August 31, 2009
On August 18th, a study commissioned by Bankrate.com found that 92 percent say that a home is a good investment for the future while 48 percent worry about losing or being unable to afford their homes.
With the downturn in real estate markets throughout the economy, it is understandable that almost half of Americans worry about either losing or buying a home. The very next day (August 20th), the Wall Street Journal ran an article entitled, What Has the Housing Crash Cost Americans? (How much real wealth have Americans lost so far in the real estate crash?). The article quoted a Federal Reserve study in which it is estimated the total market value of U.S. homes fell 18 percent from the end of 2006 ($21.9 trillion to $17.9 trillion or about $13,000 per person). This represents a 40 percent decline in homeowner equity from the peak of the market.
My guess is that in future surveys we will start to see fewer and fewer Americans believing that home ownership is a good investment and that it will take many years of steady increases in value before we see a consensus change in those beliefs.
August 20, 2009
FOR IMMEDIATE RELEASE: AUGUST 20, 2009
Real Estate Professionals Form Asset Management Company
Industry Executives Scott R. Lodde and John M. McCarthy form real estate asset management firm specializing in hospitality assets.
FORT MYERS, FLORIDA, August 20, 2009 – Scott R. Lodde and John M. McCarthy announced today that they have recently joined forces to form Alliance Real Estate Asset Management Group, LLC (Alliance Group). The company provides Asset Management and Distressed Asset Services to real estate owners and developers, lenders, as well as the investment and legal communities.
What makes the Alliance Group unique is the experience of its two principals. Mr. Lodde has a background in real estate asset management, development, acquisition, financing, partnership structuring and loan workouts. His property experience includes hotel, multi-family, office, retail, and health care.
Mr. McCarthy’s experience covers the range of responsibilities in both asset and direct property management having spent over twenty-five years overseeing the operations of a wide variety of hotel investments. His management oversight experience includes a large national portfolio of extended stay hotels and several major resorts in Florida.
The company, with combined experience covering over 3,700 rooms in sixteen states throughout the U.S., will specialize in the hospitality industry The company principals have over 60 years of proven experience and provide a wide spectrum of real estate consulting services including property management oversight, financial review and control, sales and marketing and asset value preservation and enhancement.
“John and I have known each other for over twenty years going back to our days together at Liberty Real Estate Group in Boston,” said Scott Lodde, a principal in the company. “With my hands-on development and financing experience and his asset and property management background, we are able to provide a unique menu of services to our clients, directly in-house.”
“Scott created an impressive track record as a hotel developer after he left Liberty and I always thought there would be opportunities for us to join forces again. His financial acumen, development savvy and unrivaled drive and determination to get things done makes him a strong partner,” said John M. McCarthy, a principal in the company. “We have a solid platform at Alliance Group and we are well-suited to meet the needs of current and future clients.”
Alliance Real Estate Asset Management Group, LLC
17170 Harbour Pointe Drive #835, Fort Myers, FL 33908
Telephone: (239) 344-7799
August 19, 2009
I just attended an interesting webinar sponsored by HREC Investments. The panel included a number of notable hotel advisors and asset managers. The following question was posed during the discussion – “If you had $100 million to invest, where would you buy and what would you purchase?”
Among the panel there was some consistency as well as some divergent opinions. One of the panelists noted there will be at least 3 to 4 more months of a logjam before lenders and owners to get realistic in their pricing.
Among the answers:
- 1. Commercial hotels in major markets
- 2. Urban hotels with good upside employment potential
- 3. Buy debt from lenders, especially regional banks (not CMBS)
- 4. Secondary/Tertiary markets with diverse demand generators
One speaker emphasized that the listeners should camp out at the FDIC office in Dallas. His belief is that the FDIC will be selling off the inherited notes as a result of bank seizures at a much discounted price. Same will be true of Wall Street firms at the end of the year in order to clear up their balance sheets.
There was some unanimity on what NOT to buy at this time. Two panelists suggested staying away from destination resorts due to the volatility that exists in this segment. Another urged the audience not to underestimate the time, effort and money associated with buying debt. It may be better to negotiate with the lender PRIOR to the foreclosure and pre-arrange the purchase before the final legal action.
August 19, 2009
The University of Florida’s Bureau of Economic and Business Research estimates the state’s population slipped by 58,294 people, to 18,748,925 on April 1 from 18,807,219 in April 2008, the first decline in Florida’s population since 1946. The last official, final census count – in 2000 – was 15,982,824.
