Tuesday, March 29, 2011

SBA Loans for Commercial Real Estate Refinancing

Monday, March 28th, 2011

Agency will begin accepting refinancing applications as of Feb. 28 for 
small businesses facing maturing mortgages, balloon payments

Washington, D.C. – Small businesses facing maturity of commercial mortgages or balloon payments before Dec. 31, 2012, may be able to refinance their mortgage debt with a 504 loan from the U.S. Small Business Administration under a new, temporary program announced today. 

The new refinancing loan is structured like SBA’s traditional 504, with borrowers committing at least 10 percent equity and working with third-party lending institutions and SBA-approved Certified Development Companies in the standard 50 percent/40 percent split. A key feature of the new program is that it does not require an expansion of the business in order to qualify. 

SBA will begin accepting refinancing applications on Feb. 28. The program, authorized under the Small Business Jobs Act, will be in effect through Sept. 27, 2012.

“The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years,” said SBA Administrator Karen Mills. “As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt. This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs.”

The SBA initially will ...

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Article from the March 2011 Issue of Texas Border Business

The Risks & Benefits of Triple-Net (NNN) Properties

by Ray Alcorn 

One of the most popular property types in commercial real estate are "triple-nets," also known as "NNN" deals. These are typically single-tenant retail properties leased to tenants with high credit ratings on "net, net, net" terms (hence the NNN acronym), meaning the tenant is responsible for real estate taxes, insurance, and all maintenance.

At first glance these deals appear to be the perfect investment. They are typically new or nearly new, have no management responsibilities, a long-term lease to a quality tenant, stable cash flow, attractive financing, and the unique tax benefits only real estate provides.

The advantages have fueled a tremendous growth in demand from investors on every level. They appeal to part-time investors looking for guaranteed income with no management responsibility, and they provide an attractive exit strategy for those with mature portfolios. As with any investment, there are many factors to consider in valuing and structuring the deal.

First, like frozen food, you "pay" for the convenience of no management duties and stable, long-term income in the form of lower returns than with a more hands-on, high-maintenance project. Prices start in the range of a 6% cap rate for the highest rated tenants, up to perhaps 8.5%–9% for lesser credit quality or those with short lease terms.

[Note: A cap rate is the percentage of return on the investment as if it were bought with all cash. The lower the cap rate, the higher the price. See this article: Deriving Your Cap Rate for more detail.]

Investors who use debt financing can produce leveraged returns in the 10% - 12% range. But as we will see, income is not the only determinant of value.

Second, and often overlooked, is the wide range of risk exposure for NNN properties, even those with investment grade credit ratings. Contrary to popular belief, these are not "risk-free" investments, and in fact require a level of understanding beyond that of more typical real estate investments.

Risk is always present
In evaluating any NNN deal, be aware that all

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McAllen MSA Ranked Top 20 Strongest Metros in 2011 by Brookings Institute

March 2011 — MetroMonitor: Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas

McAllen Ranked top 20 strongest Metropolitan areas in recovery in the recession for average rank across a series of four indicators: employment change; unemployment rate change; gross metropolitan product change; and housing price index change.
As of the fourth quarter of 2010 (ending in December), the nation’s 100 largest metropolitan areas were seeing widespread and steady growth in economic output but only slow and inconsistent improvement in the labor market.  Job growth was sluggish and unemployment rates, although lower than at the end of 2009 in most large metropolitan areas, remained very high.  Housing market performance was mixed; house prices fell in nearly all large metropolitan areas, but the pace of foreclosures slowed.  As always, metropolitan economic performance varied greatly among the 100 largest metropolitan areas.
Nearly all those whose economies have suffered the least rely substantially on government (e.g., Washington and several state capitals), health care (e.g., Baltimore and Pittsburgh), education (e.g., Pittsburgh and Austin), or oil and gas (Denver). The map above shows how the 100 largest metropolitan areas rank on a combination of four economic indicators: percent job change from the peak quarter to the fourth quarter of 2010, change in the unemployment rate from December 2007 to December 2010, percent change in economic output (gross metropolitan product) from the peak quarter to the fourth quarter of 2010, and percent change in an index of house prices from the peak quarter to the fourth quarter of 2010.
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View all interactive maps, click here