Fannie Mae, it turns out, is a bigger scam than Bernie Madoff could ever have dreamed of; a sad, expensive and disgusting example of corruption and cronyism that derailed the economy of our country. NY Times Op Ed columnist, David Brooks has penned an indispensible summery of an important and valuable book.
Read the Op Ed here. Get the book here.
Learn from history or be destine to repeat it.
Commercial Real Estate: Where’s all the Distressed Property
By Vincent Remealto of MasterPlan Capital LLC
The commercial real estate vultures have been circling for nearly 2 years, their sharp eyes peering from high above the devastated landscape, ready to feast on dead decaying buildings and development projects. According to conventional wisdom, the ground ought to be littered with foreclosed hotels, shopping centers, office buildings, and apartment complexes to devour, yet surprisingly, the vultures have found the pickings slim. –CLICK HERE TO READ THE REST AT SEEKING ALPHA–
Property owners, investors and developers can use our simple, 1 page, commercial mortgage application to apply for a commercial real estate mortgage loan online. All inquires will receive prompt, courteous and professional attention.
Late last year I reported that credit tenant lease financing for Walgreens stores was becoming increasingly hard to find. The shortage was not because Walgreens was not credit worthy nor was it due to the credit crunch that has gripped the banking industry for the last 20 months. Walgreens CTL loans were unavailable due to their extreme popularity and incredible demand.
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CTL loans are funded by investment bankers who issue private placement mortgage backed bonds and sell them to fixed income investors. The investors, mostly insurance companies, endowments and retirement funds, had purchased so many Walgreens bonds that they were full to capacity and could not take on anymore Walgreens debt. At the time I described Walgreens as a “victim of its own success”.
Well I’m happy to report that, for now, CTL lenders are once again lending against new and existing Walgreens stores as-well-as Walgreens development projects.
Followers of WAG know that the drug store chain has drastically curtailed their expansion plans. This slowdown in new store openings has in-turn, reduced the demand for new Walgreens mortgage bonds and has helped alleviate the CTL logjam that was preventing banks from underwriting WAG deals.
The stock market recovery has also contributed to the new-found liquidity in Walgreens mortgage debt. As the market grows so-to does the portfolios of the investors who buy WAG paper. The corresponding increase in the value of their portfolios has mitigated the problem of being overweight WAG bonds allowing them back into the market.
Also Walgreens bond buyers have raised their interest rate requirements slightly to account for the additional risk to their funds. This small risk premium is not due to a credit problem with Walgreens, but is derived from the disproportionately large Walgreens positions they hold.
So the combination of the slowdown in the Walgreens expansion, the rising stock market and a modest interest rate hike, have made Walgreens CTL lending possible again. This is truly good news for commercial real estate investors and bankers alike, but I’d recommend that those looking to finance a Walgreens purchase, refinance or construction project strike while the iron is hot. CTL financing is dependable, long-term, high leverage, non-recourse financing, but, as we saw during the last quarter of last year, Walgreens CTL loans can be discontinued without notice.
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Commercial Mortgage Lender; MasterPlan Capital LLC – Commercial Mortgage Loans from $1mm+, CTL loans against NNN leased properties from $3mm+. Apply for a commercial mortgage online.
Last month Goldman Sachs (GS) broke the ice by successfully printing a $400mm CMBS (commercial mortgage backed security) offering for Developers Diversified Realty (DDR). The sale was bolstered the fact that it was eligible for the Government’s Term Asset-Backed Loan Facility (TALF), but the credit markets were heartened as they watched the first CMBS deal in over a year cross the wire. In-fact, demand for the DDR mortgage bonds was so good that Goldman was able to lower the yield premium and sell the deal for more than they had originally anticipated.
Encouraged by Goldman’s success, Bank of America (BAC) brought a deal to market last Thursday (12/3/09) without the benefit of TALF eligibility. The $460mm B of A deal, secured by 44 Florida office and industrial properties that are owned by Fortress Investment Group (FIG), sold at a higher premium than the DDR deal, but it did sell.
Does this mean that the CMBS market is back and the commercial real estate liquidity crisis is over? No. $860mm in new issuance is nice to see, but let’s not forget that the commercial mortgage problem is a multi-trillion dollar problem. These recent successes amount to mere drops in a very large bucket. In-fact, to cover its upcoming, (next three year) maturing commercial real estate debt by issuing CMBS bonds, DDR would have to sell $119mm in CMBS every month for the next 36 months. And DDR is just one of many struggling REITs.
