For struggling commercial property owners, loan modifications can be answered prayers, but without proper tax planning, all hell may break loose come April 15.
That's because income from debt cancellation is taxable, something that is often overlooked as owners scramble to ward off financial ruin. Uninformed real estate owners could find themselves in financial peril when they file their IRS tax returns and owe hundreds of thousands of dollars in unexpected taxes they cannot afford to pay.
Consider the big picture: Commercial loan defaults are posting record-high rates -- and momentum is moving toward worsening default rates through 2015. Real Estate Econometrics expects the default rate to rise to 5.2 percent by the end of 2010 alone.
All this means heightened possibilities for commercial lenders working with overleveraged property owners to forgive a debt rather than waste more resources chasing insolvent borrowers.
"If the borrower is bankrupt, the bank will have no chance to recover the money on a recourse debt, and attempting to collect on a recourse debt from someone who is insolvent may exceed the benefits," said Dennis Fitzpatrick, principal with Kaufman, Rossin & Co. in Miami. "Either way, to the extent that the lender forgives the debt, there is income to the borrower and it is taxable."
If the lender forgives part of the debt, the owner sees a gain as if the property was sold. That gain is the difference between the fair market value of the property and the borrower's basis, along with depreciation on any improvements. With declining market values in mind, the gain could be hundreds of thousands or even millions of dollars.
Although there are no escaping tax laws on the gain from a short sale, the good news is recent changes to tax codes allow borrowers to exclude cancellation of debt income from personal income taxes on recourse loans. The tax code gives companies looking to reduce or restructure debt the opportunity to defer the impact of COD income on debts occurring in 2009 or 2010 for a five-year period.
"This helps taxpayers that are working out their debt and may have losses this year but may have paid taxes in prior years," said Ed Godoy, tax business line leader for the Miami office of BDO Seidman. "They may be able to carry back those losses and not be affected by this income inclusion and even get some refunds from prior years."
Since public debt is frequently bought and sold by third parties, tax experts agree that the landmines are many in the area of forgiveness of debt. The bottom line: forgiveness isn't always a good thing and what you thought was forgiven may come back to haunt you if loans are sold.
The first step in avoiding a financial explosion on the IRS front is for the borrower to understand his tax position based on the type of corporate entity that owns the property.
"Borrowers need to get into discussions with their lenders and understand the ramifications of these decisions," Fitzpatrick said. "You need to know what the real cost is going to be of accepting debt forgiveness on a distressed property because there could be costs down the road that aren't so obvious."
CAPITALIZATION RATE IMPACT – PERCENTAGE CHANGE IN PROPERTY VALUE AS CAP RATE INCREASES
Old Cap Rate >> 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00%
New Cap Rate
6.00% -8.30%
6.50% -15.40% -7.70%
7.00% -21.40% -14.30% -7.10%
7.50% -26.70% -20.00% -13.30% -6.70%
8.00% -31.30% -25.00% -18.80% -12.50% -6.30%
8.50% -35.30% -29.40% -23.50% -17.60% -11.80% -5.90%
9.00% -38.90% -33.30% -27.80% -22.20% -16.70% -11.10% -5.60%
9.50% -42.10% -36.80% -31.60% -26.30% -21.10% -15.80% -10.50% -5.30%
10.00% -45.00% -40.00% -35.00% -30.00% -25.00% -20.00% -15.00% -10.00%
10.50% -47.60% -42.90% -38.10% -33.30% -28.60% -23.80% -19.00% -14.30%
11.00% -50.00% -45.50% -40.90% -36.40% -31.80% -27.30% -22.70% -18.20%
Market Snapshot—Monday’s closes (6-14-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.71% (0.73%) DJIA: 10451 (10211) Prime Rate: 3.25%
5-yr 2.01% (2.03%) NASDAQ: 2310 (2244) Fed Reserve Target Rate: 0.25%
10-yr 3.22% (3.23%) S&P 500: 1117 (1092) U.S. Unemployment Rate: 9.70%
30-yr 4.14% (4.15%) S&P 100: 504 (493)
LIBOR NYSE Comp: 6988 (6814)
1- Mo. LIBOR: .35% (.35%) Crude Oil: $77 ($74)
3-Mo. LIBOR: .54 (.54%) Gold: $1258 ($1229)
Until next week -
Brad Cox, CCIM, CPM
Senior Vice President - Debt Placement
Thomas D Wood and Company
Office: (941) 552-9731
Email: bcox@tdwood.com
Monday, June 21, 2010
Monday, June 7, 2010
Multifamily suffers nationally as CMBS delinquencies are on the rise.
