Commercial Mortgage Lending - Liberty Realty Capital Group

Higher CMBS Defaults Expected in 2016

April 5, 2016 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

CMBS defaults may spike this year, as the high volume of upcoming loan maturities might leave some borrowers scrambling for funds to refinance their loans, reveal new reports from Fitch Ratings and Trepp LLC.

Defaults on CMBS loans have been on a steady downward slope for the past five years, falling to an annual rate of 0.39 percent in 2015, Fitch researchers note. (CMBS defaults reached a cyclical peak in 2010, at 4.07 percent). The low default rate was aided by both improving property fundamentals and values and healthy CMBS issuance during 2015.

So far this year, however, new issuance has not lived up to expectations. Year-to-date in 2016, U.S. CMBS issuance has totaled $19.0 billion, according to Commercial Mortgage Alert, an industry newsletter. That’s almost a 30 percent decrease from the issuance volume that was recorded during the same period in 2015. This is happening as approximately $211 billion in loans are scheduled to come due between now and year-end 2017, according to research firm Trepp LLC.

The Fitch Ratings team “expects term defaults to tick up slightly in 2016 as the current credit cycle matures. Maturity defaults may also see an increase in the next few years as peak vintage loans, many of which are over-levered, mature. The cumulative default rate, currently at 13 percent, is predicted to increase slightly in 2016 as defaults begin to increase and issuance declines somewhat.”

View entire article here in National Real Estate Investor

CMBS Conduit Lenders Slow Activity to Trickle

March 15, 2016March 15, 2016 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

CMBS conduit lenders, facing extremely inhospitable market conditions, have slowed their lending to a trickle.

With CMBS spreads widening to levels not seen in years, it has become extremely difficult to generate any sort of profit from the practice of originating loans, warehousing them, structuring them as CMBS and selling the resulting bonds. As a result, conduit lenders not tied to banks with balance-sheet capacity, have sharply reduced their lending. And those tied to banks have substantially increased their loan spreads, which are used to determine loan coupons.

CMBS Conduit Lenders Slow Activity to Trickle

Meanwhile, loan coupons, which conduit lenders typically had been setting well before a loan was actually securitized, are now being set at closing. That means a borrower typically won’t know the exact rate they’ll be charged for their loan until it’s funded. And many conduit lenders, all of which are in risk-mitigation mode, are insistent on closing loans as close to the time of securitization as possible.

So far this year, the weighted average coupon of loans included in conduit deals has ranged from a low of 4.55 percent to a high of 4.79 percent. That compares with an average of 4.40 percent for all of last year’s issuance.

View entire article in Commercial Real Estate Direct.

To find out more on CMBS financing visit us at http://libertyrealtycapital.com/commercial-real-estate-mortgage/

Everything You Need To Know About The ‘Reverse 1031’ Tax Workaround

February 23, 2016 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

Everything you need to know about the 1031 reverse tax workaround

Real estate investors have been using conventional 1031 Exchanges to swap buildings and hurdle big chunks of capital gains taxes. But 1031 Exchanges come with a tight timeline that’s hard to abide by in these market conditions. So here’s Bisnow’s breakdown of a spin on the 1031 that lets buyers duck its normal deadline.

Everything You Need To Know About The ‘Reverse 1031’ Tax Workaround

Fast Facts:

1031 exchanges let investors save up to 30% in capital gains tax on a sale by deferring the tax bill tax free onto another property within a six-month deadline.
In a seller’s market, finding a buyer is pretty straightforward. It’s finding a good deal for your 1031 credit that becomes tricky—especially within the tight deadline.
To get around that, so-called “reverse 1031” exchanges let buyers snag their replacement property before selling the old asset.
In a reverse 1031, seller puts the funds from their sale directly into another building, rather than taking it in as income.
Still under the radar for most investors, the reverse 1031 helps in a seller’s market, where high prices, tight lending guidelines and compressed cap rates make it tough to find a replacement.
Reverses aren’t for everyone—they work best in the high-end market with big-name clients.

The Reverse Process

To discuss commercial mortgage financing needs contact Liberty Realty Capital Group

How Long Will the Industrial Boom Last?

February 8, 2016 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

How Long Will the Industrial Boom Last?

Investors are diving into the U.S. industrial market, chasing after a property type that’s having one of its best recovery cycles on record because of the never-ending need for more e-commerce distribution space. However, with strong performance come higher prices, a trend that’s pushed some firms out of the market and may eventually shrink yields if demand cools down.

the Industrial Boom

Last year the U.S. industrial sector registered net absorption of 238.6 million sq. ft., a high water mark for the sector for net absorption gains, according to a recent report from real estate services firm Cushman & Wakefield. Further, the national vacancy rate dropped for the 23rd consecutive quarter in the last three months of 2015, to about 7 percent, the longest streak of net occupancy growth in more than two decades.

The national development pipeline remains strong, with 180.5 million sq. ft. under construction, and 172.4 million sq. ft. delivered in 2015, according to an official statement from Jason Tolliver, head of industrial research for the Americas at Cushman. Supply still isn’t catching up with demand, he noted.

“Based on active tenant requirements, an indicator of future leasing velocity, there is a robust pipeline of pent-up demand,” Tolliver said. “With current and projected demand from active tenant requirements double the amount of speculative construction now under way, demand will likely exceed supply for at least one more year as domestic fundamentals and industrial occupancy drivers remain strong.”

However, costs to buy land and build are rising quickly. While lease rates are climbing now, demand is expected to peak by the end of the year. Next year, investor sentiment may turn sour as margins shrink.

