Southern California Office Real Estate Blog

THE GOVERNMENT HAS $72 BILLION FOR GREEN REAL ESTATE

By Jodi Summers

Experts have calculated that the Obama administration has put together more than 30 programs worth $72 billion that can be used to increase energy efficiency in commercial buildings and multifamily housing.

“The Obama Administration has tremendous, untapped opportunities to use legal tools already at its disposal to enhance the energy efficiency and sustainability of the nation’s multifamily and commercial buildings — all without seeking new funds or authority from Congress,” observes a report prepared by Van Ness Feldman. “All told, the programs identified in this report have the potential to directly provide or facilitate over $72 billion in funding or loan guarantees, and can leverage hundreds of billions of dollars in private investment through instruments such as mortgage insurance and regulation of the real estate lending market.”

Titled “Using Executive Authority to Achieve Greener Buildings: A Guide for Policymakers to Enhance Sustainability and Efficiency in Multifamily Housing and Commercial Buildings,” the legal analysis, suggests several ways the Obama administration can use existing programs to enhance building efficiency:

* Reforming appraisal and underwriting practices at Fannie Mae and Freddie Mac Greening federal banking regulations

* Promoting flexible FHA insurance products

* Integrating energy efficiency and sustainability criteria into competitive grants and funding formulas

* Strengthening minimum property standards for federal housing and economic development programs to reflect energy efficiency and sustainability standards

* Improving performance standards applicable to federal buildings and leases

* Refining guidance applicable to the energy efficient commercial buildings tax deduction and the national historic preservation tax credit

* Using SBA funding mechanisms to support small business energy efficiency investments

* Streamlining Title 17 loan guarantees to make them suitable for buildings

“As an early adopter of green buildings and the LEED green building certification system, the federal government has been a leader in bringing green buildings to cities and towns across America,” said Roger Platt, the USGBC’s senior vice president of Global Policy & Law declared. “This new report unveils an even larger opportunity for the Obama Administration to increase our nation’s energy efficiency, while creating thousands of jobs and saving taxpayers money.”

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http://www.usgbc.org/government

http://www.greenbiz.com/news/2010/04/30/obama-already-has-72b-tap-green-buildings-study-says

http://www.boulderindependentbusiness.org/wordpress/wp-content/uploads/2009/02/namaste_obama_0093.jpg

http://www.rechargenews.com/multimedia/archive/00032/obama_solar_3_32125a.jpg

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

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

Edited by Jodi Summers

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

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

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

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

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

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

Save your assets and contact them.

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

http://www.ysop.org/images/Capitol.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

THE CITY OF L.A. WANTS TO STIMULATE SMALL BUSINESS

By Jodi Summers

This excerpt from Mayor Antonio Villaraigosa’s State of the City Address intends to be a boon to small business owners in Los Angeles…is it merely election time promises or the real deal?….

“Here in Los Angeles, we know that our ultimate prosperity is going to be determined on the laptops of small business owners. From Van Nuys to Venice, from Brentwood to Boyle Heights, these entrepreneurs are the true engines of our recovery. They represent the backbone and the building blocks of new industries and new markets.

“And in Los Angeles, we are working to attract, retain, and offer assistance to small businesses at every turn. After a record setting first term in new development. After bringing $17 billion of new construction into L.A. and creating 140,000 well-paying jobs in the process. It is now time to change our tune and focus our time, resources, and energy on our City’s start-ups and smaller enterprises.

“And it’s time to take our game to a higher level.

“In the next year, our Business Team will assist over 1,000 local, small businesses throughout our City. In the coming months, we will build on the success of our Minority Business Opportunity Center to create a broader “Office of Small, Local, and Disadvantaged Business,” whose sole purpose is to use federal funds to help businesses succeed across L.A. Businesses that employ local workers and recycle dollars back into local communities.

“Last month, I approved a $15 million loan fund to increase credit opportunities for small businesses. And starting on July 1t, we will direct the Community Development Department to make an additional $15 million available to loan out to business owners, to help them reinforce their bottom line, and allow them to continue providing essential jobs, products, and services to our residents.”

http://mayor.lacity.org/pressroom/stateofthecity/index.htm

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

ECONOMIC STIMULUS FOR SMALL BUSINESS

ECONOMIC STIMULUS FOR SMALL BUSINESS

by Jodi Summers

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

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

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

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

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

http://highbridnation.com/wordpress/wp-content/uploads/2008/05/stimulus.jpg

http://rlv.zcache.com/economic_stimulus_package_t_shirt-p235378275582632747s564_400.jpg

http://images.thestreet.com/tsc/rss/images/itunes_small-business_300×300.jpg

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

2009 INVESTMENT PROPERTY SALES WILL BE BETTER THAN 2008

2009 INVESTMENT PROPERTY SALES WILL BE BETTER THAN 2008

 by Jodi Summers

Just as you might expect, property-investment sales are way down. The numbers are in for all of 2008 and sales fell 68% from the previous year’s volume. The decline was particularly steep in Q4.

The $54.5 billion of commercial property-transactions that closed or went under contract last year were down from $170.4 billion in 2007, while the number of transactions dropped 54% to 846, according to the Commercial Real Estate Direct Property Sales Database, which tracks individual property sales of at least $10 million.