WEEKLY MARKET COMMENTARY - AS OF JUNE 7, 2010
HISTORICAL CMBS DELINQUENCIES CONTINUE - Delinquencies in commercial mortgage-backed securities continued at historical highs in May, up 40 basis points to 8.42 percent, said Trepp LLC, New York.
Trepp recorded 8.02 percent in CMBS delinquencies in April for CMBS loans more than 30 days delinquent. The firm said the overall delinquency rate would be nearly 9 percent “if defeased loans were taken out of the equation.”
Seriously delinquent loans—more than 60 days in foreclosure, real estate owned (REO) or non-performing balloons—were up 41 basis points to 7.55 percent.
Fitch Ratings, New York, said average loss severities for its U.S. CMBS rated universe will continue to exceed historical averages through the end of 2011.
In Fitch's U.S. CMBS Loss Study, the ratings agency said it expects higher loss severities for all property types this year. Annual loss severities by property type last year were at 58 percent for multifamily; 48.2 percent for retail; office at 56.9 percent; industrial at 48.8 percent and hotels at nearly 82 percent.
In its monthly delinquency report, Trepp said multifamily had the highest delinquency rate among major property types, up 28 bps to 13.34 percent, and lodging—hotel delinquencies—jumped nearly 130 bps to 18.45 percent. Office delinquencies approached 6 percent—now at 5.81 percent—after up 44 bps from April, and retail CMBS delinquencies increased 42 bps to more than 6.86 percent. Only industrial properties posted a delinquency rate decline among major property types.
Fitch said its overall view of the CMBS sector remains negative, and maturations for 10-year fixed rate 2005 to 2007 vintages are fewer than five years away.
Fitch's 2009 losses were primarily in the 1998 vintage, led by the hotel sector, and the 2006 vintage, dominated by multifamily losses.
Fitch reported underperforming properties in states with weak economies, which led to an increase in rated U.S. CMBS delinquencies for April to 7.48 percent.
Brad Cox, CCIM, CPM
Senior Vice President - Debt Placement
Thomas D Wood and Company
Email: bcox@tdwood.com
HISTORICAL CMBS DELINQUENCIES CONTINUE - Delinquencies in commercial mortgage-backed securities continued at historical highs in May, up 40 basis points to 8.42 percent, said Trepp LLC, New York.
Trepp recorded 8.02 percent in CMBS delinquencies in April for CMBS loans more than 30 days delinquent. The firm said the overall delinquency rate would be nearly 9 percent “if defeased loans were taken out of the equation.”
Seriously delinquent loans—more than 60 days in foreclosure, real estate owned (REO) or non-performing balloons—were up 41 basis points to 7.55 percent.
Fitch Ratings, New York, said average loss severities for its U.S. CMBS rated universe will continue to exceed historical averages through the end of 2011.
In Fitch's U.S. CMBS Loss Study, the ratings agency said it expects higher loss severities for all property types this year. Annual loss severities by property type last year were at 58 percent for multifamily; 48.2 percent for retail; office at 56.9 percent; industrial at 48.8 percent and hotels at nearly 82 percent.
In its monthly delinquency report, Trepp said multifamily had the highest delinquency rate among major property types, up 28 bps to 13.34 percent, and lodging—hotel delinquencies—jumped nearly 130 bps to 18.45 percent. Office delinquencies approached 6 percent—now at 5.81 percent—after up 44 bps from April, and retail CMBS delinquencies increased 42 bps to more than 6.86 percent. Only industrial properties posted a delinquency rate decline among major property types.
Fitch said its overall view of the CMBS sector remains negative, and maturations for 10-year fixed rate 2005 to 2007 vintages are fewer than five years away.
Fitch's 2009 losses were primarily in the 1998 vintage, led by the hotel sector, and the 2006 vintage, dominated by multifamily losses.
Fitch reported underperforming properties in states with weak economies, which led to an increase in rated U.S. CMBS delinquencies for April to 7.48 percent.
