CBRE Capital Markets Lender Forum | December 2013

Real estate capital markets entered Q3 2013 amid a cloud of uncertainty following interest rate hikes in late spring, the prospect of a government shutdown and slowing economic activity.  Despite these headwinds, lending and investment sales markets maintained forward momentum during the quarter.  Lending by banks and CMBS issuers remained strong, which has brightened our short-term outlook for lending growth as we move towards 2014.

This report reflects the partnership between CBRE Global Research and Consulting and CBRE Capital Markets to provide a rich database and charts on which to gauge the progress of this recovery. Examining a proprietary database of loan data, CBRE Research and Consulting has created an index tracking the momentum of deal activity in the market for commercial mortgage loans. Key trends include:

• Markets stabilized during Q3 2013, after a sharp widening of rates and spreads in May and June.  Lending momentum improved despite the earlier capital market disruptions.

• Banks had a strong quarter, capturing the highest share of commercial originations among the principal lender types.

CMBS activity also was resilient.  However, new risk retention rules may raise CMBS loan pricing in the coming years

http://f.tlcollect.com/fr2/613/65213/LenderForum_Dec2013_v3.pdf

Commercial property: Opening up to retail investors

The following is an interesting article touting investments in Indian real estate, which demonstrates the availability of investable capital among the Indian middle class.


India --(Indian Express)--
Buying an office or retail space is a huge investment, which is why commercial realty has been traditionally seen as an asset class that only institutional investors or high net worth individuals could invest in. That, however, is changing. Many retail investors are now getting into the office real estate game.

For a perspective of the opportunities in Indian commercial real estate, consider this – Manhattan in New York has 450 million square feet of Grade A stock, while London has 200 million square feet. In comparison, India's collective office space stock accounts for only 375 million square feet. This showcases the long-term potential for office space at all levels in India. The next few years will see a spurt in the services and knowledge sector, opening up opportunities for the retail investor.

INVESTMENT ROUTES
There are three ways to invest in commercial real estate: directly buy office space from a developer, buy stocks of a developer in the commercial realty space, or invest in a real estate fund focused on commercial real estate. As the quantum of investment is usually huge, the buyer needs to take informed decisions. Another option, real estate investment trusts (REITs), is expected to be opened up shortly by the government. REITs are pooled investment entities where the corpus is invested primarily in completed, income -yielding real estate assets and distribute a major part of the income generated among their investors. Many developers, especially in cities such as Mumbai, are today offering smaller units (as small as 500-1,000 square feet) in Grade A buildings given the higher vacancy and pressure on pricing. This is in sharp contrast to the scenario a few years ago, where only larger units were available – making it tough for a small investor. Investors considering retail space can now look at a multitude of affordable options in free-standing high street outlets or shops in malls. The advantages of smaller units are two-fold: it is easier to find tenants, and the premises can also be used by their owners. Today, professionals like doctors, auditors, stock brokers and lawyers are buying commercial properties for investment and self-use. Banks are willing to lend up to 50-60 per cent of the loan to value for this segment. The investor should focus on a few carefully selected markets with a diverse economic base and a deep pool of tenants. While looking at under construction projects, the investor should look at developers who have a track record of delivering high quality projects on schedule.

WHAT TO LOOK FOR
Despite the availability of more rationally priced options, investing in commercial realty is most definitely not child's play. It requires forethought, research and planning:

• Investors need to establish the soundness of the location and its demand/supply dynamics. Otherwise, they may end up buying into micro markets which have or will have high vacancies.
• They need to factor in the economy, job market, future infrastructure development and population growth in the market.
• They need to check developer credentials, access to public transport and quality of property management.
• They need the services of a knowledgeable real estate agent and a lawyer.
• If they are investing in a retail store, they need to consider the frontage, foot-fall and the dynamics of the adjoining catchment. For an income producing office asset, one should look at:
• The break-up of cash flows, and the vacancy factor.
• Expenses such as maintenance, property tax and building insurance.
• Lease term, lock-in period and expiry dates.
• Long term capital appreciation, refurbishment, and repositioning potential.

LOOKING AT YIELDS
The rental yield for commercial property is usually 9-11 per cent. In contrast, the yield for residential property is much lower at 2-3.5 per cent. The demand for office space in India is likely to stand at around 200 million square feet over the next five years. Post the global financial crisis, prices in markets like Mumbai have dropped around 35-40 per per cent and have bottomed out in most micro-markets, offering investors a good opportunity. Remember, you do not only make a profit on the sale of appreciated commercial property – the rental cash flows of a well-located office or shop space are considerable. Unlike in residential property, the income that can be generated from commercial property is what determines its value.

http://www.indianexpress.com/news/commercial-property-opening-up-to-retail-investors/1204517/0

Forecast sees continued improvement in Springs-area commercial real estate market

Real estate prices in the Pikes Peak region seems to have stabilized, with noted acquisitions, such as Stan Kroenke's purchase of Academy Place shopping center.  Vacancy rates are falling among office, industrial, and retail spaces, and home building is recovering.


Colorado Springs --(The Gazette)--
The Pikes Peak region's commercial real estate market, plagued by high vacancies and stagnant rents in recent years because of the poor economy, will continue to improve in 2014 - albeit slowly, according to a forecast by Quantum Commercial Group in Colorado Springs.

"Have we turned the corner?" asked Michael Palmer, a Quantum broker. "We've certainly turned the corner from the downturn. But I think we're in the middle of a very slow grind upwards."

Improvement in the market will be fueled by interest in Colorado Springs on the part of investors, developers and retailers; trickle-down benefits from commercial activity in Denver and other markets; and a better jobs picture, Quantum officials said.

"It's slow growth across all the sectors," Quantum president Dale Stamp said of the office, retail, industrial and land markets. "It's positive. You've got an air of confidence in the entire city."

Colorado Springs already has seen investments from some high-profile out-of-towners, such as this year's purchase of the Academy Place shopping center at Academy and Union boulevards by a company controlled by billionaire real estate and sports mogul Stan Kroenke, said Quantum broker Susan Beitle. At the same time, a Kroenke real estate development continues to plan a new retail center in Monument, she said.

"Those are two good examples of money coming into Colorado Springs," said broker Andy Oyler.

A strong Denver economy has driven up real estate prices there, prompting some investors to turn to the Springs as an attractive secondary market where they can get solid returns on their investments, Palmer said.

"Colorado Springs is seeing the benefit of that," Palmer said. "That's why there's activity, just because it's a better value market right now than some of the others."

According to Quantum's 2014 forecast:

- The vacancy rate for office space fell late this year to a little less than 11.5 percent, down from nearly 20 percent in 2009. An additional 560,000 square feet of office space was occupied, or absorbed, this year - more than double the annual absorption average over the last five years. And lease rates of $17.11 per square foot were up slightly from the five-year average of $16.36.
In 2014, Quantum expects another slight decline in the area's vacancy rate, while absorption and lease rates will continue to rise slowly.
- Industrial vacancy rates fell to 8.4 percent this year after being near 14 percent a few years ago. Although the Department of Defense budget remains a concern, Quantum officials believe the industrial vacancy rate could drop below 7 percent in 2014.
- The local retail vacancy rate improved only slightly by year's end to 6.8 percent from 6.9 percent a year ago. The rate will remain relatively unchanged in 2014, according to the forecast, although the amount of space that will be occupied will rise next year over 2013.
- As homebuilding recovered, sales of land for residential development increased sharply in 2013 and will continue in 2014.

Special-Servicing Rate at 4-Year Low

The special-servicing rate for securitized commercial mortgages dropped sharply again last month, hitting its lowest level in four years.

