Comments (4)

By AZ Advisory Team, October 13, 2009 3:47 pm

What’s the outlook on commercial real estate for next year? For the next two years? What are the rising trends in the office, medical, and industrial classes? Should I buy, sell, or hold?

Is the economy recovering? Is the commercial real estate market in trouble? Has it bottomed yet? Will it bounce back fast? How should I position my property in the market? Should I offer financing?

Where do I get intel on the commercial real estate market as it applies to my property or investment needs?

These are just some of the questions investors and property owners like you are asking.

Get in-depth data and expert views from our regular release of Market Reports to help you strategize and make informed Commercial Real Estate Investment decisions by going here: Marcus & Millichap Commercial Real Estate Market Reports, and get advice from Alex Zylberglait – Your Commercial Real Estate Investment Expert to help you find the right fit based on your objectives and get the transaction done.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

Comments (1)

By Alex Zylberglait, September 28, 2009 1:35 pm

Lenders, in many cases, are working with borrowers on a modification of loan terms and avoid foreclosures. Buyer interest has been increasing as more properties become available at realistic prices as sellers-backed financing increase making up 50% of transactions compared with only 11% a few years back.

Read the rest of this post from a section of the Marcus & Millichap Special Outlook on Government Programs and Maturities Report below.

Portfolio Lenders More Amenable to Commercial Mortgage Modifications

Many portfolio lenders are actively working with borrowers to modify loan terms and avoid foreclosures. The situation is more difficult for owners with CMBS loans, as multiple parties hold an interest in the mortgage. Delinquent CMBS loans also are transferred to special servicers that have strict limitations related to property foreclosures and distressed sales, further delaying a large inventory of discount sales coming to market.

Distress Spreading

Since the start of 2008, the volume of distressed commercial real estate has swelled to an estimated $115 billion. Distress was initially concentrated among failed development and condo conversion deals, but the office sector took the lead in the fall of 2008 as the financial crisis intensified. The composition of distressed properties has since shifted again, with retail properties now accounting for the greatest share, or 30 percent of the total, up from less than 10 percent one year ago. Of the core commercial real estate sectors, retail recorded the most significant speculative construction in recent years as developers chased, and even built ahead of, rooftops into far-reaching suburbs. The reversal of housing-related fortunes and shrinking stock portfolios have contributed to the loss of $13 trillion from the overall net worth of U.S. households since mid-2007, resulting in a drastic pullback in consumer spending and a growing propensity to conserve cash.

Commercial Lending at Bottom?

Commercial mortgage originations continued to decline during the first half of 2009, reflecting further reductions in loan demand and broad-based constraints on debt capital. In the first quarter alone, originations were down 26 percent from the fourth quarter of 2008 and were nearly 90 percent below levels reported prior to the onset of the credit crunch two years ago. Fannie Mae and Freddie Mac have recorded the lightest decrease in originations over the past year, as their multi-family loan portfolios continue to perform well.

With the exception of Freddie Mac’s recent securitization, CMBS issuance has been at a complete standstill since last June, while life insurance companies generally remain on the sidelines. Over the past several quarters, real estate investors have relied largely on commercial banks for new loans, which have become wary of originating large loans and increasing their risk exposure to individual assets. The limited amount of debt available from traditional lenders has resulted in a drastic increase in assumed or seller-backed financing in transactions, which now accounts for more than half of the marketplace, compared with only 11 percent a few years ago.

Read Part 1

***
Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

Comments (1)

By AZ Advisory Team, September 23, 2009 5:52 pm

Marcus and Millichap CEO, Harvey Green talks about:

●  What transactions are getting done
●  The state of the CMBS market
●  commercial real estate outlook

Click here to watch the video.

***
Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

Comments (3)

By Alex Zylberglait, September 18, 2009 8:00 am

In summary…

Term Asset-Backed Securities Loan Facility (TALF)

• TALF was expanded in May to include highly rated commercial mortgage-backed securities (CMBS). Spreads on AAA-rated CMBS have since narrowed dramatically.
• At its first subscription date in July, the legacy CMBS component of TALF received requests for $670 million in loans. All but one of the bonds submitted were accepted as collateral for TALF loans.
• Two REITs are expected to soon test the new CMBS component of TALF, with each projected to borrow up to $600 million against assets in their portfolios. A substantial amount of the capital raised will likely be utilized to pay down maturing debt.
• As a result of the lengthy ramp-up time for this program, TALF has been extended through March 31, 2010, for existing CMBS and through June 30, 2010, for newly issued CMBS.

A growing number of large property owners, investors and lenders will take advantage of the program by year end.

Read Part 1
Read Part 2

***
Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

Comments (1)

By Alex Zylberglait, September 14, 2009 10:24 am

The potential for significant commercial real estate-related losses tied to maturing mortgage debt has emerged as a considerable risk due to constrained credit markets. As a result, government initiatives to improve commercial real estate credit, particularly the commercial mortgage-backed securities (CMBS) market, have been established. At its peak in 2007, CMBS accounted for nearly 40 percent of the increase in new commercial and multi-family mortgage debt outstanding nationwide. In mid-2008, CMBS issuance came to a standstill, and the void in the marketplace has clearly taken a toll on the commercial real estate sector.

The securitization of commercial mortgage debt should spread the risk associated with a pool of loans to many investors globally. Furthermore, because the debt is sold, lenders are able to replenish capital, thereby enabling new loan originations. During the liquidity boom, issuers of mortgage-backed securities (MBS) passed all risk to investors, so underwriting standards of the underlying loans were not closely monitored. When it became evident that the ratings agencies missed the mark in assessing the risks associated with some CMBS, demand for the product fell sharply. The escalation of the recession into a global financial crisis eliminated any hope for a quick turnaround of the securitized debt market. Over the next year, modifications to the securitization model will be necessary in order to restore investor confidence in CMBS. It is possible that changes will be mandated as part of the new administration’s proposed regulatory reform.

Modifications to the securitization model are likely to include requirements for originators to maintain some level of economic interest in CMBS. This, in turn, should encourage lenders to uphold responsible underwriting standards. Freddie Mac recently drew upon this new model for its first offering of K Certificates in June. The $1 billion securitization of multi-family debt marked the first CMBS to clear the pipeline in a year. Unlike traditional CMBS, however, Freddie Mac is guaranteeing the senior bond classes. Based on the program’s initial success, Freddie Mac could move forward with another securitization later this year.

Over the remainder of 2009, government programs should be instrumental in stimulating demand for traditional existing and newly issued, highly rated CMBS. This should, in effect, mark the starting point for clearing lenders’ balance sheets and eventually lead to increased lending capacity for new commercial mortgage loans.

Government programs to jumpstart commercial mortgage lending have been modified in recent months, both in terms of size and scope, but they continue to move forward and appear on track to be operational by this fall.

***
Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.