Brad Cox, CCIM, CPM
Senior Vice President - Debt Placement
Thomas D Wood and Company
Email: bcox@tdwood.com
Tuesday, June 1, 2010
How is Commercial Real Estate Getting Done. These Guys Know!
FEWER TRANSACTIONS PRODUCE VALUATION UNCERTAINTIES -
Values are going to be a slippery slope for probably the next 24 months until real sales get out there in the market to provide some (comparables)," said Paul Smyth, president of Centerline Servicing LLC, Irving, Texas.
Speaking recently at the Mortgage Bankers Associations Commercial/Multifamily Servicing and Technology Conference, Smyth said fewer current comparables and distressed sale comparables drive significant valuation differences in appraisals—some set even one week apart.
"Alot of it is subjective. You really don't know in a lot of cases until you are actually exposed to the market," Smyth said.
While appraisals remain unreliable, borrower special request volume at Berkadia Commercial Mortgage LLC, Horsham, Pa., increased by nearly four-fold after last year, said Mark McCool, executive vice president.
"Our CMBS (delinquencies) continue to creep up; therefore, our appraisal needs continue to creep up. They remain as unreliable as they ever have been, probably more so at this point," McCool said. "It is incredibly difficult to think from a valuation perspective from the appraisals. It is incredibly difficult."
"Appraisers are having trouble getting their arms around value when there are only so many comps," said Steven Smith, president and COO at PNC Real Estate/Midland Loan Services Inc., Overland Park, Kan. "Appraisals are, by nature, a backward looking exercise, and there are just not many data points for appraisers to settle on."
Smith said assumptions are "a little too aggressive" on recovery amount; PNC/Midland does not agree on stabilized value. It will rely on broker opinion value and, based on the market, PNC/Midland will develop its own value.
Some feedback within the CMBS capital stack showed investors within the stack disagree with the appraisals, Smith added. "We try to do what is best for all certificate holders in the trust," he said. "It is not always a clear deposition and you just don't make everybody happy."
In 2007, Midland completed five modications; four in 2008; 50 modifications in 2009 and 53 modifications year-to-date. However, pressure continues to mount for servicers. "Even though it ebbs and flows, there is an average 300 questions a month from ratings agencies," Smyth said.
Centerline assigns a special asset group for government-sponsored enterprises and a special, separate group in CMBS, Smyth said. With critical mass in special servicing, Centerline subdivides areas trying to keep 15 loans per asset manager, different from the Resolution Trust Corp., which handled north of 100 during the early 1990s.
Smith said PNC's Midland expects questions on special servicing issues to double this year; and the servicer started tracking those queries last year.
"We are seeing a pretty healthy increase in questions come in related to maturities, related to tenant issues, whether they are tenant rollovers or lease renewals or just basic questions—very detailed questions—about lease information," Smith said. "We can expect questions about the watchlist, delinquencies and ARDs (anticipated repayment dates)."
Greater scrutiny also necessitates other analysis for valuation besides the appraisal, Smyth said.
"It's like working out loans in the Roman arena now because the whole world is watching you," Smyth said. "It's a very different arena to work out loans and the credit values are not the only value."
Brad Cox, CCIM, CPM
Email: bcox@tdwood.com
Values are going to be a slippery slope for probably the next 24 months until real sales get out there in the market to provide some (comparables)," said Paul Smyth, president of Centerline Servicing LLC, Irving, Texas.
Speaking recently at the Mortgage Bankers Associations Commercial/Multifamily Servicing and Technology Conference, Smyth said fewer current comparables and distressed sale comparables drive significant valuation differences in appraisals—some set even one week apart.
"Alot of it is subjective. You really don't know in a lot of cases until you are actually exposed to the market," Smyth said.
While appraisals remain unreliable, borrower special request volume at Berkadia Commercial Mortgage LLC, Horsham, Pa., increased by nearly four-fold after last year, said Mark McCool, executive vice president.
"Our CMBS (delinquencies) continue to creep up; therefore, our appraisal needs continue to creep up. They remain as unreliable as they ever have been, probably more so at this point," McCool said. "It is incredibly difficult to think from a valuation perspective from the appraisals. It is incredibly difficult."