The proportion of mortgages in the hands of special servicers was 9.35% as of Nov. 30, down 56 bp from a month earlier, according to

Trepp. That key measure of credit quality for commercial MBS loans peaked at 13.65% in February 2012. The rate has been decreasing virtually nonstop for the last year, by an average of 27 bp per month. The improvement reflects a contraction in the volume of loans in special servicing by an average of $1.7 billion per month during the last year.

There were 2,805 loans with a combined balance of $49.6 billion in special servicing at the end of November, down from $52.1 billion a month before. The all-time high for the aggregate balance of loans in special servicing was $89.9 billion in September 2010.

Another factor pushing the special-servicing rate down last month was a fresh batch of CMBS offerings. The overall amount of securitized commercial mortgages outstanding jumped by $5.2 billion in November, to $530.4 billion — the largest monthly increase since before the credit crisis. That figure serves as the denominator when calculating the rate.

Since peaking at almost $800 billion in 2007, the CMBS universe has been shrinking as new deals have failed to keep pace with the runoff of legacy loans. But that decline has slowed this year amid soaring issuance, and the monthly total has now ticked up three times in 2013.

 

Job Alert: CMBS Associate Analyst 1 with Moody's

Listing Info:

Moody's Investors Service is among the world's most respected, widely utilized sources for credit ratings, research and risk analysis. In addition to our core ratings business, Moody's publishes market-leading credit opinions, deal research and commentary that reach more than 3,000 institutions and 22,000 subscribers around the globe. Successful candidates will join our commercial real estate finance (CREF) team in New York, which is responsible for the monitoring of bonds backed by multi-billion dollar commercial mortgage backed securities (CMBS) pools of fixed and floating rate commercial real estate loans. The surveillance team is responsible for maintaining the outstanding ratings of CMBS securities as well as publishing in-depth research on relevant credit issues.

Responsibilities will include analyzing all credit aspects of CMBS transactions, such as; property specific cash flow analysis, financial modeling and formulating and substantiating a credit opinion. Duties include presenting transactions effectively and comprehensively to rating committees and writing accurate and insightful press releases. In addition, the associate analyst is expected to complete various special research projects, develop in-depth knowledge of the CMBS sector and take thought leadership initiatives to enhance our analytics and research impact; as well as analyze and complete Rating Agency Confirmation (RAC) requests. Resumes submitted in Microsoft Word format are preferred.

Thank you for taking the time to express your interest in employment opportunities with Moody's Investors Service.


Requirements

Interested candidates should have a Bachelors or Masters degree in Finance, Economics, Real Estate, Accounting or related field

3-5 years experience in the commercial real estate industry is a plus.

Must be proficient in Microsoft Excel.

The ability to manage multiple projects, work closely with others as well as independently to produce accurate, detailed work in a dynamic, fast-paced environment is a must.

In addition, the individual should have well-developed analytical skills along with strong written and oral communication capabilities.

Prior exposure to commercial real estate credit analysis or valuation is desired.


 To Apply, click the following link:
http://www.bright.com/jobs/job/77790_j3f4m575gk3q089njhg/?bfid=31&job_title=Associate+Analyst+1%2C+CMBS+Monitoring&ref=ziprecruiter&utm_source=ziprecruiter&utm_medium=feed&utm_campaign=masterfeed&subid=z7h54rjjc509e&_zat=UqXFj38AAAEAAEs9OdwAAAAh

Leaderboard 9/30/2013

CMBS Issuance Leaderboard, only a month-and-a-half late.

The Cranes of Miami

Summary: From the Calculated Risk blog, cranes in Miami evidencing development.

http://www.calculatedriskblog.com/2013/11/the-cranes-of-miami.html

Multifamily Boom Slows

The multifamily industry is on an ascending path, with trendlines pointing to a steady, albeit slow, recovery of the housing market all throughout the U.S metro areas.

The construction pipeline remains active in most markets, with 1,400 properties, 316,010 units, currently under construction, according to the latest data from Pierce-Eislen. The company’s services monitor the 50+ unit apartment universe from the property level to the submarket/market level within 59 United States markets, extending in geography from the Pacific Northwest to the Mid-Atlantic.

Denver, L.A. Metro, Seattle and the Carolina Triangle lead the charts in terms of new apartment development, followed closely by Washington D.C., Northern Virginia, Urban Boston, and three of Texas’s economic hubs, North Dallas, Austin and West Houston.

Common Characteristics

Pierce-Eislen research shows that more than 90 percent of the units under construction possess two characteristics in common: the developments are located in urban environments, and they are positioned so as to serve the two, “renters-by-choice” lifestyle rental categories: wealthy empty nesters (55+), and young professional, double-income-no-kids-households.

The capital source, lender, developer, investor universe all seem to point to the same conclusion: urban, cutting-edge development, fully dressed up, with all the amenities is the one configuration that actually works in the current economic context.

On the other hand, when conducting quarterly comparisons of market data, the apartment industry conditions seem to be weakening. All four indexes of the National Multi Housing Council’s (NMHC) October Survey of Apartment Market Conditions dropped below 50 for the first time since July 2009. Market Tightness (46), Sales Volume (46), Equity Financing (39) and Debt Financing (41) all showed declining conditions from the previous quarter.

“After four years of almost continuous improvement across all indicators, apartment markets have taken a small step back,” said Mark Obrinsky, NMHC’s Vice President of Research and Chief Economist, in a statement. “Conditions cannot continue to improve indefinitely and new development is at least somewhat constrained by available capital – though more on the equity than the debt side. Even so, both the Market Tightness and Sales Volume Index are within hailing distance of the breakeven level and the Debt Financing Index rose despite some rise in interest rates. This bodes well for the apartment industry going forward.”

Key findings of the NMHC survey include:

Mixed sentiments regarding the availability of capital for new development. More than three quarters of the respondents regarded construction debt financing as widely available – 34 percent think both equity and debt financing are widely available, while 43 percent think construction loans are widely available but equity capital for new development is constrained. Only 36 percent think equity capital is widely available.

Market Tightness Index fell to 46 from 55. Conditions vary greatly from place to place, but on balance, most respondents (67 percent) said they saw no change in market tightness (higher rents and/or occupancy rates) compared with three months ago. One-fifth of respondents felt that markets were looser than three months ago, while 13 percent saw tighter markets.

The Sales Volume Index remained at 46. Almost one-third (32 percent) of respondents saw a lower number of property sales, compared with almost one-quarter (24 percent) who said sales volume was unchanged. A plurality of 44 percent regarded sales volume as unchanged.

The Equity Financing Index dipped to 39. Sixty percent viewed equity financing as unchanged – this was the tenth consecutive quarter in which the most common response was that equity finance conditions were unchanged from three months ago. By comparison, 27 percent of respondents viewed conditions as less available and only 5 percent viewed equity financing as more available.

Debt Financing Index rose 21 points to 41. Almost one quarter of respondents (22 percent) viewed conditions as better from three months ago, a sizable increase from eight percent last quarter. Forty-one percent of respondents believed now is a worse time to borrow, down from 67 percent in July.

The survey was conducted October 7-October 16 and included the responses of 64 CEOs and other senior executives of apartment-related firms nationwide.

Need a corporate loan? Forget your bank - tap the shadow banking system instead

New York --(SoberLook.com)--
Here is a simple question: what percentage of US banks' balance sheets is taken up by loans to businesses? The answer may surprise some. It's just under 11.5%, down from about 16% some 10 years back. Banks began preferring real estate loans (particularly commercial real estate) to corporate credit in the early part of last decade. That didn't work out so well (see post). Since the financial crisis, banks' deleveraging sent the number to new lows. The percentage began to rise in 2011 but has stalled again this year.

