06-30-07
Developers Struggle to Make Deals Work
Commercial Mortgage Debt Hits New Heights
Prepayment
Penalties
Useful
Links
Commercial
Lenders See Hike in Originations
Office
Outlook for
The
Danger of Large
RCA
Podcast Features Top Economist on Market Forecasts
How
do you find Commercial Properties?
Archives: Past Newsletters www.emeraldbayinvest.com/realestate/newsletter_archive.html
Developers Struggle to Make Deals Work
APARTMENT FINANCE
TODAY • JUNE 2007
www.apartmentfinancetoday.com
Experts prepare for tighter
underwriting, struggle against rising costs, shrinking incomes.
New
volatility in the debt financing markets and the long upward trend in operating
and construction costs are among the topics worrying apartment owners and
developers, according to industry leaders participating in Apartment Finance
Today’s Leadership Roundtable.
The continuing surge in capital chasing real estate equity positions looks like a decidedly mixed blessing, according to members of the magazine’s Editorial Advisory Board and invited guests who participated in the discussion.
Commercial Mortgage Debt Hits New Heights
Staff Report www.nreionline.com
Jun 14, 2007 3:51 PM
Commercial real estate debt outstanding in the United States grew by 2.5% in
the first quarter to exceed $3 trillion for the first time, according to the
Mortgage Bankers Association’s analysis of the Federal Reserve’s Flow of Funds
data.
Commercial debt, which includes multifamily mortgages, increased to $3.001
trillion in the first quarter, a $72.4 billion increase from the fourth quarter
of 2006. Multifamily mortgage debt outstanding grew to $741 billion, an
increase of $11.8 billion or 1.6% from the second quarter.
“Issuers of commercial mortgage-backed securities (CMBS), collateralized debt
obligations (CDO) and other asset-backed securities (ABS) were responsible for
almost 60% of the increase in commercial/multifamily mortgage debt
outstanding,” says Jamie Woodwell, the MBA’s senior director of
commercial/multifamily research. “Looking just at the multifamily market, CMBS,
CDO and other ABS issuers were responsible for a full 70% of the growth.”
The Federal Reserve Flow of Funds data summarizes the holding of loans or, if
the loans are securitized, the form of the security.
More:
http://nreionline.com/news/Commercial_Mortgage_Debt_New_Heights/
What is CMBS?
Commercial mortgage-backed securities (CMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed
security, but are backed by mortgages on commercial rather than residential real
estate. CMBS issues are usually structured into multiple tranches, similar to CMOs rather than typical residential
passthroughs etc.
Many CMBS demonstrate less prepayment risk than other types of MBS thanks to the structure of commercial mortgages. Commercial mortgages often contain lockout provisions after which they are often subject to defeasance, yield maintenance and prepayment penalties to protect bondholders. More: http://en.wikipedia.org/wiki/Commercial_mortgage-backed_security.
JW Najarian
and Paul Salazar
CMBS Lenders are often called Wall Street
Lenders and the rates are very low.
Closing costs are high. There are
prepayment penalties associated with the CMBS product. Defeasance is the usual penalty, but a
margin increase will allow Yield Maintenance.
A lender that lends CMBS loans is often known as a conduit lender.
CMBS – Commercial Mortgage Backed Securities: Investment Bank that is not a Portfolio
Lender
o
Minimum loan size
is $3M
o
Underwrite to DCR
(Cash flow rules)
o
Lend based on the
corresponding treasury and lenders margin
Prepayment
Penalties
In the commercial mortgage market the prepayment fees are structured in a
fashion whereby the lender receives nearly all of the benefits that are available
as a result of declining interest rates. The borrower, however, may still be
willing to prepay in order to take advantage of a market opportunity that will,
or is perceived to, provide a benefit in excess of the prepayment fee. For
example: sell the underlying property, a cash-out refinance, or a simply
rollover refinance at a moment when rates are perceived to be at an unusually
low point.2 In each of these cases, the prepayment fee becomes one of many
transaction cost/benefit factors to consider. For purposes of this article, the
benefit of a refinancing is assumed positive and, therefore, the analysis
focuses on a comparison between the commonly used prepayment methods.
Declining Balance
The earliest version of a prepayment fee is the declining balance formula.
This formula is structured as a fixed percentage of the outstanding loan
amount. For example, 5 percent in loan years one and two, 4 percent in loan
years three and four, and so on until 1 percent in loan years nine and 10. As
both the percentage reduction and a decreasing outstanding loan amount decline,
so does the resulting fee. The concept behind this formula is that as a loan
matures, prepayment will have a decreasingly smaller impact on the lender's
profit. Declining formulas often included windows of 30-180 days prior to
termination, wherein, the borrower could prepay with no penalty.
Yield Maintenance
Later, the yield maintenance formula was introduced. Yield maintenance is a
bit more creative in that the fee is based on interest rate movement.
Therefore, a borrower seeking to take advantage of an interest rate decline
would pay a higher fee than the borrower who prepays when rates have remained
constant or have risen. The standard yield maintenance formula is defined as
the present value of the remaining payments multiplied by the difference
between the note rate and the treasury securities yield with the same term as
the remaining term.3 The effect of this is to provide the lender, (or trustee
in the case of a securitization), the ability to reinvest this lump-sum amount
in treasury securities that will yield the same return as if the loan were in
place to full maturity.
