Commercial Real Estate Withstands Weakening Economy

Posted October 5th 2011
CCIM.com Newscenter

“Operation Twist.” The measure will “keep long-term Treasuries at record lows and to spur lending, a plan that could offer commercial real estate investors unique opportunities,”

 It seems unlikely that the U.S. will face another recession, according to a recent research brief by Hessam Nadji, managing director of research services at Marcus & Millichap. The U.S. gross domestic product grew 1.3 percent in 2Q11, and new claims for unemployment dropped to 391,000.

Despite the positive signs, “caution and uncertainty [remain] elevated as stock market volatility, yet flattened job growth and GDP trends have largely disappointed,” Nadji says. This will present challenges to the office sector, which saw only 1.2 million sf of absorption in 2Q11. However, primary markets such as Seattle, Chicago, and Washington, D.C., will continue to experience demand, and corporate expansions in major gateway cities are expected to contribute to increased absorption in 2H11.

The Federal Reserve, anticipating further stagnation, has launched “Operation Twist.” The measure will “keep long-term Treasuries at record lows and to spur lending, a plan that could offer commercial real estate investors unique opportunities,” Nadji notes. In 3Q11, overall commercial capitalization rates surpassed the 10-year Treasury by 600 basis points on average, encouraging increased risk tolerance among long-term investors. 

The multifamily sector will continue to benefit from slow home sales. Nadji predicts that the supply/demand balance will remain favorable through year-end, as the vacancy rate is expected to fall to 5.6 percent in 4Q11.

NAI Rio Grande Valley is a focused commercial real estate brokerage, consulting, development and syndication firm serving the Rio Grande Valley and based in McAllen, Texas. Our mission is to transform real estate opportunities into profits for owners, users and investors.

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Proposal could help expand Edinburg's park space - TheMonitor.com

Proposal could help expand Edinburg's park space - TheMonitor.com

Green Card for Mexican investors program approved in McAllen

by Erika Flores

ValleyCentral.com

Click here to view

The City of McAllen has been approved to participate in the EB-5 program that would allow foreigners to invest in Hidalgo County and receive a Green Card in exchange.

City officials said it will be a boost to the economy.

The McAllen EB-5 Regional Center was awarded approval last week to start the program.

“The United States is pushing hard and have made it a priority project for the United States in reference to invite investors from other countries to invest in projects in US and establish jobs in the United States,” said Roy Cantu, director of McAllen EB-5 Regional Center.

There are EB-5 centers across the country and at least on other center in Hidalgo County that acquires foreign investors to bring jobs and money to the county.

“The investor must invest 500 thousand dollars and that 500 thousand dollars that the investor invests must create 10 new jobs," said Cantu.

After two years if the investor meets the requirements, he will be granted residency, but before investors are chosen, they are investigated to make sure the money they have to invest is legitimate.

After Repairing CRE Damage, Many Banks Re-Entering Lending Arena

More Than Half U.S. Banks Posting Noteworthy Increases in Nonresidential, Multifamily Lending

By Mark Heschmeyer

September 21, 2011

http:www.costar.com

While commercial real estate continues to burden the nation's 7,522 banks and thrifts that reported results to the FDIC as of June 30, the severity of the CRE-related impairment is gradually decreasing and lending is on the increase. 

Overall, banks continued to scale back the total amount of commercial real estate loans on their books. However, most of the drop came from loans for construction and development activities. Banks actually increased lending for multifamily projects over the first quarter by about $1.4 billion. 

Significantly too, half the nation's banks boosted their lending on nonresidential and multifamily properties by $50 million or more in the second quarter of the year. 

Five banks did so by more than $1 billion. 
* Manufacturers and Traders Trust Co., $3.36 bl 
* Hancock Bank of Louisiana, $2.58 bl 
* First Niagara Bank, $1.55 bl 
* NAFH National Bank, $1.35 bl 
* Wells Fargo Bank, $1.13 bl 

All but Wells Fargo of that group increased commercial real estate lending across the board, including construction and development loans. Wells Fargo's construction and development loan portfolio dropped by $2.2 billion. 

