consigliere

Guest Blogger: Current status of the Commercial Mortgage Market

Although the current status of the commercial mortgage market leaves a lot to be desired, we are optimistic things will improve during 2009.  The Wall Street conduit lenders have not re-entered the market, and will likely remain on the sidelines for the entire year.  Banks and Life Companies will be the main sources for short and long term debt, with many borrowers taking on mezzanine debt or outside equity in order to structure a deal.  While many Banks remain out of the market, there are still many that will offer good short-term (1-5 years) financing options to strong borrowers.  Life Companies continue to offer longer term fixed rate debt, although at very conservative loan-to-values.  This is something we anticipate to “loosen up” however, as alternative investments to commercial mortgages become less attractive to these institutions.  Short term rates seem to be holding in the 5-7% range, while longer term rates have settled in the 6.5-7.5% range.  There don’t seem to be many forces that will raise rates in the short-term, so as lending criteria becomes slightly more aggressive we should see a good time to borrow this Spring and Summer.  One thing will remain constant this year, and that is a flight to quality in terns of properties and borrowers.     

Guest Commercial Loan Post by:

 

Mark Jeffries

Vice President

Q10 | Essex Financial Group

8400 E. Prentice Avenue, STE 910

Greenwood Village, CO 80111

Direct: 303-843-4023

Protect your cash: Commercial Investment Real Estate Remains Stable

In light of this week's financial sector meltdown, a long time client and friend said to me "You know Thomas, I have seven figures cash in Bank of

America

today.  With what's happening with the other financial giants and BofA saving Merrill Lynch, it really makes me nervous to have that much cash in one bank or any number of banks.  I have decided to take a good portion of it, 60-70%, and put it into more income producing commercial real estate.  There are good deals out there to be had."  I agreed completely.  We are now actively looking for shopping centers with in-place income at 8%+ of purchase price.

Yesterday, another client said he was pulling his hair out while watching MSNBC to see if his $500,000 invested with Morgan Stanley was going to go up in smoke.  He then expressed his confidence in his income producing commercial real estate as compared to the stock market.

Contrary to the news of faltering banks and the stock market diving, commercial investment real estate fundamentals in most markets throughout the U.S remain stable and will continue to do so in the current interest rate environment. Apartment Buildings and Trailer Parks are a hot commodity among investors these days due to the turmoil in the housing market; vacancy rates are dropping and rents are trending upward.  Demand for office and retail properties is down but risk can be mitigated through lower leverage, buying on actual income numbers rather than proforma and through value-add or lease-up incentives.

There are good deals to be found in all US markets from as low as $1MM to $100MM+ across all commercial income property types.  Most everything our clients buy is relatively hands-off for them as owners by nature of a property manager or lease structure such as a triple net lease. These hands-off investments provide stable steady cashflow, appreciation and good residual value.  Many clients are purchasing properties in different geographic areas from themselves and their other properties to diversify risk. Many times the subject property is 3, 7 or even 10 states away from where they reside due to the low to no management needed.

The following table overviews conservative achievable yields in today's market:

To preserve your cash from stock market declines or failing banks, consider a stable long term investment such as commercial income property today.  As your professional commercial investment advisor, I analyze your personal investment situation in terms of yield v. risk to select the right property in the right market to achieve your goals.  Call or email me right now to add or diversify your investment portfolio. We do deals nationwide.

Be well out there,

Thomas

About the Author:

Thomas Morgan, CCIM, CIPS is exclusive global real estate advisor to high net worth individuals, families and their ancillary advisors.  Thomas has been called the "go to guy" for ultra-wealthy clients worldwide who want to use real estate to protect and build their wealth.  Thomas advises clients on all aspects of real estate holdings including commercial investments; private residences; investment analysis; and portfolio strategy and optimization through deliberate asset management.  Thomas can be reached directly at 1.866.539.1777 or thomas@cmcommercial.net

Guest Blogger: 5 Things to Keep in Mind When Purchasing and Financing Your Single-Tenant NNN Property

Guest Post written by Colin L. Paterson, Commercial Mortgage Banker, BMC Capital, LP

