This article will start off telling us that everything is getting better and that liquidity is returning to the market resulting in transactions to be completed.
The detail is, that is only true of institutional grade Sponsorship, core assets, and credit tenants in tow. The excerpt below was deep, deep in the article and applies to most Sponsors, assets, and tenants.
A Bifurcated Market
Excerpt from: First Quarter Bank Results: Potential for CRE Armageddon Fading; Mark Heschmeyer CosStar
Class A properties are doing well and probably are doing better than anybody might mark them, so actually we're not in the business of selling those even though we might have taken a mark on them when we took them in. Those properties tend to come back with the economy, and that's the right thing to do.
The C properties, you just sell. C property rarely comes back so you take very strong marks on those right up front and you just sell them because they always have trouble recovering at all. So we've been actively doing that and we're comfortable with our marks.
The B properties, obviously the majority of the portfolio, but those are the ones you mark down and you have to manage one by one… So that's a plus, and I think the commercial real estate business over time, if a property loses a tenant, clearly that property has less value as you know. But then they go resign somebody else at a lower lease rate, so the property is worth less, but it's not like it falls off the planet. There is some cash flow. So I think those B properties, I think will work their way through for the most part.
James Rohr, Chairman & CEO, PNC Financial Services Group Inc.
Core Ventures, LLC capitalizes distressed multi-family and other commercial real estate assets. If you are an owner or lender that needs liquidity to consummate a transaction, please contact Core Ventures for more details.
Thursday, April 29, 2010
Good news; Bad news...Place your bets and hedge 'em
I love Federal Reserve Speak. I must say that Alan Greenspan was much better at it than our newly found friend Bernake. This is pretty plain language.
Things are good, not good enough, no eminent tightening. See the article below or find the original by clicking the title below.
Fed Pledges to Keep Low Rates for ‘Extended Period’ - Bloomberg; Torres/Matthews
April 28 (Bloomberg) -- Federal Reserve officials restated their intention to keep the benchmark interest rate near zero for an “extended period” and saw signs of life in the job market.
“The labor market is beginning to improve,” the Federal Open Market Committee said in a statement today in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.”
Chairman Ben S. Bernanke is contending with an unemployment rate that has been stuck at 9.7 percent for three straight months even as payrolls started to grow. Fed officials repeated that inflation is likely to be “subdued” and that consumer spending is held back by tight credit and weak income growth.
“You have got sub-comfort-zone core inflation with a high volume of labor-market slack,” Michael Darda, chief economist at MKM Partners LP, said in a Bloomberg Television interview. “The Fed would rather be a little bit behind the curve and play catch up later than move too soon.”
Treasury notes fell and stocks rose after the decision. The Standard & Poor’s 500 Index gained 0.7 percent to close at 1,191.36 in New York. Two-year Treasury notes fell, pushing up the yield 2 basis points to 1.02 percent. A basis point is 0.01 percentage point.
Slack in labor markets and resulting limited wage pressures have held down consumer prices. The so-called core inflation rate, which excludes food and energy, was 1.1 percent for the 12 months ending March, down from 1.3 percent in February.
Inflation Expectations
“Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” today’s Fed statement said.
“The policy guidance was left fully intact,” said Jim O’Sullivan, chief economist at MF Global Ltd. in New York. “The message for now is there is no imminent tightening.”
U.S. central bankers have left the benchmark lending rate in a range of zero to 0.25 percent since December 2008. Their purchases of $1.25 trillion in mortgage-backed securities, which ended last month, boosted the balance sheet to a record $2.34 trillion.
Kansas City Fed President Thomas Hoenig dissented for the third straight meeting. He said “that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of future imbalances and increase risks to longer-run macroeconomic and financial stability” and limit the ability to increase rates “modestly.”
Economic Growth
Gross domestic product grew at a 3.3 percent annual pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg News ahead of an April 30 report from the Commerce Department. After a 5.6 percent expansion in the prior three months, such growth would mark the best back-to-back performance since the last six months of 2003.
A surge in corporate profits last quarter was led by demand from overseas and lower labor costs, according to results from S&P 500 companies that have reported earnings this month.