Banks continued to increase their own holdings in real estate as well in the form of bank buildings and fixed assets with the amount increasing from $120.7 billion to $121.2 billion first quarter to second quarter. The number of full-time equivalent employees reported by insured institutions - 2,104,698 - was 12,124 (0.6%) higher than in first quarter 2011. 

Impairments on the Mend

The total amount of foreclosed commercial real estate and delinquent or restructured CRE loans for the nation's banks dropped 7.5% from $187.7 billion to $173.6 billion at the end of the second from the first quarter. 

Most of the recuperation is stemming from write-downs and attrition in construction and development loans, and the lack of new lending in that area. 

Of the 7,522 insured reporting banks in the country as of June 30, distressed commercial real estate assets made up 1% or less of total assets at 4,177 banks -- 56% of the banks in the country. That was down from 4,298 banks in the first quarter. 

As deteriorating conditions lessen, the amount of capital that banks have available to loan should increase. Banks are already setting aside fewer dollars to deal with the losses, according to the FDIC. Loan-loss provisions totaled $19 billion, a decline of $21.4 billion (53%) from second quarter 2010. This is the seventh consecutive quarter that provisions have declined from year-earlier levels. 

The nation's banks have also been whittling away at the amount of assets held for sale. 

Foreclosed real estate holdings including single-family dropped from $52.5 billion in the first quarter of this year to $51.4 billion as of June 30. The commercial real estate portion of that stood at $31 billion down slightly from the first quarter. Multifamily was up from $2.48 billion to $2.67 billion. Nonresidential was basically unchanged at $10.7 billion. Construction and development projects property holdings dropped from $18 billion to $17.7 billion. 

The total amount of loans and leases banks held for sale also declined significantly from the first quarter - dropping from $121.2 billion to $108.6 billion. 

Delinquencies

The amount of commercial real estate loans delinquent more than 30 days also showed significant improvement dropping 12% in the second quarter from the first quarter. The amount dropped from $121.6 billion in the first quarter to $107 billion at the end of June. The biggest improvement came from construction and development loan category dropping from $53.8 billion to $45.8 billion - a 15% decline. Multifamily dropped from $10 billion to $8.8 billion - a 12% decline. Delinquent nonresidential loans dropped from $57.8 billion to $52.4 billion - a 9% decline. 

Restructurings

Banks continued to work with commercial real estate borrowers in restructuring their loans. The total amount of restructured CRE loans went up from $34.9 billion to $35.7 billion. Of the total amount of CRE loans restructured, $16.7 billion was classified as delinquent more than 30 days as of June 30. 

Individual Bank Distress

Six banks decreased their total CRE lending by more than $1 billion. 
* Wilmington Trust Co., -$3.42 bl 
* Bank of America, -$3.1 bl 
* Regions Bank, -$1.34 bl 
* JPMorgan Chase Bank, -$1.31 bl 
* Branch Banking and Trust Co., -$1.12 bl 
* KeyBank, -$1.05 bl 

The 10 largest banks in the country hold $35.5 billion in delinquent, foreclosed or restructured assets (20% of the total in the country), down significantly from $41.6 billion at the end of the first quarter. 

Distressed commercial real estate assets made up 30% or more of total assets at four banks closed since June 30, 2011. Three existing banks had ratios of more than 40% as of June 30. 
Name, Location, Total Assets 
* SunBank, Phoenix, AZ, $31.8 ml 
* The First State Bank, Stockbridge, GA, $564.2 ml 
* Builders Bank, Chicago, IL, $301.5 ml 

Officially, the number of institutions on the FDIC's "Problem List" declined for the first time since third quarter 2006. At the end of the second quarter, there were 865 "problem" institutions, down from 888 at the end of the first quarter. The total assets of so-called "problem" institutions declined from $397 billion to $372 billion. 

Raising Real Estate Funds in Today’s Environment

9/7/2011 | By Carisa Chappell
REIT.com

Successful real estate fundraising is still possible in today’s environment, according to Deloitte & Touche LLP’s Bob O’Brien, vice chairman and U.S. real estate services leader for the firm.