Source: FRED

The result of Basel-based regulation has been the reliance on corporate ratings for capital requirements. Loans of companies without a strong rating or with no rating at all require significantly more capital to hold on balance sheets. And loans to companies with strong ratings pay such a low rate these days, it eats into banks' profitability. This is especially true for the middle market and lower middle market companies. Outside of basic inventory, equipment, and receivables financing (mostly short-term), banks remain cautious.

It doesn't mean however that credit to companies is not available. In fact multiple lenders have been stepping into banks' domain. BDCs, CLOs, credit/mezzanine funds, bond/loan retail funds, etc. have been providing credit to businesses in the US. That transformation to non-bank lenders over the past decade has been quite spectacular - especially in the middle market.

Source: Aranca (click to enlarge)

When you hear all the pundits talk about "shadow banking", they usually miss the fact that most corporate loans now come from outside the banking system. So the next time your medium-sized business needs some long-term financing, you may get a better answer from your not-so-local BDC than your local bank - particularly while credit markets remain hot.

Kroll Bond Rating Agency’s Structured Finance Investor Forum Featuring Paul Volcker

New York --(Fort Mills Times)--
Kroll Bond Rating Agency held a Structured Finance Investor Forum on November 7, 2013. The event was attended by more than 50 participants, which included buy and hold and total return investors representing firms with portfolio holdings across the capital stack. Opening remarks were made by Jim Nadler, President, and Jules Kroll, CEO, followed by keynote speaker Paul Volcker, former Chairman of the Federal Reserve, who addressed the attendees on the current state of the capital markets and regulation.

The Forum included two break-out sessions that offered interactive dialogue with investors. The first, focused on CMBS, was led by Kim Diamond, who heads KBRA’s Structured Finance effort. Ms. Diamond posed questions to the panelists, members of KBRA’s senior CMBS team, and the audience, to gauge their overall views on the economy and current credit conditions. The audience believed that credit spreads would tighten over the course of the next year as issuance increases to post financial crises highs, as the economy continues along at its current pace or improves. Panelists and investors agreed that credit poses the biggest risk for the CMBS market.

The RMBS breakout session, led by Senior Managing Director Glenn Costello, discussed the state of the RMBS market and REO-to-rental assets. Specific topics included recent collateral trends, Qualified Mortgages (“QM”) and the potential for non-QM transactions in 2014, reps and warranties, home prices, and single-family rental securitizations, in particular the Invitation Homes 2013-SFR1 transaction.

http://www.fortmilltimes.com/2013/11/11/3089075/kroll-bond-rating-agencys-structured.html

RPT-Fitch: Non-traditional properties increasing in U.S. CMBS

MHC and Lodging as a Percent of Collateral

Summary:  There has been an increase in non-tradition (those outside retail, office, multifamily, and industrial) Fitch-rated US CMBS issues, with more manufactured housing communities (MHC) and self-storage properties.  Lodging assets, too, have also grown over the last three years.






New York --(Fitch Rating Agency)--
Traditional property types, including retail, office, multifamily, and industrial, continue to represent the majority of collateral in Fitch-rated U.S. CMBS, though there has been a steady increase in the number of non-traditional properties over the last four years, according to Fitch Ratings in its latest CMBS weekly newsletter.

Manufactured housing communities and self-storage properties in particular have increased of late.

The contribution of manufactured housing communities (MHC) to Fitch-rated CMBS deals has grown every year for the last three years. Representing less than 1% of deals in 2010, the asset class has grown slowly from 2.5% in 2011 to 3.2% in 2012 and 5.9% as of September 2013.

Self-storage assets have also been a growing contributor to deals in 2013 with just over 4% YTD. While not a traditional property type, these have also performed well with a less than 1% default rate. That said, Fitch still views self-storage assets cautiously seeing as many self-storage units are located in areas with limited barriers to entry.

While not necessarily non-traditional, lodging assets have also grown steadily over the last three years. Since 2010, when the hotel contribution was under 5% within Fitch-rated CMBS, the number of hotel assets grew as the market stabilized, to over 10% in 2011, 13.5% in 2012 and 14.5% YTD 2013.

Northern New Jersey Area Fourth Quarter 2013 Office Market Report

Investors Scour Northern New Jersey for Acquisitions

As Manhattan occupancy and rents climb, operators in Northern New Jersey will begin to benefit from the migration of tenants in search of quality space at lower rates. This year started on a high note as Depository Trust & Clearing Corp. relocated 1,600 workers to Jersey City. Most employment sectors in the six-county northern New Jersey region added jobs in the first six months of the year, and local payrolls have increased in four of the past five quarters. Investors throughout the New York metro are keen on the region’s local office properties due to the area’s strengthening economy. At the end of 2012, sales velocity in northern New Jersey accelerated as investors rushed to close deals prior to an increase in capital gains taxes. At that time, buyers were more likely to meet sellers’ price expectations due to the low interest rates. Since the beginning of the year, however, trading has slowed as owners have chosen to hold onto their assets and benefit from strengthening operations. Buyers, meanwhile, are becoming more cautious and re-evaluating asset prices due to uncertainty surrounding the future of interest rates.

Office investors will remain bullish on Class B/C assets in Northern New Jersey this year. Owners who bought during the height of the market are facing a few hurdles when bringing assets to market. Specifically, sellers seeking to capture prices based on pre-recession rents will be disappointed as banks underwrite deals based on current, lower market rents. A few operators will turn to private capital for recapitalization, while those who must divest will be forced to sell at a discount to avoid a potential default. Opportunistic buyers have re-entered the market to target lower- to mid-tier properties near major highways, seeking to perform significant renovations to attract tenants and boost rent rolls. Overall, cap rates averaged in the high-7 percent range through the past 12 months. The best-in-class properties in Northern New Jersey traded just above a 7.5 percent cap rate, while Class B properties were slightly higher just over 8 percent cap rate.

2013 Annual Office Forecast

• Employment: Total employment will expand with the addition of 30,000 new jobs though out the year. Office-using employment sectors will create 12,000 positions, a 2.5 percent increase. In 2012, payrolls increased 1.6 percent with the 29,700 jobs.
• Construction: Approximately 1.8 million square feet of space will be added this year, representing a 1 percent increase in inventory. In 2012, roughly 440,000 square feet came online.
• Vacancy: By year end, office vacancy will tick up 40 basis points to 20 percent; a 60-basis point increase was recorded in 2012.
• Rents: In 2013, asking rents will increase 0.4 percent to $24.59 per square foot. During the previous year, a 2.9 drop was recorded.

New York Area Fourth Quarter 2013 Office Market Report

Expanding Tech Firms Help Boost New York Occupancy

Progressing job growth, particularly in the robust technology sector, together with improving financial markets, will lift the number of new leases in the New York City office market. Recently, Yahoo announced it is consolidating its three sites in Manhattan into 176,000 square feet in the former New York Times space on 43rd Street. Upon inking the new long-term lease, Yahoo announced plans to continue expanding its staff in the coming years. Other expansions include YouTube, which recently announced it will open a new 25,000-square foot creative studio in Chelsea in 2014. Due to limited supply, these large corporations are paying premium rents for quality space. The rise in rents is driving many smaller firms and startups to the Garment District, where developers are repositioning old manufacturing floor plates for traditional office and tech tenants. The finance sector, the former primary driver of significant office space demand, continues to recover from job losses incurred during the recession. As the stock market gains traction and volatility decreases, financial firms are expected to bolster headcounts by 4,000 positions this year. As a result, many financial firms will backfill underutilized space and potentially expand into larger footprints.

