Headlines – Week of August 21, 2011

August 31, 2011

Delinquencies in CMBS Reach Record High

According to Fitch Ratings, delinquent loans in commercial mortgage backed securities hit a record in July 2011.

The agency noted that $3 billion in new delinquencies outpaced the $1.4 billion in resolutions made on CMBS loans during that period.

This pushed the delinquency rate to 9.01% from 8.64% in June and higher than the previous record of 8.81% in May.

Fitch is still standing by their prediction that delinquencies will be up to 10% by year end 2011.

New York-based Trepp LLC also reported their information stating that CMBS delinquencies reached 9.88% in July, the highest delinquency rate in the history of the CMBS market.

One of the reasons for the increase are new reporting standards implemented by some special servicers For example, if a special servicer is considering a possible loan modification, it is now standard practice for the servicer to also simultaneously initiate the foreclosure process to expedite matters in the event that the modification doesn’t occur.

According to Trepp, this “dual tracking” approach, which includes foreclosure as a workout strategy, drives up the delinquency rate.

Among other highlights from Trepp’s report on the performance of the CMBS market in July:

  • The percentage of loans seriously delinquent, defined as 60 days or more past due, rose 39 basis points over the prior month to 9.14%.
  • The delinquency rate for office loans 30 days or more past due spiked 82 basis points to reach 8.17%, breaking the 8% threshold for the first time (see chart below).
  • The hotel delinquency rate soared 117 basis points to reach 15.04%.
  • The industrial sector was the only property type to experience a decline in the delinquency rate, falling 59 basis points to 11.09%.
  • The multifamily sector remains the worst performing property type on the CMBS front with a delinquency rate at nearly 17%.

 

Bank Failures Up in July

July’s 13 bank failures tied April’s count for the highest monthly figure since July 2010, bringing total bank failures this year to 61 as commercial real estate exposure continued to weigh heavily on troubled banks.

Bank failures to date put the annualized pace at about 100 for the full year, still well below the 157 banks that failed in 2010 and the 140 that failed in 2009.

According to Trepp, Inc, commercial real estate exposure was the main driver behind problem loans for the 13 banks that failed. Commercial real estate loans comprised $797 million, or 77%, of the total. $1.03 billion in nonperforming loans at the failed banks. Construction and land loans made up $480 million, or 47%, of the total, while commercial mortgages comprised $317 million, or 31%, of the total nonperforming pool.

The residential real estate loans were second, with $161 million in nonperforming loans, or 16% of the total nonperforming balance.

Three failures for July occurred in both Florida and Colorado. Florida ranks second for bank failures overall, with nine so far this year and 54 since the failure cycle began in late 2007.

Two failures occurred in Georgia, which continues to lead the country in bank failures, with 16 this year and 68 since the cycle started in 2007.

The largest failed bank was Integra Bank in Indiana, with $2.2 billion in assets. The closure was the first in Indiana this year and only the second since 2007.

All the banks that failed in July had been on the Trepp watch list for four to 11 quarters.

Twenty-five percent of all U.S. banks do not meet the minimum risk-based 8% Tier 1 capital requirement, according to a recent two-year stress test completed by financial risk management firm Invictus Group.

The test shows 1,983 out of 7,695 banks would be challenged capital-wise in times of stress.

Is the Era of “Extend & Pretend” Over?

According to industry experts, the era of  “extend and pretend” may be over as lenders and note holders appear to be forcing more distressed loans into the marketplace. As a result, institutional investors, who were disappointed in the relatively slim pickings available in the distressed markets in 2009 and 2010, seem to be back on the hunt for more opportunities in investment-grade commercial real estate.

According to the latest CoStar Commercial Repeat-Sale Indices, transaction activity increased 24% from the first quarter of 2011 to second quarter of 2011. Investment grade transaction activity drove most of the increase. In March, CoStar Group forecast $45 billion to $60 billion worth of distress transactions in 2011.

The “extend and pretend” strategies through 2008-2010 moved a glut of loan maturities to this year. As of year-end 2010, CoStar forecasted more than $850 billion in commercial real estate loan maturities this year. And 2011 has produced a strong stream of newly delinquent loans on top of already significant increases in loan modification and liquidation activity.

Under such “extend and pretend” policies, lenders and servicers simply extended maturity dates as a way to wait out the Great Recession. Then in the second half of last year, the number of “true” modifications of principal and interest rate reductions began to make up an increased share of activity. This also opened the doors for banks to start releasing loans they did not want to modify back into the marketplace.

Many believe the new activity is the result of the of the significant amount of commercial real estate debt that is scheduled to mature over the next four years.  Many of these properties have experienced deferred capital expenditures, which will require owners to invest additional equity or dispose of their assets.

