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Commercial Real Estate Forecast | Wausau WI

filed under: Commercial Real Estate Market posted on April 2nd, 2010

Commercial Real Estate Forecast: The first quarter of 2010 is now behind us and there are signs of improvement of all major economies. The US growth is finally trending up which could be contributed to many different reasons. Within the four major areas of commercial real estate, each are showing some up swing. However, each area will return at its own pace.

Industial – The industrial market appears to have bottomed out and a recovery is expected to be in full swing the second half of this year. In fact a few markets across the U.S. have already began to come back. Rents are expected to increase again in 2011.
Office – The office market is expected to begin its recovery mid-year as well although much of it will depend on job growth.
Retail - Retail development has slowed considerably. However, neighborhood and local centers are starting fill with tenants.
Multifamily – Multifamily demand will supersede supply in 2011 with families having to relocate from their single family homes. This shortage will continue through 2014 due to the downward trend in home ownership.

To view other commercial properties listed by Ark Rhowmine , Commercial Real Estate Broker, please click here.
_______________________________________________________________
Ark Rhowmine | Commercial Real Estate Agent | Broker
Grubb & Ellis | Pfefferle
P.O. Box 865 | Wausau | WI | 54402-0865
C: 715.297.1953 | O: 715.355.6060 | F: 715.355.6044

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Changes in Lending and Obtaining Commercial Financing | Commercial Real Estate | Wausau WI

filed under: Commercial Real Estate Market, Real Estate Investment Strategies posted on December 31st, 2009

Changes in Lending and Obtaining Commercial Financing: The following are notes taken at a presentation by a regional bank to Grubb & Ellis | Pfefferle Commercial Brokers on December 8, 2009

Profile of Banking Past:

Assumption that bank funding will be available
Little to no equity
Push for limit or no personal guarantee
High appraisal values
Many banks actively lending – - multiple bank competition for new projects
Lack of a strong dialogue and good communication between all parties
2^nd Mortgages as collateral to support projects
Mini perm loans with no principal payments for up to 3 years
Short lead times to obtain financing
Project only cash flow’s
Transactions done based on projections

Profile of Banking Present:

Need to plan, discuss, interview and strategize prior to seeking financing
Owner’s equity is a critical part of funding a project – equity needs to be cash
Personal guarantees are part of the banking terms. Limited guarantee structures can be negotiated
Fewer banks active in lending
Capital costs are low – - historically low rates
Great opportunity for developers and bankers to collaborate
Many alternative low interest rate programs like the Midwest Disaster Act tax-exempt bonds for Winnebago County and 504 debenture bonds. Both programs are designed for owner-occupied projects.
Global cash flow’s required
Debt service requirements of at least 1.15 on new projects
Very few, if any, loans are being done on projections
No more interest only loans

What can be done:

Early communication with lenders
Present deal to multiple financial institutions
Be realistic in your loan request
Foster good relationships with lenders of all types
Coach and educate both buyers and sellers as to the changing landscape
Become knowledgeable of government loan programs

The Commercial Environmet:

Regulatory crack down on commercial real estate lending. Developer and investor loans can no longer exceed 300% of a bank’s capital position.
- Community banks have historically obtained significant amount of their growth via CRE financing. With new regulations, the ease of financing for some projects is expected to decline.
Commercial Mortgage Backed Securities markets and other alternative lenders are gone or have become less attractive.
- $1.4 trillion in CMBS financing maturing over the next few years. This could lead to significant sales activity.
- Sellers’ expectations are still in excess of where the market is today. I would expect that over the next 6-12 months they will reset their expectations closer to market conditions.
Clients are now questioning their banks and their ability to continue to service their needs.
Some banks’ capital position has deteriorated to where they must shrink their loan portfolios or significantly increase pricing at renewal to achieve new required return levels.
- Expectations for some of the marginal/average deals to experience difficulty in renewal. This may force an injection of capital to “right size the deal” or encourage sales.
- At tenant renewal time, rent reductions are being negotiated due to the tenants seeing a reduction in their revenue, increase in CAM charges and overall deterioration in their business operations. Landlords are more likely to accept lower rents versus a tenant loss. Typical negotiation includes lower rent with a longer-term lease (or exercising of option).
Appraised values have seen approximately 30% decline in values compared to 2007 levels with an expectation for further decline. 5/10% additional drop in investment values; larger drops in industrial properties.
From 2007 to the end of 2010 will see in the area of a 50% drop in values of industrial buildings from the 2007 levels.
Speculative commercial financing, residential lot development and project redevelopment financing is essentially dead for now.
Banks are seeing 9-10% cap rates on 5-year lease terms.
Expectation of more stress in the commercial real estate industry. New development will be minimal as vacancies are expected to increase.
- Retail Sector should obtain some clarity upon completion of this Christmas time –Potential for additional shake out.
- Industrial Sector should continue to see some contraction as company’s look to bring as much internally to reduce outside rental costs.
- Office Market remains soft with tenants able to drive their rental rates.
As we continue in this economic cycle, those with liquidity and/or low leverage will be able to capitalize on opportunities within the marketplace.
Assessed valuations are not indications of values.