Conditions in financial markets have also improved. Raytheon Co., the world’s largest missile maker, and the finance unit of Royal Dutch Shell PLC led a drop in U.S. industrial company debt yields to 129 basis points more than similar- maturity Treasuries last week, according to Bank of America Merrill Lynch index data.
The spread is one basis point tighter than it was on Aug. 9, 2007, when BNP Paribas SA halted withdrawals from three investment funds near the start of the credit crisis. Industrial company spreads widened one basis point yesterday to 130 basis points.
Forecasts Raised
Economists have raised forecasts from earlier this month as reports showed consumer spending climbed, inventories rose and businesses invested in new equipment. The median estimate of analysts polled from April 1 to April 8 called for a 3 percent growth rate.
Retail sales increased 1.6 percent last month, more than anticipated and the biggest gain in four months, according to figures from the Commerce Department. Stocks of companies that rely on discretionary spending are up. Shares of Chipotle Mexican Grill Inc., a Denver-based Mexican restaurant chain, are up about 53 percent year-to-date. Shares of Starbucks Corp., based in Seattle, have risen 14 percent.
Jobless Rate
For all the positive news, economists surveyed by Bloomberg News expect non-farm payrolls to rise by just 175,000 this month, not enough to lower the unemployment rate from 9.7 percent, where it stood in March.
“The Fed is unconvinced in the sustainability of the recovery because job growth has been modest,” said Joseph LaVorgna, chief U.S. economist in New York at Deutsche Bank Securities Inc. in New York. “They want to be very certain the economy has gotten traction and the only way to be sure is if the labor market has gotten better over the next few months.”
Officials brought a fresh set of forecasts to today’s meeting. Their outlook for inflation and unemployment, which will be disclosed in three weeks when minutes are released, will offer insights into their estimates of how fast the economy will use up spare capacity.
About 80 percent of S&P 500 companies to have posted first- quarter earnings have topped analysts’ projections, according to data compiled by Bloomberg.
Increased Demand
Some companies are positioning for a sustained increase in demand.
Caterpillar Inc., based in Peoria, Illinois and the world’s largest maker of construction equipment, posted its first earnings increase in seven quarters on April 26, exceeding analysts’ estimates.
Eastman Chemical Co., the biggest U.S. maker of plastics for water bottles, topped analysts’ estimates with first-quarter earnings and its second-quarter forecast. Jim Rogers, chief executive officer of the Kingsport, Tennessee-based company, said April 23 that its output will rise after first-quarter sales jumped 39 percent to $1.56 billion.
Macy’s Inc., the second-largest U.S. department-store chain, boosted its annual profit and sales forecasts yesterday. Sales at stores open at least a year will rise as much as 3.5 percent, Chief Financial Officer Karen Hoguet said at an analyst meeting in New York. The Cincinnati-based retailer earlier predicted a gain of 2 percent at most.
“There are questions about the pace of the recovery and the sustainability of the housing recovery,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Therefore, it is too early to move. The extended period is still in force.”
Core Ventures, LLC capitalizes distressed multi-family and other commercial real estate assets. If you are an owner or lender that needs liquidity to consummate a transaction, please contact Core Ventures for more details.
Things are good, not good enough, no eminent tightening. See the article below or find the original by clicking the title below.
Fed Pledges to Keep Low Rates for ‘Extended Period’ - Bloomberg; Torres/Matthews
April 28 (Bloomberg) -- Federal Reserve officials restated their intention to keep the benchmark interest rate near zero for an “extended period” and saw signs of life in the job market.
“The labor market is beginning to improve,” the Federal Open Market Committee said in a statement today in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.”
Chairman Ben S. Bernanke is contending with an unemployment rate that has been stuck at 9.7 percent for three straight months even as payrolls started to grow. Fed officials repeated that inflation is likely to be “subdued” and that consumer spending is held back by tight credit and weak income growth.
“You have got sub-comfort-zone core inflation with a high volume of labor-market slack,” Michael Darda, chief economist at MKM Partners LP, said in a Bloomberg Television interview. “The Fed would rather be a little bit behind the curve and play catch up later than move too soon.”