"Appraisers are having trouble getting their arms around value when there are only so many comps," said Steven Smith, president and COO at PNC Real Estate/Midland Loan Services Inc., Overland Park, Kan. "Appraisals are, by nature, a backward looking exercise, and there are just not many data points for appraisers to settle on."
Smith said assumptions are "a little too aggressive" on recovery amount; PNC/Midland does not agree on stabilized value. It will rely on broker opinion value and, based on the market, PNC/Midland will develop its own value.
Some feedback within the CMBS capital stack showed investors within the stack disagree with the appraisals, Smith added. "We try to do what is best for all certificate holders in the trust," he said. "It is not always a clear deposition and you just don't make everybody happy."
In 2007, Midland completed five modications; four in 2008; 50 modifications in 2009 and 53 modifications year-to-date. However, pressure continues to mount for servicers. "Even though it ebbs and flows, there is an average 300 questions a month from ratings agencies," Smyth said.
Centerline assigns a special asset group for government-sponsored enterprises and a special, separate group in CMBS, Smyth said. With critical mass in special servicing, Centerline subdivides areas trying to keep 15 loans per asset manager, different from the Resolution Trust Corp., which handled north of 100 during the early 1990s.
Smith said PNC's Midland expects questions on special servicing issues to double this year; and the servicer started tracking those queries last year.
"We are seeing a pretty healthy increase in questions come in related to maturities, related to tenant issues, whether they are tenant rollovers or lease renewals or just basic questions—very detailed questions—about lease information," Smith said. "We can expect questions about the watchlist, delinquencies and ARDs (anticipated repayment dates)."
Greater scrutiny also necessitates other analysis for valuation besides the appraisal, Smyth said.
"It's like working out loans in the Roman arena now because the whole world is watching you," Smyth said. "It's a very different arena to work out loans and the credit values are not the only value."
Brad Cox, CCIM, CPM
Email: bcox@tdwood.com
Monday, May 24, 2010
REPORT: U.S. CRE RETURNS TURN POSITIVE FOR FIRST TIME IN 18 MONTHS
- Commercial real estate in the United States delivered its first positive quarterly return in 18 months during the first quarter, said Investment Property Databank, London.
IPD's U.S. Quarterly Property Index showed a 1.2 percent total return of negative 0.5 percent capital growth and 1.7 percent income return. The valuation-based quarterly index was based on 1,863 properties from 16 core funds worth $76 billion at the end of March.
The office sector showed most improvement in capital value growth, to negative 0.7 percent compared to negative 3.7 percent the previous quarter. Office closely followed the residential sector with capital growth of 0.4 percent compared to negative 2.4 percent in the fourth quarter of 2009. Some analysts, however, say office fundamentals may be last to deteriorate based on tenants with long-term leases.
“While most indications are that the worst of the write-downs are behind investors, uncertainties persist on the medium term health of the broader economy,” said Simon Fairchild, managing director of IPD North America. “Preliminary data from the Bureau of Economic Analysis indicated that Q1 GDP [gross domestic product] increased at an annual rate of 3.2 percent, although if economists’ predictions of a sluggish recovery are accurate then so too will be the pace of capital appreciation.”
The index showed “steady quarterly improvement” in U.S. real estate since bottoming out in the first quarter of 2009. Cap rates remained above their long-term average across the sectors, but improved sentiment boosted capital coming back to the market, Fairchild said. Returning investors started to compete on pricing more aggressively than during the past two years because of limited prime-stock supply, and beneath the headline, total return figures slowed market value depreciation and resilient income returns.
Market Snapshot—Monday’s closes (5-17-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.75% (0.78%) DJIA: 10193 (10620) Prime Rate: 3.25%
5-yr 2.00% (2.15%) NASDAQ: 2229 (2347) Fed Reserve Target Rate: 0.25%
10-yr 3.21% (3.46%) S&P 500: 1088 (1135) U.S. Unemployment Rate: 9.90%
30-yr 4.08% (4.34%) S&P 100: 494 (516)
LIBOR NYSE Comp: 6775 (7078)
1- Mo. LIBOR: .34% (.34%) Crude Oil: $71 ($72)
3-Mo. LIBOR: .48 (.44%) Gold: $1177 ($1232)
Brad Cox, CCIM, CPM
Office: (941) 552-9731
Email: bcox@tdwood.com
IPD's U.S. Quarterly Property Index showed a 1.2 percent total return of negative 0.5 percent capital growth and 1.7 percent income return. The valuation-based quarterly index was based on 1,863 properties from 16 core funds worth $76 billion at the end of March.