To view commercial properties listed by Ark Rhowmine , Commercial Real Estate Broker click here.
_______________________________________________________________
Ark Rhowmine | Commercial Real Estate Agent | Broker
Grubb & Ellis | Pfefferle
P.O. Box 865 | Wausau | WI | 54402-0865
C: 715.297.1953 | O: 715.355.6060 | F: 715.355.6044

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IRS Issues Commercial Real Estate Loan Modifications Guidance

filed under: Commercial Real Estate Market, Real Estate Investment Strategies posted on September 18th, 2009

Today, I was reading an e-newsletter from Reinhart Headlines in Real Estate Law regarding new guidelines Commercial Real Estate Loan Modifications issues by the IRS. I felt this would be of interest to some and thought it worth passing on.

“On September 16, 2009, the Internal Revenue Service issued highly anticipated guidance that will allow some commercial mortgage loans held by Real Estate Mortgage Investment Conduits (REMICS) and investment trusts to be modified prior to default without triggering adverse tax consequences to the holder. This guidance may be of great assistance to borrowers who have conduit financing (securitized loans)…” click to read the full article.

Also for more information the Revenue Procedure 2009-45 is available at: http://www.irs.gov/pub/irs-drop/rp-09-45.pdf

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First In, First Out | Commercial Real Estate | Wausau WI

filed under: Commercial Real Estate Market posted on August 28th, 2009

First In, First Out? The housing sector, which led us into the woods in the first place, is slowly leading us out. New and existing home sales increased in July by 9.6 and 7.2 percent, respectively, buoyed by the $8,000 tax credit for first-time buyers and competition for entry-level homes between first-time buyers and investors. The months’ supply of new homes on the market is headed down at a brisk pace, ending July at 7.5 months versus a balanced market of five to six months. The supply of existing homes, at 9.4 months, also is trending lower but at a more leisurely pace. According to the closely monitored Standard & Poor’s/Case-Shiller 20-city home price index, the seasonally adjusted average price of a single-family home rose 0.7 percent from May to June, the first increase since May 2006. (The index is based on a three-month moving average, i.e. the three months ending in June compared with the three months ending in May.)

Like housing, the long-suffering manufacturing sector is poised to break out of its multi-year slide. Durable goods orders surged 4.9 percent in July, its biggest gain in two years. Orders for civilian aircraft led the way.

One particularly hard-hit corner of the manufacturing sector, the recreational vehicle industry, is on the mend. Northern Indiana has been among the hardest-hit regions in the country, prompting President Obama to visit the city of Elkhart on three occasions. But several RV manufacturers in the region are adding jobs, and one new company is being launched. (Click here for article.) Can cash-for-campers be far behind?

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

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Gimme Shelter – Housing Market Grabbed Attention | Commercial Real Estate | Wausau WI

filed under: Commercial Real Estate Market posted on July 31st, 2009

Gimme Shelter – The housing market grabbed attention this week as the latest indicator to suggest the economy is at or near the bottom.

The closely watched Standard & Poor’s/Case-Shiller 20-city home price index reported a 0.5 percent gain in the average price of a single-family home from April to May, the first increase in 34 months. Prices in 15 of the 20 cities in the survey increased or remained stable. On a seasonally adjusted basis, the composite price fell 0.2 percent, the smallest decline in 27 months. (The index is based on a three-month moving average, i.e. the three months ending in May compared with the three months ending in April.)
Existing home sales in June rose to an annualized rate of 4.89 million, the third consecutive monthly gain according to the National Association of Realtors. The months’ supply of available inventory on the market fell to 9.4 from a peak of 11 months one year ago.
New home sales also increased for a third consecutive month, rising to an annualized pace of 384,000 in June according to the Census Bureau. After peaking in January at 12.4, the months’ supply has fallen to 8.8.
Housing starts jumped 3.6 percent in June to an annualized rate of 582,000, the fastest pace since November. Although construction remains weak, it’s another sign that the market is stabilizing.

The housing slide triggered the credit crisis and the recession, and a housing recovery is necessary for the economy to grow again. Recent news suggests this is beginning to happen.

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

Commercial Real Estate & Investment Properties listed by Ark Rhowmine click here.

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Average Commercial Lease Term is Dropping | Commercial Real Estate Wausau Wisconsin

filed under: Commercial Real Estate Market posted on July 6th, 2009

The National Average Terms of office and industrial leases signed in the second quarter of 2009 were the shortest of the decade at 52.3 months for office leases and 43.4 months for industrial leases. This is in comparison to average 62 months for office leases and 55 months for industrial leases in the years 2000 and 2001. The recession and weak corporate profits are prompting many tenants to choose short-term extensions as leases expire instead of new, five-year leases. These tenants prefer the flexibility of a shorter commitment to the generous terms on offer by many landlords who would prefer to lock in tenants for longer periods. However, not all landlords have five-year terms. Some think three years is the optimum length because they believe that rental rates will begin to rebound before the five-year terms are up, and want to be in a position to raise rents as soon as market conditions permit.