Treasury notes fell and stocks rose after the decision. The Standard & Poor’s 500 Index gained 0.7 percent to close at 1,191.36 in New York. Two-year Treasury notes fell, pushing up the yield 2 basis points to 1.02 percent. A basis point is 0.01 percentage point.
Slack in labor markets and resulting limited wage pressures have held down consumer prices. The so-called core inflation rate, which excludes food and energy, was 1.1 percent for the 12 months ending March, down from 1.3 percent in February.
Inflation Expectations
“Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” today’s Fed statement said.
“The policy guidance was left fully intact,” said Jim O’Sullivan, chief economist at MF Global Ltd. in New York. “The message for now is there is no imminent tightening.”
U.S. central bankers have left the benchmark lending rate in a range of zero to 0.25 percent since December 2008. Their purchases of $1.25 trillion in mortgage-backed securities, which ended last month, boosted the balance sheet to a record $2.34 trillion.
Kansas City Fed President Thomas Hoenig dissented for the third straight meeting. He said “that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of future imbalances and increase risks to longer-run macroeconomic and financial stability” and limit the ability to increase rates “modestly.”
Economic Growth
Gross domestic product grew at a 3.3 percent annual pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg News ahead of an April 30 report from the Commerce Department. After a 5.6 percent expansion in the prior three months, such growth would mark the best back-to-back performance since the last six months of 2003.
A surge in corporate profits last quarter was led by demand from overseas and lower labor costs, according to results from S&P 500 companies that have reported earnings this month.
Conditions in financial markets have also improved. Raytheon Co., the world’s largest missile maker, and the finance unit of Royal Dutch Shell PLC led a drop in U.S. industrial company debt yields to 129 basis points more than similar- maturity Treasuries last week, according to Bank of America Merrill Lynch index data.
The spread is one basis point tighter than it was on Aug. 9, 2007, when BNP Paribas SA halted withdrawals from three investment funds near the start of the credit crisis. Industrial company spreads widened one basis point yesterday to 130 basis points.
Forecasts Raised
Economists have raised forecasts from earlier this month as reports showed consumer spending climbed, inventories rose and businesses invested in new equipment. The median estimate of analysts polled from April 1 to April 8 called for a 3 percent growth rate.
Retail sales increased 1.6 percent last month, more than anticipated and the biggest gain in four months, according to figures from the Commerce Department. Stocks of companies that rely on discretionary spending are up. Shares of Chipotle Mexican Grill Inc., a Denver-based Mexican restaurant chain, are up about 53 percent year-to-date. Shares of Starbucks Corp., based in Seattle, have risen 14 percent.
Jobless Rate
For all the positive news, economists surveyed by Bloomberg News expect non-farm payrolls to rise by just 175,000 this month, not enough to lower the unemployment rate from 9.7 percent, where it stood in March.
“The Fed is unconvinced in the sustainability of the recovery because job growth has been modest,” said Joseph LaVorgna, chief U.S. economist in New York at Deutsche Bank Securities Inc. in New York. “They want to be very certain the economy has gotten traction and the only way to be sure is if the labor market has gotten better over the next few months.”
Officials brought a fresh set of forecasts to today’s meeting. Their outlook for inflation and unemployment, which will be disclosed in three weeks when minutes are released, will offer insights into their estimates of how fast the economy will use up spare capacity.
About 80 percent of S&P 500 companies to have posted first- quarter earnings have topped analysts’ projections, according to data compiled by Bloomberg.
Increased Demand
Some companies are positioning for a sustained increase in demand.
Caterpillar Inc., based in Peoria, Illinois and the world’s largest maker of construction equipment, posted its first earnings increase in seven quarters on April 26, exceeding analysts’ estimates.
Eastman Chemical Co., the biggest U.S. maker of plastics for water bottles, topped analysts’ estimates with first-quarter earnings and its second-quarter forecast. Jim Rogers, chief executive officer of the Kingsport, Tennessee-based company, said April 23 that its output will rise after first-quarter sales jumped 39 percent to $1.56 billion.