The office sector showed most improvement in capital value growth, to negative 0.7 percent compared to negative 3.7 percent the previous quarter. Office closely followed the residential sector with capital growth of 0.4 percent compared to negative 2.4 percent in the fourth quarter of 2009. Some analysts, however, say office fundamentals may be last to deteriorate based on tenants with long-term leases.
“While most indications are that the worst of the write-downs are behind investors, uncertainties persist on the medium term health of the broader economy,” said Simon Fairchild, managing director of IPD North America. “Preliminary data from the Bureau of Economic Analysis indicated that Q1 GDP [gross domestic product] increased at an annual rate of 3.2 percent, although if economists’ predictions of a sluggish recovery are accurate then so too will be the pace of capital appreciation.”
The index showed “steady quarterly improvement” in U.S. real estate since bottoming out in the first quarter of 2009. Cap rates remained above their long-term average across the sectors, but improved sentiment boosted capital coming back to the market, Fairchild said. Returning investors started to compete on pricing more aggressively than during the past two years because of limited prime-stock supply, and beneath the headline, total return figures slowed market value depreciation and resilient income returns.
Market Snapshot—Monday’s closes (5-17-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.75% (0.78%) DJIA: 10193 (10620) Prime Rate: 3.25%
5-yr 2.00% (2.15%) NASDAQ: 2229 (2347) Fed Reserve Target Rate: 0.25%
10-yr 3.21% (3.46%) S&P 500: 1088 (1135) U.S. Unemployment Rate: 9.90%
30-yr 4.08% (4.34%) S&P 100: 494 (516)
LIBOR NYSE Comp: 6775 (7078)
1- Mo. LIBOR: .34% (.34%) Crude Oil: $71 ($72)
3-Mo. LIBOR: .48 (.44%) Gold: $1177 ($1232)
Brad Cox, CCIM, CPM
Office: (941) 552-9731
Email: bcox@tdwood.com
Monday, May 17, 2010
Another fine example of quality workmanship......
Thank you to Brad Cox of Thomas D. Wood for his exemplary work in the area of "Pursuit of Greatness". His weekly commentary, found here, is made available weekly to hundreds of property owners around the country. I am glad to have his as my friend and colleague, with such a rich understanding and dedication to his craft.
Thanks Brad.
WEEKLY MARKET COMMENTARY - AS OF MAY 17, 2010
FOR CRE DEBT, IT'S BOTTOM'S UP - With billions of dollars in commercial real estate debt coming due, the industry refuses to panic, sensing that the cycle's bottom is near, said DLA Piper's 2010 State of the Market Survey.
Responding to this bottoming out process, the U.S. commercial real estate industry outlook remains largely bearish; however, DLA Piper said bullish sentiment is improving and has started to gain momentum.
The survey, measuring attitudes and perspectives of 308 top executives within the U.S. commercial real estate market, reveals that 60 percent described themselves as bearish, down from a record 90 percent in September 2008 when DLA Piper previously surveyed the market just days after the collapse of Lehman Brothers and the sale of Merrill Lynch to Bank of America.
Bullish responses, consequently, quadrupled from 10 percent to 40 percent.
Meanwhile, 60 percent said real estate markets will reach bottom in 2010. Looking ahead, respondents expect that workouts and loan extensions will be the two most prominent strategies used to navigate this recovery as waves of commercial real estate debt come due between now and 2014, DLA Piper said.
"After the most grueling downturn the industry has ever seen, there is a genuine sense of stability beginning to return to the marketplace," said Jay Epstien, chair of DLA Piper’s U.S. Real Estate practice.
"From this point, the recovery will hinge in large part on workouts and loan extensions, but the real wild card is job growth that would drive renewed real estate demand in virtually every asset class."
Other survey findings:
Two of three respondents believed that the federal government’s Troubled Asset Relief Program and Troubled Asset-Backed Securities Loan Facility and other real estate-focused programs have done "enough" to stabilize the real estate marketplace.
Consistent with this view 70 percent do not expect any additional federal legislation focused on aiding the U.S. commercial real estate market.
