SBA and Commercial Finance and Investment News

Here at Centennial Lending , where we do smaller balance loans on all kinds of investor real estate from 1 unit to 100, 500 square feet to 50,000, our credit union commercial rates have hit an all time low. We  have reduced our base 5 year rate to 4.5% and our base 10 year rate to 5% flat for good quality real estate with good liquidity and credit – recent transactions include small office buildings, a 15 unit apartment complex, new construction , and a freestanding retail store.  The reduction of our rates has been dramatic.

And I understand on the life company side, spreads have narrowed to 250-300 over Treasury, which puts 10 year money at 5% for commercial.  And spreads are tighter for multifamily.  Typical agency multifamily is 75-80% LTV for a purchase or no cash out.  Commercial money at life companies is 60-70% LTV typically with 130 or better dscr.

The BANKS in our fair city of Denver are tripping over themselves here to make owner occupied commercial RE loans – I hear rumblings of rates at 4% for 5 year money and one bank bid 1.75% last week on an owner user flex building.  Insanity.

Ladies and gentlemen, these rates will NOT last! The 10 year T is on the way UP as the Greeks pretend to comply with ECB mandates and our unemployment picture improves.  NOW would be a REALLY good time to get started on that refinance or new build, or buy that building.  Take the money and run and if you need some direction email me at tim.thomas@centennial-lending.com or call 303-746-9169.

Here is what my Colleague Lou Barnes, WSJ contributor, mortgage banker and columnist, not to mention Boulderite, had to say: today:

“Gradually improving US economic data and a Greek deal of some sort have relieved immediate financial fears, and so bond and mortgage rates have risen.

The rate increase is proportional to the relief. 10-year T-notes have moved from 1.92% to 2.02%, and mortgages from just under 4.00% to just under 4.125%, roughly like your kid’s fever dropping from 105 to 104.5.

The most reassuring news here is the up-trend in the small business survey by the NFIB. Although its overall optimism is little better than the bottom of recessions going back 25 years, it has been improving each month since August, and only two months since 2007 have had better readings. The weakest internal component has been sales, now the worry fading fastest.

Another legitimate breakthrough: weekly claims for unemployment insurance have dropped again, to 348,000 last week. Wobbling near 350,000 in the last couple of months has been a straight-line decline from the 400,000+ range of the last two years, and is only about 25,000 weekly above what anyone would consider normal. However, everything about this cycle is so abnormal that nobody knows if normalized layoffs will translate in to normal hiring. “

Bottom line — we may have PASSED the low.  Time to get ON THE TRAIN!

Bonds rallied last week, driving the 10 year Treasury back below 2% – down in fact to 1.92%.  This means continuously fabulous rates for those my colleague Mike Cantwell calls the conservative and capable few borrowers.  Rate wars, that’s what we have.  Life companies at mid 3’s for 5 year paper and mid 4’s for 10 year loans (60-65% LTV, stellar lease income stability, please).

Niche lenders – like our credit unions (see my rate sheet at) are providing more and more liquidity for the not-so-stellar deals – or the smaller deals – that do not fit life company strict standards.  And of course we lend to those who do not want a heavy, draconian prepay penalty.  And, oh yes, we do construction loans for new bulls or gut rehabs.  So there’s cash out there, though it lies in unexpected places. See our current rates and programs — bringing cash to the “small” commercial market – at Rate and Program Summary Centennial Lending Commercial Mortgages January 2012

OK on to politics. Is the state of the union is getting stronger, as our President would have us believe?   Not with continuously falling housing prices, 13 million Americans out of work and a 1.3 trillion deficit it is not.   As my friend WSJ writer Lou Barnes said pithily this Friday, just half a day after the President’s speech,  the Fed announced an economy in such peril that its previously unprecedented aid would extend over the horizon.

Go to usdebtclock.org and tell me what you see.  We are carrying at this hour 15.3 trillion in debt.  $48,000 for every US citizen.  $135,000 for every US taxpayer.  And that mountain is going to grow by another $$1.3 trillion this year as we SPEND more that we can possibly TAKE IN. We SPEND 4.5 trillion, we COLLECT 3.2 trillion, we are short and remain so because no one of courage is in the White House and two few occupy the House and Senate. No one wants to tackle entitlements. Reckless spending, that’s the plan.

As the great former senator Alan Simpson said last Friday to the Wall Street Journal, Obama walked away from the solution proposed by his own panel.  He is in Simpson’s words afraid to confront the deficit.  Scared, in fact.  His words, this very wise man from Wyoming, not mine    The $3.9 trillion, 10-year Simpson-Bowles plan included about $2.2 trillion in spending cuts, $673 billion in reduced interest payments and $1 trillion in tax increases.  None of which was mentioned in the State of the Union.