Macy’s Inc., the second-largest U.S. department-store chain, boosted its annual profit and sales forecasts yesterday. Sales at stores open at least a year will rise as much as 3.5 percent, Chief Financial Officer Karen Hoguet said at an analyst meeting in New York. The Cincinnati-based retailer earlier predicted a gain of 2 percent at most.
“There are questions about the pace of the recovery and the sustainability of the housing recovery,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Therefore, it is too early to move. The extended period is still in force.”
Core Ventures, LLC capitalizes distressed multi-family and other commercial real estate assets. If you are an owner or lender that needs liquidity to consummate a transaction, please contact Core Ventures for more details.
Friday, April 23, 2010
Better than the rest......
Texas, as a whole, is doing better than the rest of the country in the world of commercial real estate.....so take a look at these facts from the DBJ. Look here for the full article.
Commercial property foreclosures in North Texas have climbed 63 percent so far this year, with land and apartment complexes among the hardest hit.
So far in 2010, 1,393 foreclosure postings were filed on commercial properties in Dallas, Tarrant, Collin and Denton Counties. This compares to 857 for the same period last year, according to Addison-based Foreclosure Listing Service.
The number of postings for land jumped 73 percent to 311, and apartment postings jumped 44 percent to 191. Office building postings increased 21 percent to 116. Postings for miscellaneous commercial buildings -- which include restaurants, hotels, auto dealerships and funeral homes -- surged a whopping 139 percent, to 596.
Core Ventures, LLC capitalizes distressed multi-family and other commercial real estate assets. If you are an owner or lender that needs liquidity to consummate a transaction, please contact Core Ventures for more details.
Commercial property foreclosures in North Texas have climbed 63 percent so far this year, with land and apartment complexes among the hardest hit.
So far in 2010, 1,393 foreclosure postings were filed on commercial properties in Dallas, Tarrant, Collin and Denton Counties. This compares to 857 for the same period last year, according to Addison-based Foreclosure Listing Service.
The number of postings for land jumped 73 percent to 311, and apartment postings jumped 44 percent to 191. Office building postings increased 21 percent to 116. Postings for miscellaneous commercial buildings -- which include restaurants, hotels, auto dealerships and funeral homes -- surged a whopping 139 percent, to 596.
Core Ventures, LLC capitalizes distressed multi-family and other commercial real estate assets. If you are an owner or lender that needs liquidity to consummate a transaction, please contact Core Ventures for more details.
Tuesday, April 20, 2010
Some guys seem to always get it exactly right
Brad has been a friend of mine for going on four years. We worked at the same employer for some time several years ago and never fell out of touch. He has the most amazing business and marketing sense of any individual deal originator I have ever met. With his permission I will be posting his weekly address.
Todd, thank you as always and especially for this contribution. Keep up the good work. I am glad to know that business is still getting done out there.
Those of you skimming this post, note that current market data for the week of 4/19 follows:
WEEKLY MARKET COMMENTARY - AS OF APRIL 19, 2010
INTEREST RATES HAVE NOWHERE TO GO BUT UP - If you have a commercial loan that is maturing in the next 36 months you should serious consider refinancing now, even if there is a prepayment penalty. Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates. That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.
“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”
The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.
Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.
“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”
Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.
The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.
Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.
With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.
“The banks don’t have a lot of pricing options,” Mr. Moroney said. “They’re targeting people who carry a balance from month to month.”
Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve.
Washington, too, is expecting to have to pay more to borrow the money it needs for programs. The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.
The run-up in rates is quickening as investors steer more of their money away from bonds and as Washington unplugs the economic life support programs that kept rates low through the financial crisis. Mortgage rates and car loans are linked to the yield on long-term bonds.
Besides the inflation fears set off by the strengthening economy, Mr. Gross said he was also wary of Treasury bonds because he feared the burgeoning supply of new debt issued to finance the government’s huge budget deficits would overwhelm demand, driving interest rates higher.
Nine months ago, United States government debt accounted for half of the assets in Mr. Gross’s flagship fund, Pimco Total Return. That has shrunk to 30 percent now — the lowest ever in the fund’s 23-year history — as Mr. Gross has sold American bonds in favor of debt from Europe, particularly Germany, as well as from developing countries like Brazil.
