in the 3Q of 2009 from 13.4% in the 3Q of 2008.

“We’ve been trying for more than a year to get our 2^nd floor rented,” shared a building owner on Motor Ave. “Everyone wants concessions and modifications; it’s to the point that the offers we do get are not very tempting.”

Annual rent in the office sector is expected to decline 4.2% this year following a 0.4% dip in 2008. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is seen as a negative 77.4 million square feet in 2009.

 “The credit crunch has especially hammered down some components of NAR’s commercial leading indicator,” Lawrence Yun, NAR chief economist, noted. “A lack of commercial credit is a serious threat to the overall economy. The Federal Reserve needs to use the Term Asset-Backed Securities Loan Facility (TALF) to provide liquidity and support for commercial mortgage-backed securities.”

NAR has concluded that commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is likely to weaken further over the next six to nine months.

This lackluster attitude is confirmed by the Society of Industrial and Office Realtors®. In its SIOR Commercial Real Estate Index, which surveyed 644 local market experts, confirmed an anticipated lower level of business activity in upcoming quarters. Ninety% of respondents indicate leasing activity in their market is down, and vacancy rates are generally higher.

The SIOR index has declined for eight consecutive quarters and is 58.5%age points below the 100 point criteria that represents a balanced marketplace.

“The stimulus package is designed to create jobs, and that would eventually lead to an upturn in the commercial market,” Realtors® Commercial Alliance Committee chair Robert Toothaker observed. “However, we need to quickly restore liquidity to commercial real estate lending so transactions can move forward and debt on existing properties can be rolled over.”

Get all the dirt @

http://www.realtor.org/press_room/news_releases/2009/02/commercial_re_activity_to_continue_decline

BARKER PACIFIC GROUP IS READY TO BUY AS VALUES READJUST

BARKER PACIFIC GROUP IS READY TO BUY AS VALUES READJUST

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

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

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

Get the whole story @

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

http://www.barkerpacific.com/media/images/headers/header_projects.jpg

http://www.barkerpacific.com/media/images/headers/header_management.jpg

http://www.barkerpacific.com/media/images/headers/header_about.jpg

HEAT MAPS GIVES YOU FORECLOSURE STATISTICS

HEAT MAPS GIVES YOU FORECLOSURE STATISTICS

There are some incredibly creative people out there designing web applications. This week’s favorite is HotPads’ “Election Foreclosure Maps” that displays foreclosure rates for congressional districts. These “heat” maps use color coding to show which districts have the highest rate of foreclosures (dark red) vs. the lowest number of foreclosures (light blue).

Here’s what Los Angeles looks like…

According to the site, the average foreclosure rate is 0.47 percent in Democratic districts and 0.51 percent in Republican districts, and the median foreclosure rate is 0.15 percent in Democratic and Republican districts.

The congressional districts with the highest rate of foreclosures are represented by:

• Dennis Cardoza, D-Stockton, Calif. (4.59 percent)

• Mary Bono Mack, R-Palm Springs, Calif. (4.51 percent)

• Jon Porter, R-Henderson, Nev., (4.45 percent)

The congressional districts with the lowest rate of foreclosures are represented by:

• Peter Welch, D-Burlington, Vt. (0.001 percent)

• Jerry Moran, R-Hays, Kan., (0.002 percent)

• Gene Taylor, D-Gulfport, Miss. (0.003 percent)

Foreclosure data company RealtyTrac supplies foreclosure information to Hotpads.com.

Heat Mpas can be found @ this cumbersome link http://hotpads.com/search/election-2008#lat=38.61687046392973&lon=-115.13671875&zoom=12&bottomZoom=17&previewId=election-2008&previewType=area&detailsOpen=true&template=political&listingTypes=foreclosure&includeVaguePricing=false&pricingFrequency=once&loan=30,0.059,0&areaLabels=Congressional&areaBorders=heatMapForeclosurePerHousehold

Infor courtesy of http://www.inman.com/news/2008/10/7/heat-maps-reveal-politics-foreclosure

Top 5 Actions to Green Your Business

Top 5 Actions to Green Your Business
by Susy Borlido Holyhead
Account Director, BGP

1. TURN IT OFF. Use Natural Daylight via windows/skylights when available. Turn off equipment, lights, appliances etc. when not in use. Set lights on timers to turn ‘ON/ OFF’ via business hours or implement an ‘opening and closing’ policy company-wide.
2. Implement a company wide environmentally-friendly purchasing policy that ranges from office products to janitorial supplies. Ensure that all paper products are chlorine-free and contain 30-100% post-consumer content recycled materials.
3. Use green, less toxic cleaning chemicals. A great resource for this is www.greenseal.org. They list cleaning chemicals that are green certified by a 3rd party non-profit group. You can find effective green cleaning chemicals.
4. REDUCE, REUSE, RECYCLE. Stocking employee kitchens with reusable dishes, mugs and silverware can save thousands of dollars a year! When you compare the costs of continuously having to stock disposables - and then hauling the trash away - to purchasing one set of reusables, the answer is obvious. Purchase condiments like sugar and cream in bulk. You can divert over 80% of trash by composting your food waste and recycling cans, plastic, glass, mixed paper. Hauling recyclables costs less than hauling trash.

Dispose of electronic and hazardous waste properly. It’s a California state law that these items must not end up in the trash. Electronic waste includes unwanted computer equipment, cell phones and anything with a plug. Hazardous waste includes batteries, fluorescent lights and paints. Contact your local City Waste Division for more details and for disposal procedures - for Los Angeles area, you can drop off electronic items for free at www.californiarecycles.com

http://www.sustainableworks.org/