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