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.

Have you ever wondered why the prepayment penalties are so high when you take out an SBA 504 loan?  The 504, as you know, consists of two loans:  a first mortgage, funded by a credit union or a bank, typically, at about 50% LTV, and a second mortgage, typically 20 years fixed rate, that is funded by a Certified Development Company, or CDC, for the “junior” 40% of the debt.

The 504 program is great because it enables you to get 90% financing in most cases – lower in some – with a combination first and second mortgage loan on your commercial building, or commercial condo, provided you have 2 years in operation, are “for profit,” and have a net worth for the business of under $15 MM and net profit of $5MM or less per year over the last two yours.  In other words, you need to BE a “small business.”

You can refinance your current loan(s) and/or buy a new building or commercial condo.

The SECOND trust deed loan is funded with a debenture, which is a form of a bond.  Bond investors need to know their yield is in place for a period of time, so in order to sell the debentures, the SECOND loan, which is actually the SBA 504 guaranteed loan, has a hefty prepayment penalty for the first half of the loan.  We’ll talk about this in more detail in future installments.

IF YOU BORROW from a bank or a credit company, chances are you will also have a large prepay penalty on the FIRST mortgage part of the 504.  Those penalties are (name your poison):

• The most popular: 5% the first year, 4% the second, 3% the third, 2% the forth, 1% the fifth
• Or you can have 5% flat for 5 years
• 7/6/5/4/3/2/1
• 5% for 6 years then 4/3/2/1
• Here’s one, I call it the rocket prepay: 10/9/8/7/6/5/4/3/2/1
• Or for the truly desperate, 10% a year flat for TEN YEARS

These penalties exist because your lender (the bank, let us say, ) either (a) wants to SELL your loan on Wall Street for a huge premium, or (b) just likes a large prepay penalty.

Now for the good news in this story: Credit unions.   Centennial Lending originates loans for our credit union owners.  We offer great fixed rate 504 first mortgage loans WITH A ZERO prepay penalty.  ZERO, ZED. NADA.  You can pay off our loan any time without any penalty.  You can pay DOWN our loan and reduce your principal ANY TIME without penalty.  We think paying down debt is a good investment for your company, particularly with alternative investments yielding so little.  So we do not charge any prepay penalty.  Instead, our credit union partners just keep your loan in portfolio instead of selling them to an investment bank.  We recycle your money and lend it out again as you prepay.  We think it’s good business.

Contact Tim Thomas at 303-746-9169 (tim.thomas@centennial-lending.com) for all the details.

Colorado and Wyoming credit unions are helping provide much-needed liquidity to Colorado’s commercial real estate market, offering permanent loans with fixed rates, low closing costs and NO prepay penalties.  Click here for the program summary Rate and Program Summary Centennial Lending Commercial Mortgages January 2012

REIS just released the vacancy, cap rate and pricing reports on Denver retail, office and multifamily for 3rd quarter.  Click here to download the PDF, data provided courtesy REIS Inc.

Retail:

REIS 3Q RETAIL REPT DEN

Office:

REIS 3Q OFFICE REPT DEN

Multifamily:

REIS 3Q 2011 APT REPT DEN

Intersted in financing?  Click on the links below for 2012 rates and programs

Rate and Program Summary Centennial Lending Commercial Mortgages January 2012 - Rates for 504 and commercial real estate loans

Success Stories by Centennial Lending - Click for somne examoples of recent closings

Starting tomorrow, January 3, 2012, I am going to be making “small balance” commercial real estate loans in the Denver-Boulder area as a commercial loan officer and business developer for Centennial Lending.  Centennial originates and services commercial and residential loan investments for its owner and partner credit unions here in Colorado and in nearby states.   Why is the credit union connection important? Because credit union loans tend to be fixed rate, or hybrids, competitively priced with Bank debt, AND, unusual as it seems, they offer fixed rates without the customary but still horrible prepay penalty you find with life company debt. So a credit union loan is well worth checking out.

We lend on gas stations (sparingly) , self storage, office, multifamily, retail and industrial properties. We also do the senior part of SBA 504 loans, which offer up to 90% combined LTV on owner-user buildings and office, retail and industrial condos.

Today let’s talk about the six county metro Office Market.  Then will look at industrial, Multifamily and retail.

The Metro Denver office market vacancy rate fell a bit from 13.8 percent in the second quarter of 2011 to 13.5 percent in the third quarter. Third quarter net absorption was positive and totaled 400,180 square feet, compared to positive net absorption of roughly 253,430 square feet in the second quarter. One building with a total of 30,070 square feet was delivered in the third quarter, and 907,060 square feet in nine buildings remained under construction.

Lones Llang Lasalle’s TJ Scnippits forecast and actual numbers:

2009                       Negative  900,000 SF

2010                       Positive 800,000 SF

2011                       YTD Positive 1,000,000 SF ESt

2012                       Positive 600,000 SF Forecast

2013                       Positive 1,50,000 SF Forecast

Are we energized yet?  2012 is going to be another year of positive absorption here driven by job growth.  And lenders like credit unions are very much back in the market!

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.