Also contributing to the attractiveness of selectively acquiring commercial real estate is that, aside from a handful of high-end properties in top tier U.S. markets, commercial real estate values generally remain well below the pricing peaks reached during the 2005 to 2007 period. The CoStar report attributed this drag on commercial real estate to the downward pull exerted by sales of distressed properties.

The drop in values has put many otherwise healthy properties in a position where they will require infusions of additional equity so maturing mortgages can be refinanced. This gives new investors the opportunity to have a lower cost basis than those who bought similar properties a few years ago, providing them with the ability to offer lower rental rates than comparable properties with greater debt burdens.

Full Report

Posted by Scott R. Lodde

Headlines – Week of August 14, 2011

August 29, 2011

Average Floridian getting younger

According to data released by the U.S. Census Bureau from the 2010 Census, the majority of Florida growth came from working-age adults, 18 to 64 years old, who settled in counties on the edge of major cities.

Two decades ago, Florida had the highest median age in the U.S.; 10 years ago, the state ranked No. 2. Based on the just-released numbers, it’s now No. 5.

Click HERE to see the summary tables from the Census Bureau’s American Fact Finder website.

Buying is Cheaper than Renting in Most U.S. cities

Home prices have taken such a beating and demand for rental units has increased so much that it’s now cheaper to buy a two-bedroom home than to rent one in most major U.S. cities.

According to real estate web site Trulia, buying was cheaper than renting in 74% of the country’s 50 largest cities in July. In just 12% of the cities, including New York, Seattle and San Francisco, renting was cheaper. In the remaining 14% of cities, renting was less expensive but close to the cost of buying.

In addition to a continuing decline in home prices, low interest rates have added strength to the buy side of the scale.

Full Article

Affordability Index Highest in 20 Years

To support the above message from Trulia another report from the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) indicate that nationwide housing affordability during the second quarter of 2011 hovered for the 10th consecutive quarter near its highest level in the more than 20 years.

According to the HOI, families earning the national median income of $64,200 could afford 72.6 percent of all new and existing homes sold in the second quarter. The affordability measure dipped slightly from the record high of 74.6 percent set in the first quarter, but it remained above the 70 percent threshold initially achieved in the first quarter of 2009.

Youngstown-Warren-Boardman, Ohio-Pa., was the most affordable major housing market in the country during the second quarter of the year. In Youngstown, 93.7 percent of all homes sold were affordable to households earning the area’s median family income of $54,900.

Also ranking near the top of the most affordable major metro housing markets were Syracuse, N.Y.; Indianapolis-Carmel, Ind.; Dayton, Ohio; and Lakeland-Winter Haven, Fla.

Among smaller housing markets, the most affordable was Kokomo, Ind., where 95.8 percent of homes sold during the second quarter of 2011 were affordable to families earning a median income of $59,100. Other smaller housing markets ranking near the top of the index included Wheeling, W.Va.-Ohio; Lansing-East Lansing, Mich.; Bay City, Mich.; and Sandusky, Ohio.

New York-White Plains-Wayne, N.Y.-N.J., led the nation as the least affordable major housing market during the second quarter of 2011. In New York, 25.2 percent of all homes sold during the quarter were affordable to those earning the area’s median income of $67,400. It marks the 13th consecutive quarter that the New York metropolitan division has held this position.

Other major metro areas near the bottom of the affordability index included San Francisco-San Mateo-Redwood City, Calif.; Santa Ana-Anaheim-Irvine, Calif.; Los Angeles-Long Beach-Glendale, Calif.; and Honolulu, respectively.

Ocean City, N.J., where 40.9 percent of the homes were affordable to families earning the median income of $70,100, was the least affordable of the smaller metro housing markets in the country during the second quarter. Other small metro areas ranking near the bottom included Laredo, Texas; Santa Cruz-Watsonville, Calif.; San Luis Obispo-Paso Robles, Calif.; and Santa Barbara-Santa Maria-Goleta, Calif.

Zillow: Bumpy Road Ahead for Real Estate

While home values remained essentially flat in the second quarter compared to the first quarter, they fell when compared to second-quarter 2010, according to a report from property search and valuation site Zillow.

The Zillow Home Value Index fell 6.2 percent year over year in the second quarter, to $171,600, the report said. A report released today from the National Association of Realtors found 72 percent of metro areas had seen year-over-year median sales price declines in the second quarter, with the U.S. median price falling 2.8 percent, to $171,900.

Of 154 markets tracked by Zillow, 142 (92 percent) saw value declines year over year, while 94 (61 percent) saw value increases quarter to quarter. That resulted in a 0.4 percent dip compared to the first quarter — the smallest quarterly drop in more than four years, the report said.

Zillow forecasts a true bottom in 2012, at the earliest. Factors preventing a recovery include a full foreclosure pipeline, high negative equity, and fluctuations in demand.