Defeasance
Later still, defeasance was introduced as an alternative to yield
maintenance.4 Defeasance is a process whereby the borrower offers the lender
replacement collateral in order to gain a release of the original collateral.
In a securitized transaction, this replacement collateral must be treasury securities.
Therefore, from a practical standpoint, yield maintenance and defeasance
provisions are quite similar. Under the yield maintenance formula, the lender
receives a lump-sum payment (based on treasury yields) that it can reinvest at
will. In effect, a defeasement obligates the borrower to reinvest, on behalf of
the lender, the prepayment proceeds in treasury securities.
More: http://findarticles.com/p/articles/mi_qa3681/is_200107/ai_n8953948
Useful Links
www.rentslicer.com – Nationwide Rental Information
|
|
|
www.jrwinvestments.com/phpgdv40/home.php - 1031/TIC
Exchange
Commercial
Lenders See Hike in Originations
June
08, 2007 - June 14, 2007
Provided by Commercial Real Estate Direct in Loopnet News
Commercial mortgage
origination volumes during Q1 2007 ran 37% ahead of the same period last year,
according to a survey by the Mortgage Bankers Association. That increased
volume was driven in large part by the acquisition of REITs, including
Blackstone Group's $38.7 billion acquisition of Equity Office Properties Trust,
which resulted in some $31.2 billion of financings. Of the major lenders,
conduits or securitized lenders saw a 61% increase in volume in Q1 '07, while
agency lenders such as Fannie Mae and Freddie Mac saw a 22% increase. When
compared to Q4 '06, historically the most active quarter of any year, Q1 '07
saw a 15% decline.
The
Danger of Large
By Anthony
Downs – National Real Estate Investor
Jun 1, 2007
12:00 PM
For the past decade,
This flood of capital has largely been generated by a huge long-term global
financial trading imbalance among nations, plus the stock market crash of
2000-2002. The
More:
http://nreionline.com/commentary/money/real_estate_danger_large_us/
Office Outlook
for
Rents in
Office Rents on Rise in Downtown
Office rents are skyrocketing in downtown
Visit Commercial Real Estate Direct at www.crenews.com for up-to-the-minute commercial real estate news.
RCA Podcast
Features Top Economist on Market Forecasts
NAR 6-20-07
Listen to John Tuccillo, author and nationally known economist,
share his insights on where the economy is heading in the latest RCA Technology
& Intelligence Briefing Podcasts. Tuccillo says foreign loans to cover the
http://www.realtor.org/ncommsrc.nsf/pages/TechnologyAndIntelligenceV7Tuccillo?OpenDocument&WT.mc_t=LS062007&WT.mc_n=Comm
How do you find
Commercial Properties?
How
do you find commercial properties that follow your investment goals? First you should know what your investment
goals are. How much can you afford to
put into a deal without changing your lifestyle to afford it? What rate of return or capitalization rate
(CAP) do you want on your investment?
Are you willing to manage the property or will you be using management;
your own or third party? What type of
property are you looking for?
If
you’re new to investing in commercial properties it is suggested you look
locally or at least some specific place to focus on. The best decisions in commercial investments
come from knowing the area and demographics well.
The
Internet offers a wide variety of places to search for properties. Loopnet is quite popular, but many feel that
the properties you will see there are the ones that brokers have placed after
they have had difficulty finding a buyer.
There is also Costar with is a service used mostly by commercial
realtors. It is expensive, but has some
merit. There is also CIMLS, eBay (yes
eBay) and many others. Auctions can be
great places to find properties, but they are mostly broken down by specific
area so know who and what you are dealing with.
Go to an auction before you ever buy.
Letter
campaigns are a great way to contact commercial owners that may want to sell
their properties. This can be one of the
best ways to find off the radar properties.
Get a list of owners for the area and types of buildings you want to
focus on from various vendors or your title company.
Use
a broker. The National Association of
Realtors will have broker listings or check on the net. Just make sure you check out the broker and
make sure you’re a decent fit. Check out
more than one. When working with a
broker, it is best to know what you want.
Networking
with investment groups and commercial owners and other investors is a great way
to find out about properties. Find a
group.
Look
in the paper, drive around the areas you want to purchase in.
There
are many ways to find properties. Talk
too many and read up on the industry. I
have found quite a few deals out there and I have many resources to help you.
Learn
how to analyze a deal to know if it is good or not. Get together with others that can help you go
over a deal. After you do find that gem
out there, make sure you call me to help you with the financing.
JW
Najarian 6/19/09
~~~~~~~~~~~~~~~~~~~~~~~~~~
Forgive me... This newsletter is
being sent late due to my absense the last two weeks.
I hope you enjoy the information I
provide. If not please give me some
suggestions. I will also love to add
your commentary or information to this letter.
The Mastermind in
This newsletter is for my investor
friends. It is not part of Pathfinder
Mortgage Corp or their associates. I am
a commercial real estate lender and an investor. I am now in the process of sectioning off my
database for my Pathfinder clients and my investor relationships and will soon
be sending opt in information for my Pathfinder newsletter and this
newsletter. I apologize for any
confusion.
If you have projects you are working
on and would like my help. Please
contact me to discuss.
“If at first you don't succeed,
you're running about average.” ~M.H.
Alderson
Kind Regards
JW Najarian
www.emeraldbayinvest.com
818-353-9100