After a frenzied investment climate during the last quarter of 2012, the market has entered a period of equilibrium. Many owners who purchased during the downturn are taking profits after a significant gain in the value of their assets, while other investors are divesting to reallocate capital into other strategies. As these assets come to market, they are targeted by high-net-worth individuals, local syndicates, and foreign investors who are competing aggressively to purchase assets located in primary office districts in the city. Value-add plays have also been a prime opportunity to achieve outsized returns for buyers positioned to assume the risk of converting old properties in the Garment District and lifting rents to the current market rate. As properties convert, investors seek to capture the influx of tech tenants who will pen seven- to 10-year leases. Properties repositioned for these tech companies are trading with first-year returns around the high-4 to low-5 percent range.

2013 Annual Office Forecast

• Employment: Robust job growth will continue through year end as 85,000 workers find jobs, lifting payrolls by 2.2 percent. Office-using employment will expand over 29,000 positions in 2013, increasing headcounts by 2.3 percent. Last year, 29,000 office workers were added in the metro.
• Construction: Developers will deliver over 6 million square feet of office space this year, expanding inventory by 1 percent. In 2012, approximately 1.3 million square feet of office space was added to inventory.
• Vacancy: By year end, vacancy will fall to 10.7 percent, an annual decrease of 70 basis points from 2012. Vacancy declined 40 basis points in the previous year.
• Rents: As conditions tighten this year, operators will lift asking rents 4.5 percent to $49.83 per square foot. In the previous 12-month period, asking rents for marketable space increased by 3.2 percent to $47.69 per square foot.

Philadelphia Area Fourth Quarter 2013 Apartment Market Report

Economy on Sound Footing, Driving Apartment Sales

Respectable job growth and the formation of new households reduced vacancy in the Philadelphia metro over the first nine months of 2013 and is supporting a strong multifamily sector. Nearly every private-employment sector added workers during the period, though many industries still have additional hiring to do to recapture all of the positions lost during the downturn. Job opportunities in degreed fields or those requiring specialized training, such as healthcare, are available, but lower-skilled workers continue to face challenges. Specifically, deficits to former peak staffing levels in retail and wholesale trade persist and may be suppressing the performance of apartment buildings on the lower rungs of the quality scale. Economic trends are pointing upward, however, which could hasten the pace of hiring in lagging employment sectors in the quarters ahead. A recent regional survey by the Federal Reserve showed a rise in the index of new orders for goods and services and also signaled improved prospects for hiring.

Although investor demand outweighs the number of properties listed for sale, deal volume continues to surge. Nonetheless, the recent rise in long-term interest rates is motivating additional owners to place properties on the market. Generally, for owners contemplating a sale in the next year or two, the current bidding climate and the relatively modest rise in interest rates improves the probability of executing a transaction. Lenders are competing to provide acquisition loans, with leverage reaching as high as 80 percent. In many instances, local and regional banks have emerged as more competitive sources than the agencies. Cap rates are virtually unchanged from six months ago, and healthy disparities persist between first-year returns on different classes of assets. Class A properties, for example, typically trade in the low- to mid-5 percent range, while Class B properties change hands in the mid-6 to low-7 percent band. Cap rates for Class C or lower-quality properties with working-class tenancies typically start in the mid-8 percent range, though many deals settle closer to 9 percent.

2013 Annual Apartment Forecast

• Employment: Payrolls will swell by 33,000 jobs in 2013 to expand employment in the metro 1.2 percent. Growth in education and health services employment underpinned the creation of 28,700 positions in 2012.
• Construction: Projects containing 3,400 units will come online in 2013, up from 1,278 rentals last year. New stock will be placed in service in 10 of the metro’s 16 submarkets. The greatest impact is in Center City, where 1,429 new rentals will expand stock 4.6 percent.
• Vacancy: Vacancy will decline 30 basis points this year to 4.9 percent, the lowest year-end level in six years. The vacancy rate was unchanged in 2012.
• Rents: Following a 1.1 percent bump in 2012, average rents in the metro will rise 2.6 percent this year to $1,128 per month. With the projected increase, rents will have climbed 10 percent since bottoming four years earlier.

https://www.marcusmillichap.com/services/research/webreports/Philadelphia/Apartment.aspx

 

Northern New Jersey Area Fourth Quarter 2013 Apartment Market Report

New Supply Absorbed as Rents Rise in New Jersey

Apartment demand created by the surge of new jobs generated in Northern New Jersey and in Manhattan is giving local operators more leverage when negotiating leases. This is particularly true as the cost of living in Manhattan rises, forcing tenants to migrate across the Hudson River in search of affordable housing. Now that occupancy in the region is above 96 percent, operators are raising rental rates more aggressively in townships without rent control laws. This is pushing apartment demand further inland and into areas without direct proximity to major transportation corridors. Builders have responded relatively quickly to favorable conditions, activating previously approved multifamily permits. Completions of market-rate apartments have pushed ahead over last year’s deliveries, with most of the units concentrated in Jersey City and Hoboken. As this new space enters the market, strong demand will generate a normal turnover rate, keeping replacement expenses low.

Through the first three quarters of 2013, the number of apartment listings was insufficient to meet buyer demand in Northern New Jersey, a trend that is anticipated to continue through year end. Anticipation of the Fed’s actions resulting in rising interest rates, combined with the competitive buyer market, motivated some investors to list their properties while they retained the most control over the final sale price. Value-add properties in highly desired neighborhoods are trading at cap rates in the mid-4 percent area, though after renovations, the real cap is evaluated to be in the mid-6 percent range. First-year yields in the 8 percent range are sought after in more stable communities in northern Newark. However, high-yield assets are limited and most properties in the $1 million to $10 million range are trading between a mid-4 to mid-5 percent cap rate. Investors searching for a leg up are revaluating previously bank-owned assets or properties disposed by individuals unable to meet previous loan obligations.

2013 Annual Apartment Forecast

• Employment: Job growth will continue to expand in the fourth quarter as 30,000 positions are created in 2013, a 1.6 percent annual increase. In 2012, payrolls reached 29,700 positions.
• Construction: Approximately 2,194 units are scheduled to be completed in 2013. Last year, 1,240 units were brought online. In both years, the majority of the units have been delivered in Hudson County.
• Vacancy: By year end, new supply of apartments and single-family options will tick up vacancy 40 basis points to 3.4 percent. In 2012, vacancy dipped 20 basis points to 3.0 percent as new deliveries were limited.
• Rents: Strong demand for rentals across the region will push overall effective rents up 3.9 percent to $1,820 per month in 2013. In the previous 12 months, rents dropped 7.3 percent.

 

https://www.marcusmillichap.com/services/research/webreports/NewJersey/Apartment.aspx

New York Metro Area Fourth Quarter 2013 Apartment Market Report

Deal Flow Jumps as New York Operations Remain Solid

The pace of job creation in the five boroughs has eased from one year ago, but the rental housing market remains healthy. Strong demand drivers will persist through the end of this year, while supply growth will also accelerate. With employment rising and other economic indicators providing encouragement to builders, the city is in the midst of a development cycle. Groups will continue to push projects through the approval process as 2013 winds down in advance of a change in the Mayor’s office in 2014. Notably, the city council is expected to vote on a massive re-zoning of the 73-block Midtown East area before the end of 2013. In the boroughs, development is booming in Queens, especially in Long Island City, a location that offers residents a relatively short subway ride to Midtown Manhattan employers. Roughly 8,000 units of housing are anticipated to come online in the borough over the next three years.

The investment market continues to flourish as significant gains were recorded in transaction velocity and dollar volume over the past year. A rise in long-term interest rates early in the third quarter had little effect on deals, and a more significant move in long-term interest rates will have to occur to trigger a broader and more profound re-pricing of assets. Until then, a keen bidding climate will persist. More than three-fourths of all transactions in the city over the past year took place in the $1 million to $20 million price tranche, a segment of the market dominated by private investors, including many local parties. Attractively priced acquisition debt and heightened competition among lenders will sustain a robust level of property purchases within this pool of investors in the months ahead. In the midst of a period of solid economic growth, the market remains supple, constantly shifting shape as new neighborhoods come to the fore. An extension of the 7 train to 10th Avenue next year, for example, will open up a new area of the city for developers and investors, while the ongoing development in Queens will also elevate the borough’s appeal.