A couple of weeks ago , the yield on the benchmark 10-year Treasury note briefly crossed the psychologically important threshold of 4 percent, as the Treasury auctioned off $82 billion in new debt. That is nearly twice as much as the government paid in the fall of 2008, when investors sought out ultrasafe assets like Treasury securities after the collapse of Lehman Brothers and the beginning of the credit crisis.
Though still very low by historical standards, the rise of bond yields since then is reversing a decline that began in 1981, when 10-year note yields reached nearly 16 percent.
From that peak, steadily dropping interest rates have fed a three-decade lending boom, during which American consumers borrowed more and more but managed to hold down the portion of their income devoted to paying off loans.
Indeed, total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income over the same period — yet the portion of disposable income that goes toward covering that debt has budged only slightly, increasing to 12.6 percent from 10.7 percent.
Household debt has been dropping for the last two years as recession-battered consumers cut back on borrowing, but at $13.5 trillion, it still exceeds disposable income by $2.5 trillion.
The long decline in rates also helped prop up the stock market; lower rates for investments like bonds make stocks more attractive.
ATTENTION APARTMENT OWNERS – Fannie Mae and Freddie Mac continue to tighten their underwriting guidelines, cutting further into loan dollars and sidelining many potential deals. Most loans are maxing out at 65% or less and new rules seem to show up daily further affecting proceeds. Although the rate is attractive, providing insufficient proceeds forces many borrowers to look elsewhere. Alternatively, the Life Companies can provide more proceeds and be much more creative on how the loan is structured. The rate is higher, but so are the proceeds. If you have an apartment community that needs a new loan, call us to discuss what you’re looking for.
REFERRAL FEE – We will pay you a referral fee if you refer us a client that needs a commercial real estate loan and we arrange the financing for them. Call for more details.
***LIFE COMPANY’S HAVE CAPITAL TO MAKE LOANS TODAY***
Our firm is a correspondent for 14 life companies. They are more active this year than the past couple years and they are interested in financing stabilized commercial properties:
• Apartments
• Office
• Retail
• Industrial
• Mixed-Use
• Flex
• Self-Storage
• Owner-Occupied
• Single or Multi-Tenant
• $500K - $50MM
NEED A LOAN FAST? HAS YOUR TRADITIONAL LENDER TURNED YOU DOWN? HERE ARE THE TOP REASONS WHY BORROWERS APPLY FOR A PRIVATE MONEY LOAN:
• You received a loan quote from a Life Company, Conduit, or Bank and the LTV is too low. Our lenders can provide a mezzanine loan behind a newly originated first mortgage.
• Money for trapped equity
• Money for capital improvements and tenant improvements
• Money to acquire fractured condo units
• Paydown of existing loan so the lender will agree to extend the term
• Opportunistic purchases that need to close fast
• Refinancing of maturing commercial real estate loans
• A conventional commercial real estate loan closing falls apart in the 11th hour and new financing needs to get put in place quickly to meet the closing deadline
• Repositioning / Transitional Properties
• “Lease-Ups” (provides time to get property occupied)
• Rehabilitations
• Financing for properties exiting Bankruptcy
• Unusual borrower situation
• Cash-out financing
• Foreclosure purchases
• Commercial Real Estate Loans that don’t meet bank underwriting criteria
• Partner buyouts
Market Snapshot—Monday’s closes (4-19-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.95% (1.06%) DJIA: 11018 (10997) Prime Rate: 3.25%
5-yr 2.47% (2.62%) NASDAQ: 2481 (2454) Fed Reserve Target Rate: 0.25%
10-yr 3.77% (3.88%) S&P 500: 1192 (1194) U.S. Unemployment Rate: 9.70%
30-yr 4.67% (4.74%) S&P 100: 544 (545)
LIBOR NYSE Comp: 7685 (7529)
1- Mo. LIBOR: .26% (.25%) Crude Oil: $83 ($85)
3-Mo. LIBOR.30 (.29%) Gold: $1138 ($1162)
OUR SERVICES - As a privately held mortgage banking firm Thomas D Wood and Company has been arranging and structuring commercial real estate loans for over 35 years. We arrange all types of debt for existing commercial real estate properties through our correspondent relationship with life insurance companies, community banks and private lenders. Single-tenant, owner-occupied, and multi tenant properties are all acceptable. For a list of recent closings visit our web site at www.tdwood.com.
