Posts Tagged ‘loan’

Treasury Rolls Out Tax Code Change That Favors CMBS Borrowers

Wednesday, September 30th, 2009

The Treasury Department has issued new tax rules that make it easier for commercial real estate owners to restructure loans on distressed properties that were package by Wall Street and sold as CMBS.  The real estate industry, which lobbied hard for the changed rules, were generally happy but wary that it could open a can of worms for securities servicers who might feel pressured by borrowers and competing investor classes.

610xThis is the initial phase of “additional guidance” the Treasury is considering to prevent what could be a commercial real estate crisis as more than $150 billion of loans bundled into CMBS come due between now and 2012.  With financing still limited and as the values of commercial properties decline, some owners will find it tricky to refinance maturing debt.

Tax rules previously made it difficult for borrowers who are up-to-date on their payments to talk with bond servicers about restructuring their loans.  The new guidance from Treasury clearly allows discussions about reducing the interest rate or extending the loan term, stating that such talks “may occur at any time” without tax consequences.  Additionally, the guidance lets servicers modify loans no matter when they mature.  The servicer only has to believe that there is “a significant risk of default”, even if the loan is currently performing.

“A stalemate now exists on CMBS loans that are not currently in default but need modification,” said Jeffrey DeBoer, chief executive of the Real Estate Roundtable.  “Today’s announcement should help break the stalemate.”

Boom Market for CRE Buyer-Users

Thursday, August 13th, 2009

In terms of commercial property investment, one positive sign is from firms buying properties to use for their own business operations.  Called user-buyers, these investors have proven they are able to get money from banks to spend on property acquisitions — a relative rarity nowadays.  Those who do not need a766981491_aa0ae36a4b loan already have earmarked their own funds for such a purchase, enabling these user-buyers to acquire a building despite the credit crunch and increasingly wary lenders.

Real Capital Analytics reports that the number of user-buyer transactions in the Philadelphia metro area, for example, rose between June 2008 and June 2009.  During that time span, 25 percent of the 40 office and industrial purchases completed in the region were by users.  Mike Margolis, president of investment sales at Professional Realty Advisors, states, “Considering users are generally 10 to 15 percent of the market, that’s a substantial increase.  “One of the most recent transactions was the acquisition of a 25,200-square-foot building in suburban Phoenixville by a Sheppard Redistribution Inc., affiliate.  The purchased property will be used by the firm for their daily operations.

Ernst & Young Examines Distressed Debt

Tuesday, July 14th, 2009

Ernst & Young recently conducted a distressed debt survey to determine who will be the most active direct sellers of non-performing loan portfolios.  The results are interesting.get-out-of-debt-feature1

  • 36 percent responded it will be regional banks and thrifts
  • 32 percent responded it will be money center banks
  • 13 percent responded it will be the United States government
  • 11 percent responded it will be insurance companies
  • 8 percent had no opinion

With pressure on banks to de-leverage and raise their book capital ratios, it is not surprising that they ranked first.  Time will tell.

Anecdotal Federal Reserve “Beige Book” Observations

Monday, October 27th, 2008

As if we needed it, even more evidence attesting to the ongoing economic slowdown came to light recently.  According to a Federal Reserve Board report referenced on Market|Watch and known as the Beige Book, the slowdown in economic activity in late September.

Among the findings are:

  • Factory activity is slowing.
  • Non-financial services – typically the backbone of economic activity – are slowing.
  • There is evidence that loan quality has actually depreciated because bank customers have moved their money into accounts that have the safety of deposit insurance.
  • Inflation pressures eased slightly, particularly in the retail sector.
  • The single bright spot was agriculture; the 2008 harvest was a good one.

Named for its nondescript color, the Beige Book is published to update the Federal Reserve on economic conditions just before its October 28 – 29 policy meeting.  The Beige Book is a series of anecdotal reports collected by the 12 regional Federal Reserve banks that gauge the state of the economy.  Although of interest, it has little influence on policymakers who rely more heavily on government reports in making decisions.  Another interest-rate cut is an expected outcome of the upcoming meeting.

Construction-Loan Delinquencies on the Rise

Monday, June 30th, 2008

The surge in the construction-loan delinquency rate – both residential and commercial – suggests that lenders will remain reluctant to make loans for new construction.

Developers usually finance projects through short-term construction loans.  Once the project has stabilized, the developer seeks long-term debt.  With the current economic downturn, developers are finding it difficult to obtain capital.  This is compounded by a lack of liquidity in the mortgage market.  As a result, projects are worth less than they were a year or two ago.  Lenders also are more stringent in their underwriting standards, preferring highly stabilized projects with significant pre-leasing.

Short-term, the outlook is negative, as maturing loans may have problems refinancing if liquidity is non-existent.

The silver lining is that seasoned developers with strong lending relationships and leased portfolios are better positioned to develop product on an “as-needed-and-warranted” basis.