The population estimates were produced using data from residential electric hookups, building permits and homestead exemptions. In the State of Florida, it is estimated that public school enrollment for 2009-2010 is down 10,000 from the previous school year, according to the Florida Office of Economic and Demographic Research. Florida’s unemployment rate is up to 10.6 percent in June, the highest rate since 1975, and the state’s foreclosure rate is among tops in the nation.
According to the report, the likely cause of the decrease is directly related to the recession and housing market bust. Also, the influx of temporary residents (primarily construction workers) who rented and were able to move quickly caused a quick decrease in the population. Other elements contributing to the population slowdown noted in the report include frequent hurricanes, high coastal property insurance and a rising cost of living. Also noted is the fact that fewer people are moving to the state due to their inability to sell their homes in other states.
Not all is doom and gloom for the State. Florida’s natural attraction to retirees and as a vacation destination will continue to fuel growth after the economy improves. As the country moves out of the recession, it is expected growth will increase but not as high as levels seen over the last three or four decades.
August 17, 2009
I recently posted a report regarding the recent increase in hotel loan delinquencies on August 7th. Now an article in the Wall Street Journal entitle Hotels Deliver Some “Jingle Mail” speaks of a rise in hotel forfeitures being the greatest since the early 1990’s. The article states that distressed “noncasino” hotel loans now include over 1,000 properties with a cumulative loan value of $16.8 million. The article gets its statistics from Real Capital Analytics, and encompasses delinquencies, foreclosures, bankruptcies and restructurings of securitized mortgages in addition to loan from banks and other institutions.
The article points to a topic I discussed in a post written on July 8th (see An Inside Look into the Commercial Real Estate Mess) – the difficulty of restructuring loans that were packaged into commercial mortgage-backed securities (CMBS).
The particular problem associated with hotel loans is that unlike other types of real estate such as malls and office building with long-term leases, hotels have daily rentals and can empty out overnight. Such was the case in a number of recent highly publicized foreclosures involving the Mondrian boutique hotel in Scottsdale, AZ, the ST. Regis resort in Dan Point, CA and the W in San Diego, CA.
What’s interesting in this article is the strategy used by Sunstone Hotel Investors, a Southern California-based lodging real estate investment trust and the owner of the W San Diego and many other hotels. They are simply walking away from some of their 39 upscale hotels and are using this strategy to get the loan servicer to agree to new terms with the bondholders on other transactions.
According to a noted hotelier quoted in the article, “Forfeiting a property to a lender doesn’t have the same stigma attached to it in this cycle as it did in past cycles”.
August 14, 2009
Forbes recently took a look at 161 of the country’s largest metropolitan statistical areas as defined by the U.S. Office of Management and Budget (OMB) where sales activity had picked up over the last year, but where foreclosure sales, as a percentage of overall sales are low. The data came from Zillow.com. The list does not pretend to call the turnaround, but rather point out which cities are in the lead on the road to recovery. The Miami-Ft. Lauderdale, FL MSA was ranked #1 in the report. Sales in the Miami area are up 27% over last year and only 3.5% of those are the result of foreclosure resales.
The magazine considers these markets as on the road to recovery.
1. Miami-Ft. Lauderdale, Fla.
2. Lincoln, Neb.
3. Colorado Springs, Colo.
4. Salem, Ore.
5. San Luis Obispo, Calif.
6. Bremerton, Wash.
7. Denver, Colo.
8. Redding, Calif.
9. Santa Barbara, Calif.
10. San Jose, Calif.
To read the entire article go to: http://www.forbes.com/2009/08/13/recovery-cities-homes-lifestyle-real-estate-housing-recovery-cities.html
August 14, 2009
I recently attended a webinar sponsored by the National Association of Realtors. This particular program was the quarterly Commercial Real Estate Update. The program centered on the commercial real estate market and was presented by George Ratiu, a NAR economist. Mr. Ratiu discussed current market conditions, investment trends and financing issues, as well as look to the future regarding the commercial market sectors.
The scary part of the presentation was when Mr. Ratiu presented a slide on the amount of commercial real estate in “distress” (defined as foreclosed, REO, or delinquent properties). In January 2009, loans labeled distressed were estimated at $52 billion. As of June of this year, that amount had risen to $108 billion, a 107% increase in six months. Of this amount, the retail sector leads the pack at around $17.8 billion with hotels coming in second at $11.8 billion.
Another slide showed the concentration of this commercial loan distress by lender. Most of the carnage will be shared by the CMBS market and Wall Street firms especially in the retail sector. In the hotel sector, most of the loans were provided by Wall Street firms (39%).