2013 Annual Apartment Forecast

• Employment: Employment in the five boroughs will expand 1.8 percent in 2013 through the creation of 70,000 jobs, primarily in education and health services, and leisure and hospitality. In 2012, 78,200 positions were created in the city.
• Construction: In 2013, developers will bring online approximately 7,000 rentals in the five boroughs, an increase from more than 5,000 units last year. The building cycle will continue, as more than 15,000 units of multifamily housing are on track to receive permits this year.
• Vacancy: The vacancy rate in the New York metro will rise 10 basis points to 2.6 percent in 2013; a decrease of 10 basis points was recorded last year.
• Rents: Average rents will advance 2.5 percent in 2013 to $3,455 per month. A gain of 11.5 percent was registered during 2012.

http://www.marcusmillichap.com/Services/Research/#1

US CMBS Delinquency Rate Breaks 8% Threshold, More Gains in Store for 2013

The Trepp CMBS delinquency rate continued to race lower 

in October, falling below the 8% level for the first time since early 2010. October marks the fifth consecutive month of rate improvement. Over the course of the month, the rate dropped 16 basis points, bringing the delinquency rate for US commercial real estate loans in CMBS to 7.98%.

The Trepp delinquency rate has dropped 236 basis 

points since the summer of 2012 when it reached an all-time high of 10.34%. While 2013 is almost over, 

there could be more meaningful gains for the rate before year-end. Special servicer CWCapital has noted that it will be looking to sell more than $2.5 billion of distressed assets before the end of the year. Substantial note sales are also expected during this time frame. Assuming the sales close prior to the December remittance cycle, the CMBS delinquency rate could improve even more. Removing over $3 billion of non-performing assets from the delinquent loan bucket would result in a 50-basis-point decrease in the rate. October’s improvement in loan delinquencies can be attributed in part to a modest reduction in newly delinquent loans. New delinquencies totaled $1.7 billion in September, which compares to $1.6 billion in October. These loans pushed the rate up by 29 basis points.

Offsetting these new delinquencies was the 

combination of loans that cured and loan resolutions. Loans that cured totaled $1.2 billion in October, which resulted in 22 basis points of downward pressure on the delinquent loan reading. Loan resolutions totaled almost $1 billion in October, which is an increase from the $873 million in resolutions last month. Removing these distressed loans from the pool of delinquent assets resulted in an additional 18 basis points of improvement in October’s rate. 

The Numbers:

• The overall US CMBS delinquency rate decreased 16 basis points to 7.98%.

• The percentage of loans 30+ days delinquent or in foreclosure: 

 Oct ’13: 7.98% Sept ‘13: 8.14% Aug ‘13: 8.38% 

• The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or 

non-performing balloons) is now 7.69%, down 18 basis points for the month.

• If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 

8.28%—down 16 basis points from September.

• There are currently $43.2 billion in delinquent loans. (This number excludes loans that are past 

their balloon date but are current on their interest payments.)

• There are $52.0 billion in loans with the special servicer. This represents about 2,900 loans.

Historical Perspective:

• One year ago, the US CMBS delinquency rate was 9.69%.

• Six months ago, the US CMBS delinquency rate was 9.03%.

• One year ago, the rate of loans seriously delinquent was 9.16%.

• Six months ago, the rate of loans seriously delinquent was 8.72%.

All Five Major Property Types Improve

• The industrial delinquency rate decreased 28 basis points to 11.31%, but remains the worst 

major property type.

• The lodging delinquency rate fell 21 basis points to 8.94%.

• The multifamily delinquency rate dropped by 11 basis points to 11.02%.

• The office delinquency rate decreased 24 basis points to 9.07%.

• The retail delinquency rate improved by 16 basis points and is now 6.34%. Retail remains the 

best performing major property type.

http://info.trepp.com/Portals/157783/docs/TreppOctober2013CMBSDelinquencyReport.pdf

Goldman's Hatzius: How Much Risk to Homebuilding?

Summary: Housing starts will be a key component to economic growth over the mid-term.

--(CalculatedRiskBlog)--

Goldman Sach chief economist Jan Hatzius wrote today (research note): How Much Risk to Homebuilding? A few excerpts:

The housing news has deteriorated recently across a broad set of indicators, and the FOMC accordingly downgraded its assessment of the housing market in Wednesday's post-meeting statement. How much should we worry about our forecast that residential investment will continue to grow 10-15% and directly contribute 1/2 percentage point to real GDP growth next year?

The risks to our housing forecast are on the downside in the near term, but there are three reasons why we still take a positive view beyond the next 1-2 quarters. First, there is a clearly identifiable reason for the recent weakness, namely the sharp increase in mortgage rates. Some of this increase has reversed recently, and barring another shock the impact should be mostly complete by early 2014.

Second, the fundamental supply-demand picture for housing still looks positive. If the population grows at the rates projected by the Census Bureau and the size of the average household trends sideways to slightly lower--in line with historical trends--we estimate that household formation should climb to 1-1.3 million and steady-state housing demand to 1.3-1.6 million. This implies significant upside for housing starts from the current 900,000 level once the remaining excess supply has been eliminated

Third, while home sales and starts have disappointed recently, house prices have continued to rise at double-digit rates, with few signs of deceleration. This suggests that the supply/demand balance in the housing market still looks favorable. That said, we continue to expect that home price appreciation will slow over the next year.

Clearly housing has slowed recently. This has shown up in housing starts and new home sales, and the slowdown is also evident in home builder reports. However I think this slowdown is temporary, and I expect the housing recovery to continue in 2014.

This graph shows single and total housing starts through August (the September and October reports will be both released on November 26th).

There has been a dip in housing starts recently, but I think starts are still closer to the bottom than the next cycle top. I agree with Hatzius that starts will continue to increase over the next several years - and this will be a key driver for economic growth.

Deloitte Forecasts Moderating Growth in 2014 Real Estate Market

Summary:  Commercial real estate prices are expected to grow at a slower pace next year, according to Deloitte.  While rents are low, so is development across property types, and fundamentals in multifamily properties are beginning to peak.  Regulation, says Deloitte, will also stifle growth, referring to the Dodd-Frank Act and the Terrorism Risk Insurance Act.




Protracted economic growth, combined with uncertainty regarding pending regulations and fiscal policy issues, will likely moderate the pace of recovery in the commercial real estate industry in the near future, according to a report on the 2014 industry outlook from consulting firm Deloitte.

The anticipated moderation in 2014 would follow a year in which asset prices, transactions and capital availability all saw a continued recovery. So far in 2013, asset prices have moved close to their 2007 peaks in major metropolitan markets and transaction activity has improved in secondary markets, the Deloitte report stated.

“We expect that the recovery will continue, we just expect that the pace of it will slow down in 2014,” said Bob O’Brien, U.S. real estate services leader at Deloitte.

Private equity and international investors have shown increased interest in U.S. commercial real estate, according to the outlook. The region is considered to be the most stable globally and to offer the best returns relative to risk, Deloitte said.

Rents and occupancy levels have strengthened since the downturn across property types, the report noted. However, in historical terms, rents and occupancies are trending below their averages in most sectors, excluding multifamily and hotels, according to Deloitte. Furthermore, the report speculated that fundamentals in the multifamily sector are beginning to peak.

Development activity, meanwhile, remains subdued for most property types, Deloitte observed, again with the exception of multifamily and hotels. Lending standards for construction loans also remain stringent.