Until next week -
Brad Cox, CCIM, CPM
Senior Vice President - Debt Placement
Thomas D Wood and Company
6802 Honeysuckle Trail, Ste. 101
Lakewood Ranch, FL 34202
Office: (941) 552-9731; Fax: (941) 761-5795
Cell: (813) 727-7709
Email: bcox@tdwood.com
Todd, thank you as always and especially for this contribution. Keep up the good work. I am glad to know that business is still getting done out there.
Those of you skimming this post, note that current market data for the week of 4/19 follows:
WEEKLY MARKET COMMENTARY - AS OF APRIL 19, 2010
INTEREST RATES HAVE NOWHERE TO GO BUT UP - If you have a commercial loan that is maturing in the next 36 months you should serious consider refinancing now, even if there is a prepayment penalty. Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates. That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.
“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”
The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.
Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.
“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”
Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.
The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.
Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.
With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.
“The banks don’t have a lot of pricing options,” Mr. Moroney said. “They’re targeting people who carry a balance from month to month.”
Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve.
Washington, too, is expecting to have to pay more to borrow the money it needs for programs. The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.
The run-up in rates is quickening as investors steer more of their money away from bonds and as Washington unplugs the economic life support programs that kept rates low through the financial crisis. Mortgage rates and car loans are linked to the yield on long-term bonds.
Besides the inflation fears set off by the strengthening economy, Mr. Gross said he was also wary of Treasury bonds because he feared the burgeoning supply of new debt issued to finance the government’s huge budget deficits would overwhelm demand, driving interest rates higher.
Nine months ago, United States government debt accounted for half of the assets in Mr. Gross’s flagship fund, Pimco Total Return. That has shrunk to 30 percent now — the lowest ever in the fund’s 23-year history — as Mr. Gross has sold American bonds in favor of debt from Europe, particularly Germany, as well as from developing countries like Brazil.
A couple of weeks ago , the yield on the benchmark 10-year Treasury note briefly crossed the psychologically important threshold of 4 percent, as the Treasury auctioned off $82 billion in new debt. That is nearly twice as much as the government paid in the fall of 2008, when investors sought out ultrasafe assets like Treasury securities after the collapse of Lehman Brothers and the beginning of the credit crisis.
Though still very low by historical standards, the rise of bond yields since then is reversing a decline that began in 1981, when 10-year note yields reached nearly 16 percent.
From that peak, steadily dropping interest rates have fed a three-decade lending boom, during which American consumers borrowed more and more but managed to hold down the portion of their income devoted to paying off loans.
Indeed, total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income over the same period — yet the portion of disposable income that goes toward covering that debt has budged only slightly, increasing to 12.6 percent from 10.7 percent.
Household debt has been dropping for the last two years as recession-battered consumers cut back on borrowing, but at $13.5 trillion, it still exceeds disposable income by $2.5 trillion.
The long decline in rates also helped prop up the stock market; lower rates for investments like bonds make stocks more attractive.
ATTENTION APARTMENT OWNERS – Fannie Mae and Freddie Mac continue to tighten their underwriting guidelines, cutting further into loan dollars and sidelining many potential deals. Most loans are maxing out at 65% or less and new rules seem to show up daily further affecting proceeds. Although the rate is attractive, providing insufficient proceeds forces many borrowers to look elsewhere. Alternatively, the Life Companies can provide more proceeds and be much more creative on how the loan is structured. The rate is higher, but so are the proceeds. If you have an apartment community that needs a new loan, call us to discuss what you’re looking for.
REFERRAL FEE – We will pay you a referral fee if you refer us a client that needs a commercial real estate loan and we arrange the financing for them. Call for more details.