Another serious concern is the vast amount of commercial loans that will be coming due within the next few years. While the current amount coming due (2008/2009) is around $400 billion, future maturities take a dramatic turn upward to $500 billion in 2010 and $1.8 TRILLON in 2012.
These loan maturities will become even more of a concern in future years due to the drop-off in the amount of new CMBS issuances. In 2007, it is estimated that the U.S. CMBS market issued around 25.6% of all commercial loans or around $230 billion. In 2008, that number diminished to just $12 billion. So far in 2009, there have been NOU.S CMBS issuances.
The continuing problem for commercial real estate investors is the complete lack of any financing to replace these loans over the coming years and the resulting spiral of foreclosures, REOs and workouts that will plague the market for years to come.
The Alliance Group specializes in helping commercial real estate investors deal with these issues. We can develop the step strategies, create action plans to immediately reduce losses and identify opportunities to add value for both owners and lenders.
August 10, 2009
Federal regulators are staffing up for next month’s scheduled opening of what is poised to be a 500-person bank failure and asset sales office in Florida. The Federal Deposit Insurance Corp, which insures individual accounts up to $250,000, plans to open a “temporary” east coast office on Jacksonville’s south side of town in September. The FDIC has used these temporary offices throughout its history to keep asset resolution staff closer to the concentration of failed bank assets.
Many industry experts expect a surge of bank failures to occur in Florida in the upcoming months. Since January 2008 only eight of the 98 FDIC institutions to fail have been headquartered in Florida. A complete list of FDIC closures since October 1, 2000 can be found at the FDIC web site (http://www.fdic.gov/bank/individual/failed/banklist.html). By comparison, neighboring Georgia leads the nation in bank failures with 21 seizures, or 22 percent of the overall total closings, since 2008, based on FDIC data.
The FDIC’s satellite office is viewed by many industry watchers as further proof that a series of Florida bank failures is imminent in the upcoming months. The FDIC is not dispelling the speculation.
On August 7th, two more Florida banks — First State Bank, of Sarasota, and Community National Bank of Sarasota County, in Venice, — and one Oregon bank — Community First Bank, of Prineville were closed by the FDIC. The FDIC does not identify “problem” banks and will not release any information or a watch list to the public regarding the safety and soundness of the banks that it regulates since they do not want to create an artificial “bank run” scenario on a member bank. Many outside firms have put together various lists. Based upon Florida banks with weakest asset quality (as of 12/31/08), Florida Community Bank of Immokalee, was the weakest on a list compiled by Highline Financial, Inc. with a nonperforming assets ratio of 22.81%. See the entire list here.
In another report issued August 3rd, Fox News reported that Colonial Bank (CNB) had one of its locations receive a search warrant from federal investigators tied to the Troubled Asset Relief Program.
A company press release from July 31 said that Colonial was not in compliance with the regulatory requirements for Tier 1 capital ratio and total risk-based capital ratio, and management said it had doubts about the company’s ability to continue as a going concern. Colonial Bank is based in Montgomery, AL but has numerous locations in the State of Florida.
August 7, 2009
Recent forecasts for hotel delinquencies have not been good. In a recent Bloomberg article, Morgan Stanley is predicting that hotel loan delinquencies which are currently 4.7% are likely to reach 8.2% by the end of the year. This was the peak delinquency rate that was reach during the last downturn.
Trepp LLC, a provider of commercial mortgage-backed securities (CMBS) and commercial mortgage information, tracks hotel loans, including those in CMBS pools. According to Trepp, there are about 3,800 hotel CMBS loans. Of this amount, about 2,300 were done in 2006 and 2007. Almost none were done in 2008. According to the company’s report, in January 2008, 0.48 percent of all hotel loans in the CMBS pools were delinquent. In January of this year, the percentage increased to 1.72%. This month, it increased to 4.24 %, mirroring the number quoted above in the Bloomberg report. Some analysts are predicting a 15% to 20% default rate by the end of next year.
According to an article I read in HotelNewsNow.com, the California hotel market often mirrors what’s going on in the rest of the country. In California, the number of hotels in default or foreclosure increased 125% in 60 days (mid-May through mid-June). 31 hotels were foreclosed on, and 175 were in default. Nonfranchised hotels account for a disproportionate number of foreclosures—87%. However, what is even more shocking is that franchised hotels make up 59% of default properties. As the economy has worsened, all properties are affected, not just smaller hotels in tertiary markets.
Because of the expected large number of defaults and foreclosures, this will be the best buying opportunities since the 1990s. However, right now lenders are delaying the sale of the foreclosed properties since they are unable to take large losses by selling below the loan values. This will eventually change.