At the very best these two deals, the only CMBS deals done in more than 12 months, can only represent the meager beginning of a subdued CMBS resurgence. A healthy market could handle billion dollar plus deals involving mortgage paper owned by multiple borrowers and it wouldn’t need TALF to keep yield premiums low.
The recession, even if it’s technically over, still rages in the hearts and minds of bond traders as-well-as the American consumer. Unemployment, though stabilizing, remains historically high and disturbingly persistent. And commercial real estate, beaten down 40% from its peak, may yet have room to fall as apartment, office and retail vacancies continue to creep ever higher. Our problems have not gone away.
The CMBS market is not coming back, not like it was, not in the professional lifetimes of any bankers working on Wall Street today. The world of commercial real estate finance must be reordered on a wholesale scale. Equity holders must realize that they have no equity and they must step aside or be forced aside. Debt holders must give up on the futile dream of being paid back and must take equity ownership in the faltering properties they were foolish enough to lend against.
We are happy that any CMBS deal can get done in this environment; something is better than nothing. We are not, however, willing to give more credence to these deals than they deserve.
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Commercial Mortgage Lender, MasterPlan Capital LLC – Lending ($1mm and up) against all types of commercial real estate. Easy, 1 page commercial mortgage application form; online. Quick responses, fast closings.
The commercial real estate sector has been in a slow motion collapse for a year-and-a-half now. Plummeting property values, driven by the economic slow-down, have dissolved huge amounts of equity that had existed prior to the recession. Now, although the buildings do have an inherent, underlying value, a large percentage of commercial real estate acquired in ’05,’06 and ’07 are virtually worthless to the investors who bought them.
They can not be refinanced, they can not be sold and few are willing to inject enough capital into them to make them financially healthy again. An already battered market finds itself facing a virtual tsunami of offices, retail outlets, warehouses, hotels and apartment buildings that are about to be abandon by, or repossessed from the investors who borrowed hundreds and hundreds of billions to buy them.
The problem is massive and the resolution will involve massive financial pain and suffering. Banks will fail, developers and investors, large and small, public and private will go out of business, misguided legislators will attempt to shift much of the burden onto the taxpayers in doomed, budget busting bailout attempts and much wealth will evaporate. All this will happen over an extended period of time.
In the mean time huge amounts of money are amassing on the sidelines. REITs, wealthy individual investors and private commercial real estate firms are all successfully raising large amounts of capital and getting ready to jump in when the time is right. They are waiting for two things; lower prices that reflect undeniable value and a dependable credit market.
Prices are getting lower every day as property owners, deal sponsors and the lenders who enabled them, slowly come to accept the true magnitude and direness of their situation. A flooded market will seek out bargain hunters and entice them with bargain prices. Weak and/or foolish banks will be taken over by the FDIC and placed in more responsible hands.
The surviving strong banks will find themselves bolstered with all the assets but none of the liabilities of banks they were compelled to buy. The new loan applications they will receive will be supported by healthy down payments and reasonable purchase prices and they will be sponsored by successful business people with impressive wherewithal. The banks will lend and the recovery will be underway in earnest.
We can have confidence that the markets will work but we have to realize the working of the markets involves extracting a price prior to conveying a benefit. The price is about to be paid and the benefit, while distant, is forthcoming.
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Visit Commercial Mortgage Lender, MasterPlan Capital, online.
Commercial mortgage lender, MasterPlan Capital, wants to remind all our clients and all commercial real estate investors that we have plenty of money available to lend for “Bridge” financing against quality commercial property.
Loans are short term, between 9-36 months and are generally interest only until maturity. We can lend up to 65% LTV (loan-to-value ratio) for stabilized properties and can close deals very quickly.
Rates for bridge loans start at 10.99% for the very best deals but are usually priced in the teens.
With the banks, insurance companies and Wall Street brokers turning away even the good deals, it may be time to consider a privately funded commercial mortgage loan with MasterPlan Capital.
Borrowers can use our simple, 1 page commercial mortgage application and will receive a response the very next business day. All inquires will receive prompt and professional service.
There is not much liquidity for commercial mortgages in the retail, office or hospitality sectors of the commercial real estate industry, but there’s plenty of capital available for multi-family (apartment) buildings. The good news is that the Government is lending massive amounts of money against apartment properties; the bad news is that no one else is.
