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!

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

Friday’s  report was  of 200,000 new jobs in December and unemployment down from 8.7% to 8.5%, that’s GOOD.

But it’s not good ENOUGH.  As my good fried Lou Barnes pointed out this week, “ Interest rates rise on legitimate good news; today’s 10-year T-note yield has fallen to 1.94%, and mortgages are near 4.00% again. The stock market rises on good news, and today it is flat to down.

200,000 jobs is good news, but year-over-year earnings have risen only 2.1%. A few back to work, but not the job that it was. And even if employment growth persists at that level, and new unemployment claims stay down as they were in December from 400,000 weekly, it’s not enough to dent the job losses since 2007. “

We need to grow by 400,000 not 200,000 jobs a month to get out of this.  300,000 just keeps pace with in migration.

And the LABOR FORCE numbers are off. Unemployed people (the numerator) excludes the horribly UNDER employed, and EXCLUDES the disheartened who have left the workforce.

Part of the tepid response from markets today is derived from ongoing concern for Europe. Perhaps the best indicator for markets this winter will be the pace of recession onset in Europe.

But, here, genuine economic turn depends on housing.   Fed chairman Ben Bernanke  sent a very well done paper to Congress, laying out damage by insufficient credit, by pinched and self-destructive attitude at the regulators of Fannie and Freddie, and by exposing the total absence of administration policy.

www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf.  On Friday,  Bill Dudley, President of the NY Fed fired off another blast at Congress and the President: www.newyorkfed.org/newsevents/speeches/2012/dud120106.html.

We have 4.2 million homes in terminal delinquency, not yet foreclosed, and another 600,000 REO. The annual rate of sale of existing homes is a little over 4 million, and one-third of that distressed resales.  The Nation has a long way to go to shake this recession.  We are not “there” yet.

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!

I do not know about you, but I’m tired of the soap opera from across the pond, which is very much like the soap opera here in Washington.  Fiscal discipline is politically unpalatable.  Lack of fiscal discipline, with skyrocketing and unsustainable debts, and government spending unconstrained by reality, is unconscionable not just unpalatable.  It’s a soap opera on the Potomac, it’s a soap opera in Brussels, Paris and Londonium.

For us, here in the US, just remember three numbers:  5.1 trillion is what we spend in a year, 3.6 trillion is what we take in,  so the gap 1.5 trillion is what we add to the debt pile.  A HUGE debt pile.  To be exact, $15.092 Trillion.  Makes you want to Occupy Congress.  And at the very least change the occupant at 1500 Pennsylvania Avenue.

The estimated population of the United States is 311,780,796 so each citizen’s share of this debt is $48,406.96. The National Debt has continued to increase an average of $3.99 billion per day since September 28, 2007!

So where do we get the $1.5 trillion? It comes out of thin air, we print the money which, in the not-so-long run, is inflationary.

Now,  European banks have tons of bad sovereign debt on their books.  The huge debt piles of the Greeks, the sonnets of the Portuguese, the paper of the Medici.

Value it at what it is really worth and the banks tier 1 capital (their net worth, so to speak,) disappears and the financial system collapses.

So one school (German) wants the European nations to exercise fiscal restraint, some day collect enough to pay their bills (what a concept).  Ain’t gonna happen, because the power rests with the socialists, (Everybody else in Europe) who want the ECB to print money, buy the bad debt and transfer the debt load via inflating prices with more paper chasing the same supply of goods and services, and debasing the Euro.

If that happens, our trading partners across the ocean will not have the money to buy US goods and services as before, so things get worse HERE. Contagion.

So be happy d0n’t worry. The U.S. unemployment rate fell to 8.6% in November, the lowest since March 2009. Non-farm jobs rose by 120,000, the Labor Department said. Private companies added 140,000 jobs, but the public sector dropped 20,000.  If the Euro-crisis were to catch on here, unemployment will rise again.  So we’re all hoping Europe prints the money.