Some firms are getting out at the top of the market. The 61-year-old Alter Group, which made millions in the 1980s and 90s through its business park developments and industrial holdings in Chicago, Phoenix and Atlanta, has decided to pull the plug on its industrial offerings and instead focus on office properties, along with shortening its name to just Alter. Richard Gatto, executive vice president of Alter, says that while the family business has turned more toward office development and ownership in the past 15 years, the company also saw the writing on the wall for industrial competition.

View entire article in National Real Estate Investor.

To discuss commercial mortgage financing needs contact Liberty Realty Capital Group.

10 Takeaways from the MBA CREF 2016 Convention

February 3, 2016February 3, 2016 by Randybaconin Commercial Mortgage LendingLeave a Comment

As the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo 2016 got underway in Orlando this Sunday, some overarching themes about the state of the lending industry emerged from the panel discussions and individual meetings. Here are the biggest takeaways from the conference:

MBA’s economists forecast that the Federal Reserve will raise interest rates twice in 2016, and potentially four times in 2017. In spite of uncertainty in the global markets, Fed officials are likely to base their decisions on the strength of the domestic economy, which should grow at an average rate of 2.3 percent this year, according to Michael Fratantoni, chief economist, and Jamie Woodwell, vice president of research and economics with MBA.
There’s a general consensus we are seeing the tail end of the commercial real estate up cycle. Conference attendees as disparate as Dennis G. Schuh, managing director with JP Morgan Chase, Jilliene Helman, CEO of Realty Mogul, an online real estate capital marketplace, and David M. Durning, president and CEO of Prudential Mortgage Capital Company, have noted that values in the commercial real estate space don’t have a lot of room to rise further. According to Schuh, “We’re definitely pretty far into this cycle right now and it’s pretty long in the tooth. People are talking about the R word.”
The good news is that for the most part, property fundamentals seem to be improving. But many lenders are pulling back on activity in markets that are overly reliant on the oil industry and on multifamily construction loans in markets where supply is starting to overtake demand. In some markets, the issue is more specifically about the wrong kind of supply, with a high volume of luxury multifamily projects and a dearth of new class-B and class-C properties that would generate greater demand. Pat Jackson, CEO of Sabal Financial Group, a diversified financial services firm, brings up San Francisco as an example of a market people erroneously think of as impervious to downturns. “I think we’ve done but maybe one loan in San Francisco in the past year,” for that reason, Jackson notes.
Online real estate lending continues to grow, with Jilliene Helman predicting that commercial real estate crowdfunding in the U.S. will grow to more than $1 billion by the end of this year and potentially to $10 billion in five years.
Most industry participants admit that underwriting standards have somewhat loosened since the end of the Great Recession, especially in the CMBS space, but note that they are still nowhere near the freewheeling days of 2006 and 2007. “There are signs of sneaky ‘pro forma,’” notes Kim S. Diamond, senior managing director and head of structured finance with Kroll Bond Ratings. “And another thing that won’t show up [right away] is that every single [CMBS] loan that comes through now has some level of complexity that adds another layer of risk.”
The sector that is causing the real estate lending community the greatest anxiety right now is CMBS. As overall market volatility has negatively affected spreads, JP Morgan Chase’s Dennis G. Schuh estimates that CMBS issuance has gone down 20 percent this year compared to the year before.
With about a 50 percent year-over-year increase in non-bank commercial/multifamily loan maturities in 2016, much of it in the CMBS space, that’s leading some market participants to worry there won’t be enough CMBS issuance to refinance all those loans. Asked about the risks of another real estate bubble like the industry saw in 2007, Howard W. Smith, III, president of Walker & Dunlop, a capital solutions provider, replied that he’s worried about “the opposite.” “I am concerned about not enough money” for all those maturing loans.

View entire article at National Real Estate Investor here.

To discuss commercial mortgage financing needs contact Liberty Realty Capital.

[wpsocialboost]

Structuring Hard Money Loans: Four Escalating Strategies to Minimize Your Risk

January 28, 2016 by Randybaconin Commercial Mortgage Lending, Real EstateLeave a Comment

As the economy has recovered from the downturn of 2008 and banks once again have money to lend, they remain bound by regulations and restrictions that keep them from making loans that carry even the slightest of risks. Private lenders are left to fill the substantial void in lending, where there are risks worth taking for the appropriate return.

The question for such lenders, be they companies, family offices or maybe even individuals with money to lend and an appetite for a little risk, is how to structure a loan against real estate to become comfortable with the added risk that a bank would not take?

Let’s start with the most basic concept of hard money lending—there is simply a greater risk that the hard money loan will default, so it’s critical to make as much money as possible while the loan is still current, and to take as much collateral as you can in order to mitigate your risk.

A starting point: Obtain detailed PFS’s and request a pledge of all assets listed

The borrower who has come to you for a loan could not qualify for the bank loan and is not in the best position to negotiate terms. While there is some competition for these borrowers, the hard money lender should always start by asking for everything, including the kitchen sink.

Obtain personal financial statements (PFS) for each of the borrower’s principals, and scour those for any assets listed. Do not let a principal give you a scaled down PFS—the documents should be detailed, clearly listing how each asset is titled. If there are unencumbered assets, you should take liens against them, and if assets exist that have senior liens, ask for junior liens. Membership interests in other limited liability companies can also be very valuable, even if they are minority interests.

Risk tactic #1: Get a guaranty with a confession of judgment clause

A guaranty from each principal is just as important as taking collateral. Each guaranty (and each promissory note) should contain a confession of judgment clause (or cognovit clause) if such clauses are legal in your state. A confession of judgment clause can save months of time in the collection effort after a default occurs.

Read entire article at National Real Estate Investor for more information.

To discuss hard money financing needs contact Liberty Realty Capital Group here.