Turning to regulatory developments, Deloitte is forecasting that the uncertainty associated with measures such as the financial reforms of the Dodd-Frank Act and the Terrorism Risk Insurance Act (TRIA) will likely promote caution in the real estate industry. Deloitte noted, for example, that the “effects of a looming expiration would be felt long before TRIA’s actual demise.”

Meanwhile, the Deloitte report also highlighted that the commercial real estate industry is undergoing fundamental changes in business practices, including redesigning existing space to suit new tenant demands and the growing use of automation. Deloitte warned management teams and boards to factor in the influence of these new developments in order to achieve above-average growth and position themselves for the long term.

“We think real estate owners and investors would be well served to focus on operations and profitability and to look at making the necessary investments in their properties to respond to changes in the way tenants are using properties,” O’Brien said.

http://www.reit.com/Articles/Deloitte-Forecasts-Moderating-Growth-in-2014-Commercial-Real-Estate-Market.aspx

No Taper

Summary:  FOMC will not taper their current quantitative easing measures.



New York --(Federal Reserve Press Release)--
Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm

Rep. Frank: Revamped Mortgage Rules a ‘Grave Error”

Summary:  The Federal Reserve and the Federal Deposit Insurance Corp. are against a new rule in the Dodd-Frank law requiring those underwriting mortgage securities to retain 5% of the credit risk on their books.  Barney Frank, an author of the bill, believes this to be an error.

Washington, D.C.  --(WSJ Developments)--
An architect of the 2010 Dodd-Frank law is accusing federal regulators of watering down new mortgage rules in the face of opposition from the housing industry.

Former Rep. Barney Frank (D., Mass.) slammed federal regulators for their decision to dial back a proposal to impose new rules on the mortgage-securities market–a key piece of the Dodd-Frank law that bears Mr. Frank’s name.

“This is a grave error, and contrary to the assertion that it would best carry out the statutory intent, significantly repudiates it,” Mr. Frank wrote in a comment letter being sent to regulators Tuesday.

At issue is a proposal from August by six regulators — including the Federal Reserve and Federal Deposit Insurance Corp. — to revamp proposed rules requiring issuers of mortgage securities to retain 5% of the credit risk on their books. Supporters of this requirement, including Mr. Frank, argue it will force Wall Street to be more cautious when packaging assets such as mortgages into securities.

The regulators’ original proposal from 2011 contained a narrow exemption focusing on only high-quality loans, where the borrower brings a 20% down payment and meets other stringent criteria. But a proposal released in August for the so-called “qualified residential mortgage” exemption is much broader and covers most loans being made today.

Mr. Frank castigated the regulators, saying they are heeding a fierce lobbying campaign from the real-estate industry. Mortgage lenders, real-estate agents, home builders, civil-rights groups and consumer advocates formed a group, called the Coalition for Sensible Housing Policy, that lobbied heavily against the original proposal for tighter rules.

“If all of these people were correct in their collective judgment, we would not have had the crisis that we had,” Mr. Frank wrote. “More importantly, what their arguments reflect, and what I believe unfortunately is carried over in proposal, is the view that things must always be exactly as they are today.”

Lawmakers have offered competing interpretations about what they intended in drafting this piece of Dodd-Frank. Several Senators, including Sen. Johnny Isakson (R., Ga.) and Kay Hagan (D., N.C.) have argued the law calls for a broad exemption and were key players in a push to eliminate a 20% down-payment requirement from the original proposal.

Speaking on the Senate floor this month, Mr. Isakson said banking regulators “did a great job” in revamping the rule.

The new proposal largely adopts a separate mortgage definition put forward earlier this year by the Consumer Financial Protection Bureau that outlines steps banks must take to demonstrate that a borrower has the ability to repay a mortgage. Regulators also asked for comment on an alternative definition that would add a 30% down payment to the exemption requirement.

Some regulators also have been critical of the new proposal. Daniel Gallagher, a Republican member of the Securities and Exchange Commission, issued a 3,000-word dissent to his agency’s August vote, saying the proposed exemption was “unrealistic and dangerously broad.”

Mr. Frank argues regulators are ignoring the essential purpose of Dodd-Frank — to force changes in the financial market.

“I understand that since risk retention is a new concept, people in various phases of the business of housing are unused to it, and do not like the changes it will force in their operation,” he wrote, “But the very purpose of the statute was in fact to bring about changes in a number of areas in our financial life, residential mortgages foremost among them.”

Shares of Blackstone-Backed Real Estate Trust Rise in Debut

Summary:  Blackstone owned REIT, Brixmor Property Group, oversold in its IPO.

New York --(New York Times DealBook)--

Stock market investors continue to show an appetite for real estate.

The Brixmor Property Group, a real estate investment trust owned by the Blackstone Group, sold more shares than it had expected in its initial public offering on Tuesday evening, reflecting strong demand from investors. The shares were priced at $20 each, the middle of an expected range, raising $825 million and giving the company a market value of about $5.9 billion.

The stock rose on Wednesday in the company’s trading debut on the New York Stock Exchange. After opening at $20.65, shares of Brixmor were up as much as 4 percent during the day before closing at $20.40.

“Our story really resonated with investors, and that led to more demand that allowed us to upsize,” Michael A. Carroll, the chief executive of Brixmor, said in an interview.

Investors are looking to gain exposure to the strengthening commercial real estate market in the United States. Vacancy rates are expected to decline for commercial properties and rents are expected to grow modestly, the National Association of Realtors said in a forecast released in August.

In October, the Empire State Realty Trust raised $929.5 million in an initial public offering. Its shares, through Tuesday, have risen 9 percent from the I.P.O. price.

Investors are betting that Brixmor, which has 522 shopping centers across the country, is poised to benefit from the improving property market. The company says it has the nation’s largest wholly owned portfolio of shopping centers anchored by grocery stores.

The company, formerly known as the Centro Properties Group, was in need of capital before Blackstone bought it in 2011. Since then, Brixmor has invested $339 million to improve its assets, the company said in a regulatory filing.

Brixmor said it planned to use the proceeds from the offering to reduce its debt. As of June 30, its total debt was about $6.7 billion, according to the filing.

The company sold 41.3 million shares in the offering, more than the 37.5 million shares it had expected to sell. The deal’s underwriters have the option to purchase an additional 6.2 million shares.

Blackstone will remain the majority owner, with about 73 percent of the company’s shares, according to a filing.

The offering was led by Bank of America Merrill Lynch, Citigroup, JPMorgan Chase and Wells Fargo Securities.

http://dealbook.nytimes.com/2013/10/30/shares-of-blackstone-backed-real-estate-trust-rise-in-debut/?_r=0

Chinese Investors Seeing Bargains Rescue Distressed Commercial Real Estate In The U.S.

Summary: Chinese investors are investing in distressed commercial properties in cities like Detroit.  Dongdu International paid $13.6 million for two Detroit office buildings, with plans to convert one into apartments.  (The replacement price of these two buildings is $80 to $100 million each.)  New York's Cassa Hotel was bailed out of bankruptcy by a Chinese firm.  Chinese property deals in the U.S. grew to $1.7 billion this year from $1.1 billion in 2011.  These buildings, by Shanghai comparisons, are incredibly cheap.


New York --(International Business Times)--

Chinese investors have found a new place to park their cash: increasingly they snapping up distressed commercial properties in American cities like Detroit, where despite the risk steeply discounted prices are appealing to investors used to China's highly inflated real estate prices.

Wealthy Chinese have been buying residential properties for years in popular destinations like California and New York but now they are also bailing out office buildings, hotels and other commercial properties overleveraged from the boom years in the U.S., the Wall Street Journal reported this week.