My friend Lou Barnes writes this week, “The Treasury borrows and spends about $120 billion each month, and for that stimulus we get 120,000 jobs. Instead, why not just pay each of these people a million bucks and let them stay home? Europe is struggling with austerity, not us. Yet.

120 billion.  120 thousand jobs.  Ugh.  Happy Holidays!

President Obama is in Asia.  His poll numbers are awful.  The stock market is down this morning over 300 points.  The Republican party is without a strong consensus candidate.  The Eurozone is in free fall.  The Germans are opposed to a euro bond which would liquify and possibly save the Euro.  Nut cases still occupy parts of Manhattan and other cities.  The Super Committee has failed, as expected.  Congress remains powerless and paralyzed.  China has successfully monopolized most markets for rare earth metals and other necessaries. I love it.

This is about as bad as it gets, at least in the middle of the bell curve. It’s a great time to buy if you are a business looking for a building  Or a real estate investor.  1,458 square foot, nicely kept house in Phoenix for $75,000?  Sign me up.

I say the cup is half full.  So does famous economist Dr. Ted C. Jones in his stewart.blog.com, after a lecture here, and I should have clarified the atribution to him — it is my practice always to do so and to him I appologize, the oversight was unintentional.

Said he, “There are numerous indicators of an improving national economy:

• Business and personal bankruptcy filings are down in 2011 compared to 2010
• Bank failures have declined 36 percent from 157 in 2010 to a projected 101 in 2011
• Household debt service as a percentage of disposable household income has dropped from 13.9 percent in 2007 to 11.2 percent in 2011—the lowest since 1994
• Light-weight vehicle sales, have recovered from a 2008 recession trough of 9.4 million units to a 12.4 million annualized pace today–although this still lags the typical 16 million cars and trucks sold each year from 1999 through 2007.
• Commercial real estate values have finally turned the corner and are showing increases”

Tomorrow is another day.  A good day.

Usually I write about SBA related issues here.  In fact, I am updating two of my White Papers on SBA related topics.  We need to stimulate small business growth if we want the private sector to pick up the slack and bring down the stubbornly high unemployment rate.

But there’s about to be something a bit larger than a wave and smaller than a tsunami hitting housing, and the dolllars that will be freed by sensibly lowering peoples’ payments on their homes is going to trickle down to the Nation, and that is not a “Laffing” matter.

As soon as the administrative regs come out (we expect Dec 1), FHA, FNMA and FHLMC refinances will get a lot easier.

It’s the Home Affordable Refinance Program, second edition, aka HARP II. Here are the HARP II highlights, courtesy Stewart Title:

• Requires borrower to be current on their loan payments—no other requirements
• Makes no difference how far underwater their home is
• Will eliminate appraisals and extensive underwriting requirements for most borrowers
• FHA, Fannie Mae and Freddie Mac have agreed to eliminate some fees in some circumstances
• CoreLogic estimates 20 million homeowners could qualify—one out of four homeowners in the country
• At a $400 per month loan payment reduction ($4,800 per year pre-tax), this potentially could put $96 billion annual in consumers pockets without increasing U.S. government or consumer debt 1 cent – consumers spending that would spur an economic recovery
• Could potentially keep one out of four distressed properties off the market significantly reducing shadow inventory and expediting a recovery in the housing markets
• Federal government will collect more income taxes as homeowners will have less interest deductibility
• Since none of these existing loans had prepayment penalties, all current investors in those loans knowingly had the potential of repayment at any time
• Economists estimate that these changes will allow an added 1 to 1.6 million homes to be refinanced
• Assuming a current loan of $200,000, then the HARP modifications would increase 2012 residential lending volume by $200 to $320 billion
• Prior to this announcement, Fannie Mae had forecast 2012 residential lending to be $958 billion comprised of $467 purchase volume and $491 billion refinance

Memorable scene from the memorable 2005 hit, Sideways:  Our Hero, played by Paul Giamatti,  ”stops in to see his mom” in Oxnard on the way to the Santa Barbara wine fields.  Whilst she is occupied by this sidekick, played so ably by Thomas Hayden-Church,  Miles daringly raids Mom’s cash in a  coffee can, stealing her money to support his wine tour and accompanying debauchery, wrapping up the remaining bills and concealing the theft.  In the morning they  creep out of the apartment, carefully leaving Miles’ mom snoozing before the TV set.  Sideways is anbout tilting the wine glass so that you can see the legs on, and nature of, the wine — just as we see Miles’ character as his own world is tilted sideways.