***LIFE COMPANY’S HAVE CAPITAL TO MAKE LOANS TODAY***
Our firm is a correspondent for 14 life companies. They are more active this year than the past couple years and they are interested in financing stabilized commercial properties:
• Apartments
• Office
• Retail
• Industrial
• Mixed-Use
• Flex
• Self-Storage
• Owner-Occupied
• Single or Multi-Tenant
• $500K - $50MM
NEED A LOAN FAST? HAS YOUR TRADITIONAL LENDER TURNED YOU DOWN? HERE ARE THE TOP REASONS WHY BORROWERS APPLY FOR A PRIVATE MONEY LOAN:
• You received a loan quote from a Life Company, Conduit, or Bank and the LTV is too low. Our lenders can provide a mezzanine loan behind a newly originated first mortgage.
• Money for trapped equity
• Money for capital improvements and tenant improvements
• Money to acquire fractured condo units
• Paydown of existing loan so the lender will agree to extend the term
• Opportunistic purchases that need to close fast
• Refinancing of maturing commercial real estate loans
• A conventional commercial real estate loan closing falls apart in the 11th hour and new financing needs to get put in place quickly to meet the closing deadline
• Repositioning / Transitional Properties
• “Lease-Ups” (provides time to get property occupied)
• Rehabilitations
• Financing for properties exiting Bankruptcy
• Unusual borrower situation
• Cash-out financing
• Foreclosure purchases
• Commercial Real Estate Loans that don’t meet bank underwriting criteria
• Partner buyouts
Market Snapshot—Monday’s closes (4-19-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.95% (1.06%) DJIA: 11018 (10997) Prime Rate: 3.25%
5-yr 2.47% (2.62%) NASDAQ: 2481 (2454) Fed Reserve Target Rate: 0.25%
10-yr 3.77% (3.88%) S&P 500: 1192 (1194) U.S. Unemployment Rate: 9.70%
30-yr 4.67% (4.74%) S&P 100: 544 (545)
LIBOR NYSE Comp: 7685 (7529)
1- Mo. LIBOR: .26% (.25%) Crude Oil: $83 ($85)
3-Mo. LIBOR.30 (.29%) Gold: $1138 ($1162)
OUR SERVICES - As a privately held mortgage banking firm Thomas D Wood and Company has been arranging and structuring commercial real estate loans for over 35 years. We arrange all types of debt for existing commercial real estate properties through our correspondent relationship with life insurance companies, community banks and private lenders. Single-tenant, owner-occupied, and multi tenant properties are all acceptable. For a list of recent closings visit our web site at www.tdwood.com.
Until next week -
Brad Cox, CCIM, CPM
Senior Vice President - Debt Placement
Thomas D Wood and Company
6802 Honeysuckle Trail, Ste. 101
Lakewood Ranch, FL 34202
Office: (941) 552-9731; Fax: (941) 761-5795
Cell: (813) 727-7709
Email: bcox@tdwood.com
Monday, April 19, 2010
Why say "No" when it feels so right to say "Yes"
Being a contrarian of is not a very popular position. I have found that it serves me well. Take a look at what Jon Markman of Markman Capital Insight has to say on the matter here:
Some quotes to pique your interest:
...." Let me put it this way: Would you rather buy paper shares of a technology company that could lose its innovation edge at any time? Or half a block of Manhattan at a 50% discount? Yeah, me, too."
Core Ventures is uniquely positioned with its access to flexible capital to assist the middle market Commercial Real Estate entrepreneur to reenter the market and take advantage of the discounted hard assets and cash flow Mr. Markman describes.
If you are a seasoned real estate professional waiting for the capital markets to thaw, please do not wait any longer. Contact Core Ventures, LLC today and let's discuss what we can do together in today's market.
Some quotes to pique your interest:
...." Let me put it this way: Would you rather buy paper shares of a technology company that could lose its innovation edge at any time? Or half a block of Manhattan at a 50% discount? Yeah, me, too."
Core Ventures is uniquely positioned with its access to flexible capital to assist the middle market Commercial Real Estate entrepreneur to reenter the market and take advantage of the discounted hard assets and cash flow Mr. Markman describes.
If you are a seasoned real estate professional waiting for the capital markets to thaw, please do not wait any longer. Contact Core Ventures, LLC today and let's discuss what we can do together in today's market.
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