Virtually all the institutional loans being made today to purchase, refinance or build apartments are being funded or otherwise supported by Fannie Mae, Freddie Mac, The Federal Housing Administration (FHA) or The Department of Housing and Urban Development (HUD).
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For almost 2 years now, these Government Agencies have been the primary lenders to the rental housing industry. They stepped in to counteract the liquidity crisis that was caused by the collapse in the commercial mortgage backed securities markets (CMBS) and, almost by default, have become the only game in town. Even the banks who claim to be lending right now are, in reality, just originating loans and selling them to Fannie or Freddie.
As the economy improves traditional multi-family lenders, such-as insurance companies, smaller regional banks and Wall Street investment houses, would like to re-enter the market place with their own commercial mortgage offerings. Unfortunately for them, they are finding that they can’t compete with Uncle Sam who, of course, can simply print the money that it uses to lend.
Fannie and Freddie could maintain their dominance in multi-family finance indefinitely, but they won’t. They are lending at such levels because no one else can. As the economy improves and real, traditional banking becomes profitable once again, Government Agencies will retreat and allow the markets to provide the necessary capital. When that happens rates will be higher but the increased competition will mean more people will be able to qualify for loans.
Those lucky enough to meet the requirements of a Government Agency loan ought to apply now. When the time comes to lure lenders back into the market the Government will make itself less attractive by further tightening their underwriting criteria and lowering their loan-to-value ratios.
To secure the most favorable rates, terms and conditions that Government sponsored lending has to offer, a borrower must have decent credit (640 or better FICO) and a sound balance sheet that includes some liquidity (cash in the bank). Fannie and Freddie will lend up to 80% LTV but most loans that they are accepting now are in the 70%-75% LTV range. The property must be able to pay its own mortgage with a debt-service-coverage ratio (DSCR) of 1.2% or better and the building has to be stabilized (history of profitability). It goes without saying that the property must also be in good condition with little deferred maintenance necessary. The Government is sponsoring loans in all 50 states in-order to benefit the rental markets nationwide.
Loans typically come with 3, 5, 7 or 10 year terms and are amortized over 25 years. Currently rates are at historic lows due to the weak economy.
Apartment owners can get Agency backed loans through their local banks, larger national banks and through many other commercial mortgage lenders who enjoy direct and indirect relationships with Fannie, Freddie, FHA and HUD. You can’t apply directly to the Government.
Property owners who don’t qualify for agency loans will have to pay more to a private lender or work to meet Government requirements.
It’s good to know that there is liquidity for multi-family investing, but it is disconcerting to realize that the only willing and able lender is the US Government. As things improve this should change.
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Commercial Mortgage Lender; MasterPlan Capital LLC – EZ Online Application – Fast Response
New CMBS delinquency numbers via Fitch show that hotel loans are the worst performing category of commercial mortgage paper.
The general delinquency rate for all CMBS (again according to Fitch) was 3.58% as-of September ’09. That represents a 54 bps up-tick in troubled loans compared to August and a whopping 2.4% jump YTD. The trend is unmistakable and disturbing.
Along with hotels (5.83% delinquent in September), multi-family loans are fairing poorly with a September delinquency rate of 5.72%.
Currently, the biggest debacle in multi-family is a non-performing $195mm loan against the Babcock and Brown portfolio that contains about 14 equity hemorrhaging properties in NV, FL and other locations in the Southeast. Colum Financial made that loan to B&B and, not surprisingly, they are now out of business.
The ever helpful IRS has changed its rules to allow loan services to modify CMBS loans before they default without the huge tax penalties that used to exist. But it takes capital to restructure loans and the capital markets, especially the mortgage bond markets, are still dysfunctional. In-other-words, not only is there no liquidity for new loans but there is no liquidity to fund modifications of the old loans.
It seems that all loans are troubled loans now.
If other sectors worsen we can expect overall delinquencies to hit 5% by the second quarter of next year.
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Private and Institutionally Funded Commercial Mortgage Loans – Online, by MasterPlan Capital LLC
It is more difficult to get a commercial mortgage loan today than it was two years ago. The credit crisis has prompted many commercial real estate investors to look into alternative sources of capital. Private lenders, often called hard money lenders, have gained popularity recently as banks and Wall Street brokers have refused to make loans. It is true that privately funded commercial mortgage lenders can be more flexible and can close loans in just days, but that does not mean they are easy to get. Before a property owner applies to a hard money lender they should understand the differences between institutional funding and private funding.