Earlier this month Chinese firm Dongdu International (DDI) paid $13.6 million for two well-known Detroit buildings with plans to convert one into an apartment complex, while the other building will be remain an office. Other Chinese purchases include New York’s Cassa Hotel whose previous owners sought bankruptcy protection, and a vacant office park in Silicon Valley.

The new Chinese administration has encouraged companies to diversify their holdings and spend foreign capital reserves, which prompted an overall rise in Chinese U.S. property investment this year. Chinese property deals in the U.S stand at $1.7 billion so far in 2013, up from the $1.1 billion 2011, according to research firm Real Capital Analytics Inc..

While some Chinese companies like Dalian Wanda Group, owned by China’s richest man Wang Jianlin’s , have bought high-profile landmark buildings others are more attracted distressed properties needing further investment and management. Other foreign investors generally shun projects requiring such secondary investment.

These properties are often in default and suffering high vacancy rates or facing other turnaround challenges. Experts say these deals suggest the Chinese are both more willing to take risks than other real estate investors and patient enough to hold properties until values rebound.

Four of the 15 largest Chinese property investments in the U.S in the past year have “resolved a troubled situation,” Real Capital said. In just the past few months, the Chinese have made 23 direct bids for properties on sale through Auction.com LLC, many of which would be distressed, said the company’s Executive Vice President Rick Sharga said.

Steeply discounted prices account for much of the recently-purchased properties' appeal according to the Wall Street Journal. Each of the two Detroit buildings, for example, would have cost between $80 million and $100 million to replace, said Ryan Snoek, a consultant for Luke Investments, the seller of the Detroit properties.

"People from China look at the price at which you can buy these buildings and think that's the cost of one apartment in Shanghai," said Goodwin Gaw, founder of the Hong Kong-based Gaw Capital Partners.

http://www.ibtimes.com/chinese-investors-seeing-bargains-rescue-distressed-commercial-real-estate-us-1445528

Commercial real estate loan prices rose in September

Summary:  With limited supply and increasing demand, commercial mortgage prices improved in September for both performing and non-performing loans.  The values on September 30, 2013 relative to earlier values are as follows:

Performing September 2013: 91.5/100 par September 2012: 88.7/100 par

Impaired

• September 2013: 79.2/100 par
• August 2013: 79/100 par
• September 2012: 88.7/100 par

Non-performing

• September 2013: 52.8/100 par
• August 2013: 51/100 par
• September 2013: 50.9/100 par

Boston --(Boston Business Journal)--
Prices for commercial mortgages traded higher in September, while market values for non-performing and impaired CRE loans also improved, according to DebtX, a third-party provider of loan valuation services.

“CRE loans continue to sustain pricing gains from the significant rally last year,” said DebtX Managing Director Will Mercer in a statement. “We don’t see any weakening of demand from the buy side, and supply is still limited.”

The estimated price of loans backing commercial mortgage-backed securities increased to 91.5 cents on the dollar as of September 30, up from 88.7 in the year-earlier period.

Among impaired performing loan prices, the average price was 79.2 percent of face value as of September 2013, up from 79 percent in August 2013. Prices were 78 percent in September 2012.

The weighted average monthly price of non-performing CRE loans traded through DebtX’s was 52.8 percent of face value as of September 2013, up from 51 percent in August 2013. Prices were 50.9 percent in September 2012.

Meanwhile, the Loan Liquidity Index, a monthly barometer of liquidity for pools of loans sold at DebtX, was 103.4, up from 99.7 in August 2013.

http://www.bizjournals.com/boston/real_estate/2013/10/cre-loan-prices-up-in-september.html

Standard & Poor's Credit Ratings and Additions

RPT-Fitch: 3Q defaults stabilize for U.S. CMBS

Summary:  Fixed rate US CMBS defaults fell in 3Q'13

• 3Q'13: 93 newly defaulted loans totaling $1.1 billion
• 2Q'13: 97 newly defaulted loans totaling $1.4 billion
• 3Q'12: 119 newly defaulted loans totaling $2.2 billion

New York --(Reuters/Fitch)--
Cumulative defaults for fixed-rate U.S. CMBS fell slightly last quarter, according to Fitch Ratings in its latest weekly CMBS newsletter.

Fitch reports that 93 loans totaling $1.1 billion newly defaulted in third quarter-2013 (3Q'13), down slightly from 97 loans and $1.4 billion 2Q'13. More encouraging signs for the sector are the year-over-year comparison (119 loans totaling $2.2 billion defaulted in 3Q'12) and the decreasing incidence of defaulted large loans (82 of the 93 newly defaulted loans under $20 million).

An additional 56 loans (original securitized loan balance of $390 million) did not refinance at their 3Q'13 maturity date. Of that amount, 15 of the loans (totaling $102 million) had paid in full by the end of the quarter.

http://www.reuters.com/article/2013/10/28/fitch-3q-defaults-stabilize-for-us-cmbs-idUSFit67438620131028

Sustaining Growth in New Urbanism

Summary:  This is a worthwhile video series for development professionals to heed.  

1 2 3 4 5 6 7 8 9

The Fed’s predicament in three paragraphs (Be the Fed)

Summary:  The Fed has few options in driving mortgage rates back down when not tapering hasn't done enough.  Lowering the Fed Funds Rate is pointless when you're virtually at 0%, forward guidance has little effect on long term rates, false, negative forecast may bring rates down, but will also stall economic activity, false positive forecast could bring rates up, which is self-defeating.  Basically, the Fed is out of options.

St. Croix --(CreditWritedowns.com and The Center of the Universe)--


So imagine you are a moderate FOMC number.

Mortgage apps are down, new home sales marginal, and private sector job creation sagging. And you keep revising your GDP forecast lower at each meeting. Likewise inflation remains low, and you believe the risks are asymmetrical. That is, you know you can stop inflation and growth with rate hikes, but you’re not so sure about fighting deflation.

And so, as an FOMC member, you’d like to see mortgage rates back down. So how do you get them there? You might not like QE, and at least highly suspect it doesn’t have any first order effects, and you fear there are unknown costs, but you know tapering, for whatever reason- almost to the point the reason doesn't matter- causes rates to go higher. And you know not tapering brought them down some, but not enough. Fed funds are already close to 0% so there’s no room there. Forward guidance, etc. has kept the short end low but not the long end. You are afraid to simply peg long rates with an unlimited bid for securities at your target rate. You know a weaker economic forecast will bring long rates down but that it would be intellectually dishonest to manipulate a forecast.

And maybe worst of all, if you do something that causes markets to believe the economy will do a lot better, mortgage rates go higher, presuming Fed rate hikes will accompany growth, and thereby make things worse instead of better.

http://www.creditwritedowns.com/2013/10/the-feds-predicament-in-three-paragraphs.html

http://moslereconomics.com/2013/10/25/be-the-fed/

A couple of facts about small bank failures in the US

Summary: Commercial mortgages were the leading cause of bank failures in the latest financial crisis, which was also small, by bank failures, than the S&L crisis of the late 80s.

New York --(SoberLook.com)
There are still a number of misconceptions with regard to the volume and the causes of most commercial bank failures in the US after the financial crisis. Here are a couple of facts that some may find helpful:

1. Although 2008 saw some spectacular bank failures such as Citi, WaMu, and Wachovia (note that Bear, Lehman, Merrill, and AIG were not banks), the actual number was dwarfed by the Savings and Loan Crisis in the late 80s. Nevertheless there were nearly 500 small and regional banks that failed over the last 5 years.



Number of US bank failures per year



2. Contrary to popular belief, the biggest reason for bank failures was not the losses associated with bad small business loans, derivatives, or even residential mortgages. Just like during the Savings and Loan Crisis, it was the overexposure to commercial real estate loans that brought many banks down. And it was the commercial real estate loans that saw the worst default rates. The chart below shows the delinquency rates by major loan type for smaller and regional banks (ex top 100).