Welcome!

Centennial Lending, whom I represent as senior Business Development Officer, is a credit union service organization owned by 13 credit unions in Colorado and Wyoming.  We lend in Colorado, Wyoming and Nebraska and finance” small” projects from as little as $100,000 up to $5 MM.  We like small retail centers, freestanding retail, office, industrial and retail condominiums, neighborhood centers, office buildings, industrial buildings and of course apartments from 5 to 100 units.   We also finance 1-4 unit rental housing.  We offer a 5+5 fixed rate and a 10 year fixed rate permanent loan, with no prepay penalty.  And construction financing for qualified projects. We also are experts on the SBA 504 and have financing up to 90% LTV for owner-user buildings.

Please click here to download our most recent rate sheet for commercial and multifamily construction and permanent financing:

Rate and Program Summary Centennial Lending Commercial Mortgages January 2012

And here are some of our recent closings

Success Stories by Centennial Lending

Contact Tim Thomas for more information, tim.thomas@centennial-lending.com, 303-746-9169

Yes, I write TWO blogs:  this one at www.sbafinancenews.com and www.coloradoloaninfo.com.

OK this is it.  The 10 year Treasury hit ONE POINT EIGHT EIGHT today.  FHA fixed rate firsts are at 3.75.  30 year fixed residentials are at 3.875 no points no discount.  WHOA.  SBA 504′s are 5-5.25.  Life company money is at 5 and may be below for TEN I said TEN years.  IF YOU ARE LOOKING FOR MONEY ON A REAL ESTATE SECURED basis, commercial or res, NOW NOW NOW is the time to pull the trigger.  EM tim@silverlineadvisors.com, I’ll help point you in the right direction.  It may not get ANY better than this, a historical low.

The USDA’s popular B&I program funds investment and owner user job-creating properties in rural areas (and it is frequently surprising that what is considered “rural” is often the urban fringe).  Recently the program has faced cutbacks — but this year it looks like the budget for guarantees will be $832 million. B&I lending in FY2012 could therefore end up close to $1 billion, reports USDA.

So:  Have a project – industrial, hotel-motel, perhaps even big box, at the edge of the SMSA or in the country?  USDA makes the permanent financing liquid, long term, and fixed rate.  Definitely worth a look.  But the funds will be gone by June, so contact your lender now or email tim@silverlineadvisors for more data.

The 504 Refinance is HERE.  What it means is you can get 90% CLTV, which is helpful since values have fallen 30-40% most places,  So you can get cash to pay off that balloon payment, keep Elmira Gulch from foreclosing on the building so you can stay in Kansas,,  I’ll write about the specifics later but now is the time to get your commercial borrowers refinanced.  Fixed rate 20 year second from your local CDC, and a 5 year adjustable (or some such) first mortgage at a reasonable rate from lenders like Horizon West (www.horizon-west.com).  The CDC to call here in Colorado is Colorado Lending Source, they also have the best website:  www.coloradolendingsource.0rg. 

So where are rates GOING?  Not as high as fast as you think.  Time to look at (don’t laugh) some good municipals with a short call.  Yields 5-8 taxable equivalent.  Higher in some areas.  And yes there are some GOOD RELIABLE bonds out there.  We like essential purpose revs — sewer, water, that kind of thing.  No matter how bad it gets you have to drink and flush. 

My friend and coleague, WSJ contributor and Fed guru Lou Barnes said this week ” Interpreting markets is hard these days.

The deafening financial-market recovery…inflation…recovery…commodities…recovery…sustained…recovery… makes it hard to concentrate. Maybe we could set the whole thing to music and hire the Super Bowl babe to sing the wrong words.

  Inbound data do not support acceleration of the US economy (retail sales half of February forecast, flat industrial production, mortgage apps falling near record lows…). Global food and commodity prices are rising, igniting inflation fear among those who have worried about inflation ever since it broke in 1981, never to return. These price rises are cost increases likely to slow the US economy, as there is no wage growth with which to pay them, or to pull into broad-gauge inflation.”

     Public policy is the deal, now — not markets, and not even the economy. In gathering force, ordinary civilians have decided: given a flat-broke Treasury, and a choice to borrow, to raise taxes, or to cut spending, we’re going to cut spending. Oh, we’ll have higher taxes, but by three or four to one, spending cuts will dominate.