Regulation
Traditional lenders like banks, insurance companies and Wall Street investment houses are all highly regulated. Banks carry FDIC or other government insurance, insurance companies are watched over by each State Insurance Commission and Wall Street is governed by the Securities & Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FIRA). There is a tremendous amount of bureaucracy, red-tape and rules involved in originating conventional, institutional loans. All this regulation means that bank loans are slow, banks are not flexible and there are loads of paperwork and documentation involved.
Private lenders are, by definition, private entities. They might be organized as LLCs or Limited Partnerships (LPs) or they might be a single, wealthy individual who makes money by making loans, but they do not fall under the prevue of banking regulation. They must, of course, adhere to all anti-fraud laws as-well-as all laws against un-fair and deceptive business practices, but they don’t have to report their specific lending activity to Government Agencies and are not subject to Government licensing or chartering. Hard money lenders can be highly flexible in their underwriting criteria; they can change their own lending policies as they wish for their own reasons. They don’t have to require large amounts of documents if they don’t want to and they can move very quickly if they like a deal.
Speed
Bank and other institutional loans typically take 90-180 days to close. Private loans can close in a matter of just days if they have to (a virtual impossibility when dealing with a bank) but generally take about 21 days. Rates Conventional loans are usually based on an established benchmark rate such-as the 10 year US Treasury Bond. The bank takes the base rate adds an index and comes up with a loan rate. Treasury and other rate indexes are historically low right now (Fall ’09) and commercial mortgage loans (for those who qualify) rates are being priced at between 5.5%-7.5%
Private lenders generally hold the loans they issue in their own portfolios as-opposed to institutions who generally sell their loans to Government Enterprises or the secondary market. Hard Money lenders make their profit on rate and points so they charge significantly more. Most private loans today are being quoted at between 10%-16%
Points
It is rare to see a bank charge more than 2 origination points on any loan.
Private lenders will typically charge at least 3 points and as many as 5.
Terms
Traditional lenders usually offer 3, 5, 7 or 10 year fixed terms on loans amortized over 10-25 years. A balloon payment or a refinance is usually necessary at the end of the term, although more and more banks are offering adjustable rate products that don’t require refinance.
Private loans are almost always short term, bridge type loans. Most charge interest only payments rather than amortize. The average private loan term is about 18 months and hard money lenders rarely write a loan for more than 36 months. The loan must be paid off in full at the end of the term.
Underwriting
Regulated institutions are now universally full documentation, full underwriting lenders. Every “I” must be dotted and every “T” must be crossed. They will fully underwrite the property first then the borrower. Both must pass muster or the loan will be denied.
Private lenders are equity lenders. They lend primarily based on the amount of equity in the target property. Investors will find hard money loans require much less paperwork and documentation. Private lenders will be careful and won’t lend to just anyone, but the underwriting is much more straight forward.
Loan-to-Value (LTV)
Banks used to lend up to 80% of a buildings value and allow a 10% second position loan, allowing sponsors to borrow as-much-as 90% of a deals value. Those days are gone. Now even the largest, strongest banks won’t lend more than 75% LTV and they discourage second loans. 65% is typical unless a borrower has a very strong balance sheet and a large liquidity position.
Private lender will not exceed 65% LTV even for properties that have excellent cash flow. Underperforming or vacant buildings will receive offers in the range of 50%-60% and land loans will come in at well under 50% LTV.
In a perfect credit environment bank loans or loans from other large money centers are the most desirable. They offer the best terms, lowest rate and fewest points. Any one who can qualify should seek funding from these powerful institutions. However, we are not in a perfect credit environment. We are in a mess.
Banks have tightened their standards, property values are dropping and the secondary mortgage bond market has completely collapsed. These circumstances have made it difficult or impossible for people to secure a conventional loan. Private lenders are more expensive and offer only short term financing, but they are filling a vital need and should be considered by borrowers if the bank has turned them away.
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Private and Institutionally Funded Commercial Mortgage Loans – Borrowers and Investors can Apply Online – Simple 1 Page Commercial Mortgage Loan Application – Answers in 1 Business Day – MasterPlan Capital LLC; Commercial Real Estate Investment Banking
Commercial Mortgage Loan Blog 