So to the economy.  Take a leaf from the Brits, print the money, live with the inflation, and move on.  Half measures and little coffee cans full of money are getting us nowhere.  Small measures are moving us nothing but sideways — if not downward.

The initial unemployment claims level  was announced today on www.briefing.com.  Claims declined slightly from an upwardly revised 404,000 (from 403,000) for the week ending October 15 to 402,000 for the week ending October 22.  The continuing claims level declined from 3.741 million folks for the week ending October 8 to 3.645 million on the dole for the week ending October 15.  Good news?  Well, not really.  For the past five weeks, the initial claims level has remained below the upper bound 410,000 of Briefing’s  ”Recovery Zone.” At that level, nonfarm payroll growth in excess of the 100,000 needed to support normal labor force growth is expected. However, claims have not materially improved during that time as the level has trended almost perfectly sideways.

So if we are sideways on employment, we are again on the downsloped in the beleaguered housing market. 

The number of contracts to purchase previously owned U.S. homes unexpectedly fell in September as lower prices and borrowing costs failed to support demand.     The 4.6 percent decrease in the index of pending home sales, the biggest since April, followed a 1.2 percent drop the previous month, the National Association of Realtors said today in Washington.

Consumer sentiment  remains at depressed levels, with unemployment  stubbornly above 9 percent and limited access to credit are preventing Americans from taking advantage of near record-low mortgage rates and discounted pricing on homes.  Bring on HARP 2!!

The prospect of more foreclosures adding to supply and further weighing on prices means any recovery in housing may take years.     Estimates for pending home sales ranged from a drop of 1.5 percent to an increase of 2.8 percent, according to today’s  Bloomberg survey.  Pending sales rose 7.9 percent from September 2010, that’s good news year over year, don’t you think?

And overall,      The economy (GDP) grew at a 2.5 percent annual rate in the third quarter, the fastest pace in a year, helped by gains in consumer spending and business investment, the Commerce Department reported earlier today. That compared with 1.3 percent growth in the second quarter.

Courtesy Bloomberg and Briefing.com.

I got laid off yesterday.  Downsized, from 4 senior managers to three.  A shocker, though not to the three who remained.  Hope for their sake their vision (without business or portfolio real estate lending, just “B-C” consumer and B through E car lending) works.  But onward.  When it hits you get out there, make the calls, dust off the resume. 

My colleague Lou Barnes reflected this week on one of the few AAA countries remaining:  Jolly Old England.  I love all things British, except Kidney pie.  I love the simplicity of the British solution.  Here is how Lou put it:

“One place has it right. Devalue your currency, accept some inflation, balance your budget mostly by cutting spending; and to keep things going until you heal, let your central bank buy assets with invented money, and force your banks to provide credit. Policy aside, all should study the unique national character traits that in difficulty avoid self-deception and allow getting on with it. In England, Wales, and Scotland.”

OK. Just print the money, cut spending, and live with the consequences.  What a concept, Wa!

No one wants to die.  Even people who want to go to heaven don’t want to die to get there. And yet death is a destination we all share.  No one has ever escaped it.  And that is as it should be, because death is very likely the single best invention of life.  It’s life’s change agent.  It clears out the old to make way for the new.  Right now, the new is you.  But someday, not too long from now, you will gradually become old, and be cleared away… Sorry to be so dramatic, but it’s quite true.  Your time is limited, so don’t waste it trying to live someone else’s life.  Don’t be trapped by dogma, which is living with the results of other people’s thinking.  Don’t let the noise of other opinions drown out your own inner voice, heart and intuition.  They somehow already know what you truly want to become.”

-The late Steve Jobs