SBA and Commercial Finance and Investment News

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.

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. 

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

Commercial real estate in this country saw  prices rise 1 percent in November, after a 13-month run of steady price declines.  Was October the bottom?  Maybe close.  According to REAL Capital Analytics, “After two years of value declines, commercial real estate reached its lowest value yet in October ’09, nearly 44 percent below the peak level.”  So down 44, up 1.  Not bad, if you are an incurable optimist.   Moody’s Investors Service says however that it expects prices to resume falling in the coming months as occupancy and rental rates decline in tandem “Prices in the commercial sector will rebound off the bottom as markets recover, but we expect that commercial property prices will ultimately flatten out for the longer term at levels 30 percent to 40 percent below the peak,” the report said.

Happy New Year from NYC!  This from Bob Bach at Grubb and Ellis,  courtesy John Clapp at SERVICING MANAGEMENT.  Something remotely but encouragingly upbeat yesterday:

“The good news is that the freefall we saw in 2009 is over, and the future is more certain, giving owners and users of real estate the confidence to begin making decisions again,” says Bob Bach, Grubb & Ellis’ senior vice president and chief economist. The company predicts an increase in sales volume of 20% to 30% over 2009’s levels, with prices perhaps dropping another 10% to 20% to accommodate buyers’ expectations.

Claims that commercial real estate is the “next shoe to drop” are exaggerated, Bach says. Comparing the potential commercial real estate fallout with losses tied to the subprime crisis, he notes that “the value of outstanding commercial mortgages is a fraction of the value of outstanding residential mortgages.

 “Nevertheless, losses will mount over the next several years,” he adds. “If banks aren’t lending because they’re coping with losses in their real estate portfolios, this could impede the economic recovery.”

Grubb & Ellis expects the national office market’s vacancy rate to hit 18.5% to 19% by the end of the year, which would make it the highest vacancy rate for that sector since the firm began tracking national data in 1986. The sector’s recovery depends heavily on job growth. Bach projects sustained growth in employment is “unlikely” before the second half of this year.

“The fact that the recession has come and gone, however, should provide the certainty necessary for tenants to start making decisions,” he says. “We may see leasing volume increase in 2010 as a result.”

In its quarterly data book on commercial real estate and multifamily finance, published Tuesday, the Mortgage Bankers Association said that monthly job gains need to be in the 125,000-150,000 range in order to reverse the rise in unemployment.

“Gains of this magnitude are not expected in the months ahead,” the report said. “Accordingly, the unemployment rate is apt to increase somewhat further before peaking in the spring of 2010, and then beginning a gradual, slow decline during the remainder of the year.

The industrial market, which saw increased vacancies and negative net absorption in 2009, has the potential to recovery more quickly than the office, retail and multifamily sectors because it’s less dependent on job growth. While Grubb & Ellis expects vacancy in the sector to reach 11.4% by the end of the year – 70 basis points higher than year-end 2009 – a new report from the trade group Institute for Supply Management suggests the manufacturing sector is rebounding sooner than expected.

Based off results of a survey of U.S. purchasing managers, the report showed the institute’s manufacturing index hit 55.9 in December, its highest reading since April 2006.

“Overall, this was a very strong report, and it suggests that the recovery in the U.S. manufacturing sector is gaining further traction,” TD Securities economist Millan Mulraine wrote in a note to clients, according to a San Francisco Chronicle report

OK if you are like me you are GLAD 2009 is OVER, right?  A horrible year of uncertainty in the SBA world, huge delinquencies in portfolios, commercial RE troubles dragging down community banks, credit almost impossible for CRE and for business loans, enormous capital infusions at Fanie and Freddie, and, worst of all, I got laid off.  So al tghis hit home.  But here are six GOOD things we can say about the year end numbers, courtesy BAML (Bank of America Merrill Lynch):

Good:  The US trade deficit narrowed in October with exports rising for the sixth consecutive month.

Good:  retail sales and consumer sentiment both surprising to the upside.

Good:   business inventories rose this month  for the first time in over a year, suggesting that the inventory cycle will add  to overall growth in the fourthquarter.

Good:  Senior 504 loans are eligible for pool level guarantees now.

Good:  CMBS is coming back by way of large single borrower or single asset deals

Good:  SBA 7A and 504 guarantees are “free” through 28^th February