Six out of 10 respondents do not expect the commercial mortgage-backed securities market to return in time to help refinance the more than $150 billion in CMBS loans coming due in the next two years.
Respondents do not expect workouts to yield deep discounts with lenders: 61 percent of respondents expect that the largest loan write-offs will range between 11 percent to 30 percent.
Armed with war chests of new capital, respondents expect private equity and hedge funds, 37 percent, and REITS, 29 percent, to be the most active investors during the next near.
Multifamily, 37 percent, ranks as the most attractive investment opportunity during the next 12 months, while hotels, 25 percent, rebounded from last place in 2008 to finish as the second most attractive investment opportunity.
Market Snapshot—Monday’s closes (5-10-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.78% (0.82%) DJIA: 10620 (10380) Prime Rate: 3.25%
5-yr 2.15% (2.16%) NASDAQ: 2347 (2266) Fed Reserve Target Rate: 0.25%
10-yr 3.46% (3.42%) S&P 500: 1135 (1111) U.S. Unemployment Rate: 9.90%
30-yr 4.34% (4.27%) S&P 100: 516 (507)
LIBOR NYSE Comp: 7078 (6916)
1- Mo. LIBOR: .34% (.30%) Crude Oil: $72 ($75)
3-Mo. LIBOR: .44 (.37%) Gold: $1232 ($1208)
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
Email: bcox@tdwood.com
Thanks Brad.
WEEKLY MARKET COMMENTARY - AS OF MAY 17, 2010
FOR CRE DEBT, IT'S BOTTOM'S UP - With billions of dollars in commercial real estate debt coming due, the industry refuses to panic, sensing that the cycle's bottom is near, said DLA Piper's 2010 State of the Market Survey.
Responding to this bottoming out process, the U.S. commercial real estate industry outlook remains largely bearish; however, DLA Piper said bullish sentiment is improving and has started to gain momentum.
The survey, measuring attitudes and perspectives of 308 top executives within the U.S. commercial real estate market, reveals that 60 percent described themselves as bearish, down from a record 90 percent in September 2008 when DLA Piper previously surveyed the market just days after the collapse of Lehman Brothers and the sale of Merrill Lynch to Bank of America.
Bullish responses, consequently, quadrupled from 10 percent to 40 percent.
Meanwhile, 60 percent said real estate markets will reach bottom in 2010. Looking ahead, respondents expect that workouts and loan extensions will be the two most prominent strategies used to navigate this recovery as waves of commercial real estate debt come due between now and 2014, DLA Piper said.
"After the most grueling downturn the industry has ever seen, there is a genuine sense of stability beginning to return to the marketplace," said Jay Epstien, chair of DLA Piper’s U.S. Real Estate practice.
"From this point, the recovery will hinge in large part on workouts and loan extensions, but the real wild card is job growth that would drive renewed real estate demand in virtually every asset class."
Other survey findings:
Two of three respondents believed that the federal government’s Troubled Asset Relief Program and Troubled Asset-Backed Securities Loan Facility and other real estate-focused programs have done "enough" to stabilize the real estate marketplace.
Consistent with this view 70 percent do not expect any additional federal legislation focused on aiding the U.S. commercial real estate market.
Six out of 10 respondents do not expect the commercial mortgage-backed securities market to return in time to help refinance the more than $150 billion in CMBS loans coming due in the next two years.
Respondents do not expect workouts to yield deep discounts with lenders: 61 percent of respondents expect that the largest loan write-offs will range between 11 percent to 30 percent.
Armed with war chests of new capital, respondents expect private equity and hedge funds, 37 percent, and REITS, 29 percent, to be the most active investors during the next near.
Multifamily, 37 percent, ranks as the most attractive investment opportunity during the next 12 months, while hotels, 25 percent, rebounded from last place in 2008 to finish as the second most attractive investment opportunity.