Source: FRB



Some argue that smaller banks did more relationship-driven lending than their larger cousins. True, but that type of lending was exactly what often ended up in an FDIC takeover. Bankers' cozy relationships with local developers were prevalent and often ignored by the regulators.

http://soberlook.com/2013/10/a-couple-of-facts-about-small-bank.html

Summary:  The Consumer Financial Protection Bureau sued small Kentucky real estate law firm Borders & Borders PLC for allegedly paying illegal kickbacks to RE agents and mortgage brokers in exchange for work, the third of such lawsuits for the regulator.  This comes across as busy work for the fledgling regulator.

New York --(Wall Street Journal Developments Blog)--
A small Kentucky real estate law firm has found itself the latest target in renewed federal scrutiny of referrals in the housing industry.

The Consumer Financial Protection Bureau on Thursday sued Louisville-based law firm Borders & Borders PLC, accusing it of paying illegal kickbacks to real-estate agents and mortgage brokers in exchange for work.

The lawsuit is the agency’s third enforcement case involving alleged kickbacks in the real-estate industry, highlighting how the new regulator is stepping up its oversight.

The lawsuit accuses Borders & Borders of operating nine joint venture title insurance companies with local real-estate agents and mortgage brokers and splitting the profits with them. The lawsuit says the joint ventures, which were shut down in 2011, did little actual work, existing as a way to pay for referrals.

Borders & Borders adamantly disputed the regulator’s allegations, saying that the business relationships were legitimate, disclosed to consumers and complied with federal real-estate law.

“The CFPB is out on a limb with this lawsuit,” said Morgan Ward, a lawyer with Stites & Harbison PLLC, who represents Borders & Borders. “It has made allegations that are simply not true from a factual standpoint, and its interpretation of the law is incorrect.”

Mr. Ward also faulted the CFPB for not waiting for a federal appeals court to rule on a case involving the constitutionality of a 1996 Department of Housing and Urban Development policy governing such relationships.

The Dodd-Frank financial law of 2010 gave the CFPB authority over the federal law that bars payments to refer real-estate services. In April, the regulator reached a $15.4 million settlement with four mortgage insurance companies over such referrals. And in May, the CFPB reached a $118,000 settlement with a Dallas home builder over the referral of mortgage-lending business. In both cases, the companies did not admit or deny the allegations made by the regulator.

The regulator “will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest businesses,” said Richard Cordray, the CFPB’s director.

http://blogs.wsj.com/developments/2013/10/24/consumer-bureau-sues-kentucky-real-estate-law-firm/

Fitch: Penney Stress Could Pressure U.S. Malls But Not CMBS

Summary:  A J.C. Penney default could mean more to malls than it does to CMBS holders because J.C. Penney makes up such a small part of these CMBS deals.  Malls, however, that do not have other anchor tenants, are likely to suffer substantially.  J.C. Penney was downgraded to CCC earlier this month.

New York --(Fitch Ratings)--
If J.C. Penney's financial challenges result in the closure of a portion of its stores, some malls would likely struggle to replace the retailer, Fitch Ratings says. We do not expect the potential closure of the company's stores to impact rated CMBS deals because they represent relatively small amounts of those transactions.

One mall that could struggle if its J.C. Penney anchor were to close is Riverbirch Corner Shopping Center in Sanford NC. The mall's other anchor tenants are Belk and Goody's. Riverbirch could have difficulty finding find another retailer to take over the large space currently held by J.C. Penney. Riverbirch is approximately 20 miles from Raleigh, NC and 30 miles from Fayetteville and Fort Bragg. The loan on that shopping center is just $12 million, 0.3% of CGCMT 2007-C6.

Other malls would have less difficulty in replacing a J.C. Penney store. Fitch believes for example, that Aventura Mall in Miami, Florida could manage a closure of its J.C. Penney anchor promptly. The mall has several stronger anchor tenants including Nordstrom and Bloomingdales and a favorable location in the northern Miami suburb. Should the J.C. Penney store in that mall close, we believe it would be possible for the mall to find another tenant. The loan on that mall is in LBUBS 2007-C7.

Loans on many properties with J.C. Penney stores are in conduit deals with vintages back to 2001. Two large single borrower mall transactions also contain JC Penney as an anchor, the QCMT 2013-QC at $600 million and JPMCC 2011-PLSD. Both of these malls are located in strong locations at or above 95% occupancy.

J.C. Penney's real estate portfolio has been appraised at over $4 billion and includes properties it owns and leases. According to the company's most recent corporate filings, it owns 306 stores, operates 123 ground leased stores, and leases 675 stores. It also owns nine distribution centers and leases another six. Earlier this month, Fitch downgraded J.C. Penney's Issuer Default Rating to 'CCC' from 'B-'.

GROUNDFLOOR Emerges To Disrupt $240 Billion Commercial Real Estate Finance Market

Summary:  North Carolina crowd-sourcing startup GROUNDFLOOR closed round one funding.  This new company connects real estate entrepreneurs directly to otherwise depositors, who are looking for a better return on their savings.

Battle-Tested Team Closes Initial Seed Funding to Open Access to Direct Real Estate Investing

Raleigh --(Digital Journal)--
GROUNDFLOOR, a progressive real estate crowdfunding startup based in the Triangle, announces the initial close of its first round of funding led by investors Bandwidth Labs and the American Underground. Harnessing the breadth and scale of the Web, the company connects independent real estate entrepreneurs with early-stage loans funded online by mass-market savers and investors. The seed capital will allow GROUNDFLOOR to bring a series of pilot projects to market in late 2013 and early 2014.

"The Web has a message for Wall Street," says Brian Dally, Co-Founder and CEO of GROUNDFLOOR. "Real estate innovators and doers frustrated with the bank underwriting status quo are ready to be unleashed. Banding together, depositors and self-directed investors can do everything traditional lenders do, but better—to the benefit of a broader base of people well beyond accredited investors and powerful incumbent financial institutions."

Leadership and Advisory Board
Co-founders Dally and Nick Bhargava built GROUNDFLOOR on a common interest in commercializing radical technologies designed to disrupt entrenched incumbents. John Austin introduced the duo in October 2012 through NC IDEA's Groundwork Labs. Dally, a 15-year veteran of technology startups based in Silicon Valley, Boston and London, most recently engineered the launch of Bandwidth.com's Republic Wireless, a provider that successfully battled the big four cellphone carriers to enter the smartphone service market. Bhargava lends expertise in securities law innovation earned during his role in developing Title III of the JOBS Act, in which he fought to ease securities regulations for unaccredited investors and bring the concept of equity crowdfunding to the mainstream.

The company also announces the addition of new advisory board members including Michael Goodmon, Vice President of Real Estate for Capitol Broadcasting; Jason Widen, a real estate developer and Executive Director and Co-Founder of HQ Raleigh; and Chris Matton, a prominent figure in the Triangle angel investor community and General Counsel at Bandwidth.com.

"Bandwidth has a culture of taking on big challenges and supporting people we believe in," says Scott Barstow, Head of Bandwidth Labs. "GROUNDFLOOR is a huge idea and we are proud to back Brian and his team, as well as creating opportunities for entrepreneurship to grow here in the Triangle."

About GROUNDFLOOR
Based in the North Carolina Triangle, GROUNDFLOOR champions democracy, transparency, speed, efficiency and freedom as the path to building a new kind of finance. The company harnesses the breadth and scale of the Web to disrupt antiquated black-box models of financing asset-backed transactions. The innovative GROUNDFLOOR platform reduces dependence upon large financial institutions and accredited investors, while making direct real estate investing a viable addition to any savings and investment portfolio.
http://www.groundfloor.us/press