“After a couple of relatively quiet years, fundraising has returned in earnest to the real estate industry,” he said.

During a Sept. 2 webcast, O’Brien discussed keys to success in real estate fundraising. He said they include attracting capital, fund and investment structuring, sourcing and qualifying investment opportunities, operational excellence and investor reporting, and exit strategies.

Lynn Kawaminami, partner at Deloitte Tax LLP, said that as of January 2011, 52 percent of real estate fund investors come from North America, while 35 percent are from Europe. The remaining 13 percent hail from Asia and the rest of the world.

“We’ve seen a fair amount of capital from Canada being invested in the United States over past couple of years,” O’Brien said. “In prior years, we’ve seen countries like Germany and Australia lead the way. So there clearly is a large amount of capital from Canada being targeted to the U.S.”

In terms of sourcing and qualifying investment opportunities, Jeff Daily, partner at Deloitte & Touche LLP, said executing transactions in today’s market requires more research. Assessing the quality of earnings and assets, identifying liabilities, and understand working capital and cash-flow trends are among the due diligence items required, according to Daily.

“Make sure you demonstrate an understanding of the important issues and conduct due diligence effectively,” he said.

Daily added that the complexity of real estate transactions, particularly in dealing with large portfolios, requires investors to navigate different motivations between buyers and sellers, as well as consider the distinct feature of assets.

“As we have seen in the past year, deal activity in the real estate space has largely been driven by distressed investors and a consolidation of public and private companies, including REITs,” he said.

When it comes to exit strategies, Joseph Wisniewski said it’s never too early to consider the exit strategy from a fund.

“At the start of a fund, the exit from the fund should also be considered,” he said.

This means determining whether the fund will be open or closed ended, as well as considering liquidation timing and implications, Wisniewski said. He added that initial public offering (IPO) readiness should be considered early in the process, which includes considering the requirements for qualifying as a REIT. 

NCREIF Property Index Shows Gains Through 2013 | CCIM Institute

NCREIF Property Index Shows Gains Through 2013 | CCIM Institute

Synchronicity: CRE Prices Increase Across the Board for 3 Months Running

Transaction Activity Remains Stable, General Commercial Sales Increase in Deal Size

By Mark Heschmeyer

September 14, 2011

For the first time since the downturn in 2008, the CoStar Commercial Repeat Sale Index (CCRSI) showed synchronized price increases across the board, from investment grade to general commercial, for more than three months, according to the latest release of the CoStar Commercial Repeat Sale Indices (CCRSI).. 

The consistent positive price movement in general commercial property sales ended the bifurcation trend observed in commercial real estate prices during the second half of last year. 

The monthly National Composite Index increased by 1% in July, 2011, the fourth consecutive month of positive price movement. 

In July, the price gain was 2.4% for the Investment Grade Index, and 0.7% for the General Commercial Index, and both marked the fourth month of increasing prices. 

CCRSI Index Results 

• CoStar's Composite Commercial Repeat Sales Index increased by 1% in July 2011. It is now 1.6% below the same period last year and 33.1% below its peak in August 2007.


• CoStar's Investment Grade Commercial Repeat Sales Index increased 2.4% in May 2011 and is now 6.8% above the same period last year and 32.4% below its peak in August 2007.


• CoStar's General Grade Commercial Repeat Sales Index increased by 0.7% in May 2011, and is now 3.4% below its year-ago level and off 33.5% from its August 2007 peak.

The CCRSI September 2011 report is based on data through the end of July 2011. Transaction activity decreased slightly in July, with a total of 766 sale pairs compared with the monthly average of 834 in the last six months. 

A similar slowdown in transaction activities was observed in both the Investment Grade and the General Commercial indices. The former reported 120 sales pairs, down from its six-month average of 130, while the latter had 646 pairs, down from a monthly average of 704. The decrease appeared to be a normal monthly fluctuation. At the low point in the most recent downturn, only a total of 375 transactions were recorded in January 2009. 