Market Snapshot—Monday’s closes (5-10-10) are in parentheses
Treasury Yields Key Indicators Other Key Indicators
2-yr 0.78% (0.82%) DJIA: 10620 (10380) Prime Rate: 3.25%
5-yr 2.15% (2.16%) NASDAQ: 2347 (2266) Fed Reserve Target Rate: 0.25%
10-yr 3.46% (3.42%) S&P 500: 1135 (1111) U.S. Unemployment Rate: 9.90%
30-yr 4.34% (4.27%) S&P 100: 516 (507)
LIBOR NYSE Comp: 7078 (6916)
1- Mo. LIBOR: .34% (.30%) Crude Oil: $72 ($75)
3-Mo. LIBOR: .44 (.37%) Gold: $1232 ($1208)
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
Email: bcox@tdwood.com
Thursday, May 13, 2010
Monday, May 10, 2010
A Summary of Current Market Trends or Reasons to Buy Now
From Tom Vincent, CCIM - Chicago, IL | We listened to Bob White of Real Capital Analytics discuss the current CRE market and trends. The good news is that the market is starting to slowly come back. Highlights include:
* Prices are starting to rise in the primary markets, driving down cap rates as there is more competition
* Secondary and tertiary markets are about 6 months behind this trend
* Many investors are sitting on the sidelines waiting to invest
* Debt financing has begun to return for good properties though underwriting guidelines have changed mostly with financial institutions requiring more equity – down payments of 35-40% are common
* Pricing may not increase linearly (in an increasing, straight line, but with “bumps in the road”)
* Properties that are trading are income-producing with current cash flows
* The market is two-tiered; value-added properties are lagging behind with biggest loss of value
* Single tenant cash flowing properties are showing biggest gains
Buyers have waited for the large influx of distressed properties to come to market. During the savings and loan crisis, financial institutions wanted the bad loans off their books and were selling at distressed prices of about 20-30 cents on the dollar. This is not happening now and likely will not!
* Banks are using the “extend and pretend” option
* FDIC has enough failed and failing financial institutions to contend with and are not anxious to add more
* Banks will sell distressed real estate at lower discounts in the 60-75 cent range
For the private investor, cash-flowing properties are selling in the $500,000 – $2,500,000 range. Financing is starting to be easier to find though lenders are imposing more stringent underwriting guidelines. BUT if you have extra cash earning 1% or less in a money market, now may be the time to leverage that money at the least 60% to buy an income-producing property. As an accountant, I also can’t resist adding this: Tax increases are coming, Bush’s tax cuts expire this year and Obama’s spending spree will add new taxes. Owning property can shield some income from taxation (depreciation, etc.). Now may be a good time to buy and of course, we are ready to assist you in finding the right property for you!! For further information on acquisitions, please read Tom’s White Paper HERE.
Question or comments about these trends and how your portfolio is positioned? Call us at (847) 963-1031 or email us!
* Prices are starting to rise in the primary markets, driving down cap rates as there is more competition
* Secondary and tertiary markets are about 6 months behind this trend
* Many investors are sitting on the sidelines waiting to invest
* Debt financing has begun to return for good properties though underwriting guidelines have changed mostly with financial institutions requiring more equity – down payments of 35-40% are common
* Pricing may not increase linearly (in an increasing, straight line, but with “bumps in the road”)
* Properties that are trading are income-producing with current cash flows
* The market is two-tiered; value-added properties are lagging behind with biggest loss of value
* Single tenant cash flowing properties are showing biggest gains
Buyers have waited for the large influx of distressed properties to come to market. During the savings and loan crisis, financial institutions wanted the bad loans off their books and were selling at distressed prices of about 20-30 cents on the dollar. This is not happening now and likely will not!
* Banks are using the “extend and pretend” option
* FDIC has enough failed and failing financial institutions to contend with and are not anxious to add more
* Banks will sell distressed real estate at lower discounts in the 60-75 cent range
For the private investor, cash-flowing properties are selling in the $500,000 – $2,500,000 range. Financing is starting to be easier to find though lenders are imposing more stringent underwriting guidelines. BUT if you have extra cash earning 1% or less in a money market, now may be the time to leverage that money at the least 60% to buy an income-producing property. As an accountant, I also can’t resist adding this: Tax increases are coming, Bush’s tax cuts expire this year and Obama’s spending spree will add new taxes. Owning property can shield some income from taxation (depreciation, etc.). Now may be a good time to buy and of course, we are ready to assist you in finding the right property for you!! For further information on acquisitions, please read Tom’s White Paper HERE.
Question or comments about these trends and how your portfolio is positioned? Call us at (847) 963-1031 or email us!
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