So the Federal Reserve is going to buy US Treasury bonds next week, in a big way.  If demand for treasuries goes UP, prices RISE, and, as yields move inversely to prices,  yields on treasury bonds will fall.  Mortgage rates, taxable municipal bond yields, long term bank debt (is there such a thing?) and life company commercial rates, along with fixed SBA 504 rates, are likely to drop if the Fed attacks the middle of the yield curve. That may stimulate borrowing if credit does not tighten further.  An who knows, as we all hope, borrowed money gets spent, and company sales go up, so they hire more workers, who in turn spend more, etc.

So where, my fellow Americans, does the money come from that the Fed uses to buy those securities? 

Psst.  They PRINT it.  No, they don’t even bother. It’s an electronic debit to a fictitious account.  It literally appears out of thin air.

My friend, colleague and WSJ contributor Lou Barnes had the following to say this week. Pithy guy. Read on and amaze your friends.

         A controlling equation: MV = GDP(p). The quantity of money times its rate of turnover (velocity) equals GDP. That (p) notation refers to prices. If you get MV going to fast, you get big GDP andinflation; if too slow, deflation. V rises in good times with credit creation and slows in bad; in extreme cases (bank runs) M disappears altogether. In “quantitative easing,” the central bank bypasses broken banks completely and buys Treasuries in the open market, sustaining M. Done right, price-neutral printing!

       Doesn’t printing money guarantee future inflation? The Fed hopes so! But only to get CPI back in the 2% range, and the economy is so slack (“excess capacity”), and so much money has effectively gone to mattresses that all inflation tinder is soaking wet.

     But, once printed, the money is still there!The easiest of all central bank jobs is to make money disappear. If the Fed overdoes QE, if banks suddenly snort to wakefulness and make loans, all the Fed must do is to sell Treasuries that it bought. Market rates will rise, and the cash will go back into the Fed’s mattress. Coming out of this, expect high volatility in start-stop-start “draining,” but the Fed will not allow the aftermath go to inflation.

     Why bother? Why not just leave well enough alone? The Fed did contribute to the predicament, and is hardly infallible, but its errors were omission, especially allowing a credit bubble to inflate (and no, rates were not “too low” ’02-’04 — underwriting was too easy). Since ’07, the Fed has been the only government institution to rise to the crisis, and a major lesson of the crisis is the need for an active Fed to regulate terms and supply of credit, and cautiously to intervene in asset bubbles.

  The Fed intends to drive down intermediate Treasury rates (3-10 years, “caving-in the shoulder of the yield curve”), and in turn drive down other long-ish rates. Perhaps mortgages in the threes. In further turn, those lower rates will support asset values (houses if the Fed is lucky, stocks and gold if not). As assets stabilize, maybe even rise in value, defaults will wane and the world will become safe for bankers to lend. Last, the Fed’s intent is domestic, not to “drive the dollar down,” although it would be pleased if other central banks were forced to follow, giving global support to M and adding pressure to currency manipulators. 

“Everything, everything ends,”  says the New Moon theme by Death Cab for Cutie.  So it was for SEVEN more banks last week.

Want to know what a bank failure and receivership is really like? Well, they say Friday night is the time the FDIC closing team will show up at your main branch.  Once the senior site agent meets with the Bank president, and the first platoon from the FDIC has secured the cash and begun a count, the remainder of the FDIC takeover team  and subcontractors will show up.  Oh, yes,  and the  CURRENT bank employees are deputized as temporary FDIC employees.   But the influx from the FDIC is huge.  Figure one agent per $5 MM in assets.  $400 million bank, 80 polite, briefcased, laptop flipping, well dressed people show up, all at once.  And along with them, the president of the receiving bank.   Three days later the failed bank is open – with a new name.  FDIC examiners and agents head personnel, operations, lending, investigations, accounting, file review, and other functions  until the receiving bank has its personnel in place and  the dance is  done with the precision of a fine watch.  Visit http://www.npr.org,  click on This American Life and download Ira Glass’ recent podcast entitled “Scenes from the recession.”  It’s  first hand takeover account of a small community bank in Washington State and the drama behind the numbers is poignant, to say the least.   So if you’re not a numbers guru you may be interested in the human side of the bank closure business.

We are seeing some glimmers of light, if not portions of the Glory Train of Recovery, in the tunnel. 

lationHousing starts and building permits last month are holding steady in the 550,000 to 650,000 range, rather than deteriorating further, that’s a good thing.  Industrial production rose 0.1 percent in February, while capacity utilization rose to 72.7 percent. That was the eighth month in a row of improvement in the utilization rate. It’s now at a 14-month high.  So maybe we might have to increase capacity.  We might have to, uh, GROW. Why, by golly, the FED might have to raise the discount rate again.  Not In-flation, really, or STAG f, but re-flation.  The air is coming back into the balloon.