The $7.28 billion worth of deals in the fourth quarter was down 70% from the $29.42 billion of deals during the same period in 2007. This year’s fourth-quarter volume also was down 46% from the previous quarter, which was down just 16% from the $16.3 billion in the second quarter.

Full-year sales volumes were down from 2007 in every property type, with sector declines ranging from a high of 83% for hotels - $3.8 billion - to a low of 60% for multifamily - $8.38 billion - which was helped largely by the availability of debt financing from Fannie Mae and Freddie Mac.

Pundits predict that 2009 sales volume will increase 15% due largely to offerings from distressed sellers, particularly those who used floating-rate debt for acquisitions in early 2007 and 2006.

A continued stalled economy that is expected to cut tenant demand across all property types. Robert Bach, Grubb + Ellis’ chief economist, has predicted that the U.S. economy will lose another 2 million jobs in 2009, about the same amount lost in 2008, and will “dampen demand for all product types, resulting in negative absorption and increased vacancy.”

Info courtesy of

http://www.loopnet.com/xnet/mainsite/news/news.aspx?DocID=5720&sourcecode=1lntd009

SMART OFFICE INVESTORS ARE BUYING L.A. COMMERCIALLY DISTRESSED PROPERTIES FOR CHRISTMAS

SMART OFFICE INVESTORS ARE BUYING L.A. COMMERCIALLY DISTRESSED PROPERTIES ON THE RISE

OMG! The commercial fallout is starting – great values to be had in the near future. Those of you who have been waiting, the time is soon at hand. Rising vacancies and declining operating cash flows and shrinking values are making it exceedingly difficult for over-leveraged landlords to make payments on the loans taken out to buy properties during the market frenzy of 2005-07.

The first of what some say may be a large number of portfolio distress sales was the recent acquisition of 31 Southern California office properties totaling 56 buildings and 4.5 million square feet by Houston-based Hine in a transaction valued at $1.35 billion.

Hines is a privately owned, international real estate firm with a 50-year history and a

presence in more than 100 cities around the world.

Creative deal that this was, all of the value associated with the sale is tied up in debt. The previous owners, Cabi Developers, defaulted on loan payments and were forced to turn over the properties to Hines or face foreclosure.

Miami-based Cabi, the U.S. affiliate of GICSA, Mexico’s largest developer, purchased the portfolio in July 2007 from Los Angeles-based Arden Realty Inc., a unit of GE Real Estate, for $1.51 billion at 90% loan-to-value — a fairly typical leveraged deal for that moment time as office vacancies were minimal and properties were skyrocketing.

Hines was among 11 lenders who purchased 14 pieces of debt collateralized by the office portfolio sold by Cabi’s lender, Wachovia, when the deal closed. According to an SEC filing in late October by KBS REIT Inc., which purchased senior debt in two mezzanine loans for $175 million, Cabi sold two assets in the portfolio to reduce the principal outstanding by about $45 million, leaving a payment of $105 million.

Cabi failed to make the payment, and Hines held the first-loss, or junior, portion of the mezzanine debt. Thus, the savvy real estate investor was first in line when Cabi defaulted on the $105 million piece of the mezz loan. Cabi and Hines negotiated a deal on Nov. 25 to turn over the assets in lieu of foreclosure. The $1.35 billion value of the transaction is essentially all debt assumed by Hines and the other lenders.

“It was an unusual deal for Hines, but the transaction probably does represent a state of things to come for the capital markets,” Colin Shepherd, senior vice president in the Hines Los Angeles office, told CoStar Advisor. “A lot of portfolios that were purchased with high leverage may have similar issues…”

CoStar notes that frozen credit markets and the recession drove up the 30-day default rate on loans held in commercial mortgage-backed securities (CMBS) 10 basis points in the third quarter to 0.63%, according to data from the Mortgage Bankers Association. In the big picture, the default rate on commercial loans is still well below 1%, and default rates remain historically low despite the market turmoil.

“Commercial/multifamily mortgages have not seen the same kind of deterioration in performance witnessed among other real estate loans, and at the end of the third quarter, delinquency rates for every investor group remained at the lower end of their historical ranges,” said Jamie Woodwell, MBA’s vice president of commercial real estate research, in a release. “[However], delinquency rates for nearly every investor group did see increases during the third quarter, and economic and credit market stress is likely to continue that trend.”

The main problem for owners, buyers and sellers is that capital markets are “completely upside down,” Shepherd noted. “Asset values have diminished quite considerably in the context of a complete lack of credit and the ability to get any leverage whatsoever in acquisitions, whether it’s real estate or any other hard or paper asset.”

Shepherd said Hines is bullish on the Southern California market in the long.  The buildings in the portfolio they purchased are spread widely across Los Angeles, Ventura, Orange and San Diego counties in multiple submarkets, with more than two-thirds in L.A. County.

We know about L.A. commercially distressed market. If we can help you, email jodi@jodisummers.com

Info courtesy of:

http://www.costar.com/News/Article.aspx?id=101E5BBD912954C042EB49DC9E699664&ref=100

http://www.hines.com/home/default.aspx

http://www.swamplot.com/…/2008-05-08/

THE HISTORY OF THE FINANCIAL BUBBLE

THE HISTORY OF THE FINANCIAL BUBBLE

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

sources:

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

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