5 Things to Keep in Mind When Purchasing and Financing Your Single-Tenant NNN Property:

Single-Tenant NNN Properties can be a great investment for investors seeking minimum management and optimum cash flow of their investment real estate. However, it is important that investors understand their risk when buying and financing a NNN property. While their are many variables to consider, there are 5 things that are of utmost importance to consider before purchasing and financing a Single-Tenant NNN Property:

1) Know your tenant and understand their financials. Since your property's value is directly related to the lease income, it is paramount that the tenant paying the lease income is financially viable. An investor should conduct a thorough analysis of the last two years and YTD balance sheet and P&L statements to make sure that the tenant has enough cash flow to cover it's fixed charges (rent and interest payments), and is not overburdened with debt.

2) Make sure the rent/sf is in line with market rents. Just b/c a NNN property has a high cap rate, does not necessarily mean it's a good deal, if the tenant is paying a much higher rent/sf than the market. Consider what another tenant would pay to lease the subject property if the existing tenant were to leave. Your real estate broker should be able to give you market rent comps.

3) "Location, location, location". This famous maxim holds true whether you're buying a single family house or commercial real estate. Thus, it is vital you understand the location, demographics, traffic counts, traffic generators, and what will drive supply and demand in the future. Note: a general rule of thumb for most lenders financing NNN properties is that they require the 5 mile population to be 50,000 or greater.

4) Length of the lease term: It is important to understand the lease term length and what your outstanding loan balance will be at the end the lease term. Most lenders who lend on NNN properties, require at least 15 years remaining on the lease in order give a 25 year amortization, if the LTV is 50% or greater.

5) Keep a reserve account. This is line with another famous maxim in real estate investing: "Prepare for the worst, hope for the best". Yes, even though you're buying a NNN property, it is essential that you are financially prepared if the tenant were to leave. The reserve account should be kept for 1) replacement reserves, in the event you as the landlord are required to make a capital improvements; 2)Tenant Improvements and Leasing Commissions (TILC), in the event the tenant were to leave and you have to find another tenant to move in. Yes, even though you're buying a NNN property, it is essential that you are financially prepared if the tenant were to leave and stop paying rent. Note: a general rule of thumb most lenders require is for the borrower to have a least 6 months of mortgage payments available in liquid assets to be used if the tenant were to leave.

While there are other variables to consider, keeping the above 5 things in mind before purchasing and financing your NNN property, will greatly increase your likelihood of investment success. Happy investing!

Guest Posted by Colin L. Paterson
Commercial Mortgage Banker
BMC Capital, LP
Colin can be reached at 916-646-6334 or : cpaterson(atsign)bmccapital.com    or  www.bmccapital.com

Permanent Financing for Retail Properties

Authored by consigliere guest blogger: Mark Jeffries, Vice President, Q10 | Essex Financial Group

Over the past 9 months or so, the credit markets have experienced a shake-up unlike any in recent memory.

The main impact of this on retail property permanent financing is related to the fall-out of Conduit or CMBS (Commercial Mortgage Backed Securities) lenders.  As recently as the summer of 2007, retail property owners and purchasers were able to obtain 80% loan-to-value financing from a CMBS lender without much difficulty.  Life Insurance Companies were typically offering 70-75% financing with similar fixed rates to CMBS.  Today, without the need to compete with CMBS, Life Insurance Companies have scaled back to leverage levels in the 65-70% range.  The good news is that fixed rates from Life Companies are currently in the 5.75% to 6.5% range, are most often non-recourse, and can offer fixed terms of up to 25 years.  One of the potential dangers on the horizon is inflation, which could lead to higher interest rates across the board.

If a property owner is considering a refinance it makes sense to lock in a rate soon rather than later in my opinion.  We’re happy to provide financing estimates and analysis to assist borrowers in making difficult strategic capital decisions.  Retail properties continue to be viewed favorably by Life Companies as vacancy rates remain low in most markets.  We anticipate the capital markets will stabilize later in the year, and CMBS will return to the scene but likely on a more limited basis.

Mark can be reached at 303.843.4023