NO thanks to the SBA, of course, because ONCE AGAIN the Agency is OUT of money to subsidize guarantee fees and once again 7A borrowers will have to pay big time — up to 3.75% of the guarantee amount,  for a 7A loan — and HLFA A POINT on the SENIOR 504 loan.  We are bouncing back to the dark side yet again because of inaction in Congress.  And you can forget about higher 504 and 7A limits, at least for a while. 

YES, dear readers,  our community banks — those long-suffering bankers conventioning last week in Orlando, and their minions — are getting told to lend, not to lend, told the SBA is there to help, but not really.  They are all struggling and all wondering how to show some solid earnings — which is why my white paper is coming out this week — “Four ways to ramp up fee income without growing assets (or adding to credit risk). ” Stay tuned for that!

Yours truly is leaving Horizon West  Partners, LLC on April 1 to run his own firm, called Silverline Advisors, to provide loan placement and secondary marketing services to those same community bankers  — services they in turn can deliver for a fee to their customers on a concierge desk model.  It’s pretty cool if I do say so myself.   I believe that commercial and SBA loan placement is OVERPRICED and you really CAN deliver what used to cost 100 basis points in broker fees for a fraction of that — anyway, that’s my new model.  Email me at tim@silverlineadvisors if you’d like a copy of the white paper.

Retail sales rose 0.3 percent, while “core” sales excluding autos climbed 0.8 percent. Both figures topped estimates.

My colleague Devin Lee, CCIM and guru of All Things Southern Nevada, reports the sobering morning after numbers on this market.  Devin is a great resource – for workouts, bank portfolio restructuring, you name it — contact him at dl@accesscm.com he offices on Warm Springs Road, on the Web at www.accesscm.com.  Here you go, without further adieu, on those condo towers stretched once into the blue, for now they are read and the market is, well, dead.

Allure — 190 of 427 units unsold; 40 in default; 10 bank owned.

• Juhl — 309 of 344 unsold. 

• Newport Lofts — 23 of 168 unsold; 51 in default, 12 bank owned. 

• One Queensridge Place — 85 of 219 unsold; 8 in default. 

• Panorama Tower 3 — 334 of 372 unsold. 

• Sky Las Vegas — 79 of 405 unsold; 50 in default; 5 bank owned. 

• Streamline Tower — 248 of 275 unsold. 

• Turnberry Towers West — 255 of 318 unsold. 

• MGM Signature 3 — 84 of 576 unsold; 105 in default; 17 bank owned. 

• Palms Place — 204 of 599 unsold. 

• Trump International — 977 of 1,282 unsold.

So I promised three GOOD news items this week — and here they are!

Good News #1

 From the MBA’s Commercial Real Estate Finance Conference this past week in Las Vegas, here’s the word:

Life companies are back in the market

Many if not most have LARGER budgets for commercial RE mortgages than last year

LTVs are creeping up (from 50 to 60, maybe 65% LTV)

And Guess WHAT, there IS a conduit or two –  “like the conduits of the late 90’s,” and for deals of 10MM up there’s NONRECOUSE available at up to 70% LTV for seasoned stabilized properties in good markets with good staggered leases in place

Good News #2

WSJ reports the U.S. Federal Reserve is leaving the door open for restarting its program to support the mortgage market, if the economy weakens or interest rates increase sharply, Federal Reserve Bank of New York President William Dudley said. As things stand, the central bank’s purchases of mortgage-backed securities are scheduled to end March 31. “Obviously, if mortgage rates were to back up a lot and if that had a big consequence for the economy, then we very well could rethink the issue about whether we wanted to buy more mortgages,”

Good News #3

The SBA 7A remains a GREAT deal for banks if the 90% guarantee funding continues, which seems Congressionally likely.   A bank can make a 7(a) loan with a 90% guarantee and sell its guaranteed portion at a premium as high at 110%.  And the guaranteed portion is a zero risk weighted asset. It does NOT get any better.  Ever.  There’s no excuse NOT to get involved in SBA lending.  As 28 Senators wrote to Secretary of the Treasury Timothy Geithner this week, “Small businesses ARE the real engine behind job growth in the U.S. Over the past 15 years, over 64 percent of all new jobs were created by small businesses.”  Yet credit remains tight,  as defaults plague the economy – even so, there’s no reason a good and prudent loan risk cannot be shared with the SBA.  Let’s  do it.

To get you started we are cooperating with COLORADO LENDING SOURCE, Denver’s great CDC, to TRAIN you on the 504.  Email me at tim@horizon-west for information, its FREE and it is FEBRUARY 11th and it is a DIAL IN WEBINAR