Source: Robert Bach, Senior Vice President, Grubb and Ellis.

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Good News Friday | Commercial Real Estate Wausau WI

filed under: Commercial Real Estate Market posted on June 12th, 2009

Big Picture

Let’s take a moment to consider how far the financial sector has come since the credit crisis passed through its darkest period from September 2008 through March 2009.

Analysts debated whether the government would end up owning the major banks and a good chunk of the entire financial sector, but that discussion has receded along with the likelihood of such an outcome. (From September through March, the words “nationalize” and “banks” appeared in an average of 17.5 media articles per day. From April through Thursday of this week, the two words have appeared in 5.6 articles per day.)
Much criticism was heaped on the bank stress tests conducted by federal regulators, i.e. that the criteria were too lenient, or that the additional sums of capital required were too onerous (from the banks’ perspective), or that publicizing the results of the tests could, perversely, destabilize the banking system. Nevertheless, the stress tests laid the groundwork for banks to raise private capital. As a result, 10 of the nation’s largest financial institutions gained approval this week to repay $68 billion in TARP funds. Twenty-two smaller banks already have repaid their TARP funds.
The TED spread, a measure of risk-aversion in the credit markets, has receded to pre-crisis levels, signaling that credit is more available. Click here to view an interactive graph of the TED spread from Bloomberg. (The TED spread is the difference between interest rates on 3-month Treasury bills, considered risk-free, and 3-month dollar Libor, a widely used index for lending between banks and for business and mortgage loans.)
The commercial real estate industry is still in the early innings of recapitalization of both debt and equity, but publicly traded markets are giving commercial real estate a vote of confidence. So far this year, REITs have raised nearly $15 billion through 45 public equity offerings. Moreover, REIT share prices have rallied by 60 percent from their low on March 6^th.

There is much work left to do, but the financial system is in the process of righting itself, and the economy is showing signs of bottoming out. Consequently, the macro-environment in which the commercial real estate industry operates is becoming more hospitable.

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

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Where the Jobs Are, Part Two

filed under: Commercial Real Estate Market posted on May 22nd, 2009

Employers in health care and social assistance, educational services, and government have added a combined 836,800 net payroll jobs since the recession began in December 2007, as discussed in last week’s Good News Friday. What about the geographical distribution of job changes; have any states generated jobs since the recession began? Texas, Oklahoma, Wyoming, North Dakota and Alaska have more jobs in March 2009 than they did in December 2007 thanks to high energy and commodity prices that extended through most of 2008. The District of Columbia, with its reliance on the federal government, also added jobs. Since the recession worsened in September 2008, even these stalwarts have lost jobs with the exception of Alaska and North Dakota. Nevertheless, the recession is likely to be shallower in this region of the country. Which states will bounce back more quickly when the recession ends? Look for metropolitan areas specializing in technology, biotech and renewable energy and those able to attract young, educated workers to prosper in the long run – areas like Seattle, Portland, San Francisco, Silicon Valley, San Diego, Denver, Austin, Raleigh-Durham, the greater D.C. area and Boston. Recent articles in The Atlantic and The Wall Street Journal discuss which areas are likely to enjoy a competitive long-term advantage. But don’t count out other markets for real estate investment opportunities (debt or equity), particularly those with high barriers to entry. Cap rate spreads between primary, secondary and tertiary markets, which had compressed during the bubble years, are expected to widen again, meaning that secondary and tertiary markets may begin to offer more attractive yields – a greater risk premium – relative to primary markets.

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

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Good News Friday – Synergies

filed under: Commercial Real Estate Market posted on May 1st, 2009

Synergies

Two economic reports released this week suggest that some of the pieces of the recovery puzzle are coming together.

On Wednesday, the U.S. Bureau of Economic Analysis released its advance estimate of first quarter gross domestic product, stating that GDP continued to fall rapidly at an annualized rate of 6.1 percent. However, personal consumption expenditures, which account for 70 percent of GDP, increased by 2.2 percent, the strongest growth since the first quarter of 2007. Furthermore, inventory reduction subtracted 2.8 percentage points from top-line GDP. The lean level of inventories suggests that factories may need to boost production while retailers may need to restock if personal consumption expenditures continue to grow in the coming quarters.
On Tuesday, the Conference Board announced that its index of consumer confidence increased for a second consecutive month, led by the expectations component, which spiked from 30.2 in March to 49.5 in April.

The rebounds in consumer confidence and personal consumption expenditures, if they can be sustained, are likely to multiply the impact of the American Recovery and Reinvestment Act – the $787 billion stimulus package passed by Congress and signed into law by the Obama administration. The Congressional Budget Office forecasts that the ARRA will raise GDP in the range of 1.4 to 3.8 percentage points above a do-nothing scenario by year-end 2009 and create payroll job gains in the range of 800,000 to 2.3 million. If confidence returns and spending continues, the impact of the stimulus package will fall near the upper end of these ranges, creating a bigger bang per stimulus buck.

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

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