Consistent with the decrease in pair counts, the overall dollar volume of sales also dropped slightly in July. While the average transaction size remained stable around $20 million for Investment Grade sale transactions, the average deal size for General Commercial transactions increased to $1.9 million, from an average of $1.6 million in the last six months. 

Tweet me @mheschmeyer with your comment or news. 

NAI Rio Grande Valley is a focused commercial real estate brokerage, consulting, development and syndication firm serving the Rio Grande Valley and based in McAllen, Texas. Our mission is to transform real estate opportunities into profits for owners, users and investors.

BofA to sell $880 million in commercial real estate loans

BofA to sell $880 million in commercial real estate loans

10 Tablet Apps for Commercial Real Estate | CCIM Institute

10 Tablet Apps for Commercial Real Estate | CCIM Institute

Top 5 Reasons to Buy Commercial Real Estate Now

by Pete Baldwin | Posted on: Wednesday, September 7th, 2011

1.      Commercial lending is the best it’s been in decades

Don’t believe what you hear when it comes to commercial loans not being available; they are plentiful and at the lowest interest rates I’ve ever seen on commercial property. Small Business Administration (SBA) loans were once known as long and painful and about as much fun as a root canal! Well, the times have changed and so have SBA Loans. Be sure to get with your real estate broker to locate a dependable and professional SBA lender. You will be pleasantly surprised with the results and products you find.

2.      The Bargains are far and few between

The word on the street is that commercial inventory is high. In some cases this is true, but I can tell you from first-hand experience that certain areas in the Phoenix area, such as north Phoenix and north Scottsdale, have very low inventory. A lot of the inventory you will find may not be suitable for you and may typically be in a bad location, have problems, etc. In other words – the good buys and good properties are nearly gone! Don’t take my word for it; get your real estate broker to pull comps and listings for you. Don’t wait any longer; get out there and find that piece of property you need!

3.      Different commercial verticals are on the rise

Whether it’s healthcare, general office or anchor retail, residential areas that realized significant growth four or five years ago are finally getting the local commercial amenities needed to help these communities thrive. The simple act of going to a grocery store has been very cumbersome for some outlying residential subdivisions. The good news is these empty commercial buildings are finally filling up, and the sellers are offering great incentives to buyers such as tenant improvements, deep discounts and even seller carry-backs in some cases.

4.      Commercial growth and construction will begin to increase again

While the inventory flies off the shelves and vacant properties fill up, commercial construction will once again begin to increase leaving the commercial buyer in a supply and demand dilemma. Let’s face it; we all want a good deal, and if you look hard and long enough you and your commercial real estate broker will find one; but be ready, the odds are you’ll have to act fast to get your offer accepted.

5.      Commercial Real Estate Brokers are in The Know

When you make the decision to start your real estate adventure, make sure you work with a local commercial real estate broker who knows where the deals are, what’s happening with current growth patterns, and what large employers are in the area. He or she should also have in-depth knowledge of the city’s zoning laws where you are looking. These key pieces of knowledge and good negotiation skills are going to be your secret weapon when it comes to getting a good deal on your next commercial real estate purchase.

So, you’ve heard me rant on and on about how you need to buy commercial real estate now. I can’t stress to you enough that the good properties are not getting cheaper, interest rates will likely get higher and commercial construction will, again, begin to pick up leaving the commercial buyer with a sense of, “I missed the boat.”

Stop waiting; don’t miss the boat, and get out there and buy the property you need; and remember to hire a licensed commercial real estate broker for all of your commercial needs.

Happy Buying!

These tips are provided by Pete Baldwin, designated broker and owner of Platinum Realty Network with offices in Scottsdale and Flagstaff, Ariz. With over 25 years of experience in business and real estate, Pete specializes in country club communities and second home investments, including large commercial portfolios. He also owns an Arizona branch of a family-owned, Montana-based company Baldwin Log Homes – Arizona Territory and has become the area leader in full- custom, handcrafted log homes in Northern Arizona. For more information, please visit www.PeteBaldwin.com.