Of single-family homes with mortgages, 26.8 percent of homeowners owed more than their house was worth, a slight drop from 28.4 percent in the first quarter.

Foreclosure resales peaked in March 2011 at 21.4 percent of all sales, and dropped slightly in June, to 19.7 percent.

Year over year, Pittsburgh was the only metro among the nation’s 25 largest to experience median price appreciation, up 2.7 percent to $110,400. That market has remained the steadiest, posting only a 1 percent drop in appreciation since home values peaked in June 2006. Nationwide, home values have fallen 28.8 percent from that peak.

Full Article

Posted by Scott R. Lodde

Headlines – Week of August 7, 2011

August 17, 2011

Commercial Real Estate Loans Cause 13 Banks to Fail

New market data from Trepp showed that 13 banks failed due to problem commercial real estate loans in July. This makes it the highest monthly figure since July 2010. Year-to-date, 61 banks have failed, and Trepp projects that 100 will close by 2011’s end.

According to the report, CRE loans comprised $797 million, or 77% of the total $1.03 billion in nonperforming loans at the failed banks. Construction and land loans made up $480 million or 47%, while commercial mortgages comprised $317 million or 31% of the total nonperforming pool.

The majority of the failures occurred in the Southeast, with seven total, followed by the West at four and two in the Midwest. Out of the 13 banks, three failures took place in both Florida and Colorado. Florida ranks second for bank failures overall, with nine total this year alone. But the largest failure was Integra Bank in Indiana, reporting losses of $2.2 billion in assets.

According to the report, the bulk of the distress most likely lies in the office and retail segments. Experts believe we have seen a leveling out in the retail segment with new problems on the office front.

According to Trepp’s July 2011 delinquency report, CRE loans in CMBS increase to 9.88%, the highest rate in the history of the market.  This has put a damper on the mood in the CMBS market and the market more broadly.

Full Article

 

Surge of Federal REO Properties Hitting the Markets

A recent report from the CoStar Group indicates that federal financial agencies have aggressively resumed their sale of foreclosed properties.

Through the first half of the year, the FDIC has sold $1.073 billion in foreclosed properties. This compares to $974.7 million in the first half of last year and $482.2 million in the first half of 2009.

More importantly, the amount of commercial real estate sales has jumped more than 12 times in that time frame. Just $39.8 million of FDIC property sales in 2009 consisted of commercial and multifamily properties. This year, more than half of the sales ($540.3 million) have been commercial real estate.

In addition, land sales have increased from $86.1 million in 2009 to $310.6 million this year.

While commercial sales are increasing, single-family residential sales are falling from $307.7 million in 2009 to $219 million this year.

The nation’s government sponsored enterprises are also increasing their REO property sales.

Through the first three months of the year, Fannie Mae sold 37 multifamily properties on which it had foreclosed compared to 13 in the same period last year. At the same time, the number of multifamily properties it has picked up has remained fairly consistent, 50 in the first quarter of this year and 47 a year ago.

Overall, Fannie Mae sold 62,814 properties in the first three months of this year vs. 38,095 in the same period a year earlier. Those sales have produced proceeds of $11 billion in the first quarter of this year compared to $7.7 billion the year-ago period.

Through the first three months of the year, Freddie Mac has sold 31,628 properties vs. 21,969 in the same period a year earlier. Freddie Mac did not break out its multifamily property dispositions separately but it was holding only 15 multifamily repossessed apartment properties on its books as of March 31.

According to the Dept. of Housing & Urban Development, the Federal Housing Administration (FHA) acquired 7,667 REO properties in June and sold a record 13,609 properties (breaking the record of 12,671 properties sold in May). The FHA REO inventory has declined from 69,958 at the end of the first quarter to 54,645 at the end of June.

Full Article

Posted by Scott R. Lodde

Headlines – Week of July 31, 2011

August 11, 2011

Homeownership Rate Falls to 13-Year Low

According to the U.S. Census Bureau, the homeownership rate stood at 65.9 percent in June, its lowest in 13 years. According to analysts, tighter lending standards by banks are disqualifying potential homebuyers and preventing them from securing homes.

The three biggest factors causing the decline are: tight underwriting standards, the lack of a downpayment and homeowners being displaced by foreclosures.

Some experts predict that the homeownership rate may fall to about 62 percent by 2015.

The homeownership rate reached a record high of 69.2 percent in the second and fourth quarters of 2004.

According to William Wheaton, economist and co-founder of the Center for Real Estate at the Massachusetts Institute of Technology, a homeownership rate of 69 percent is not sustainable, as a generation of first-time buyers went overboard into the market in 2000-2007.

Wheaton believes the country will have to wait for the next generation to buy up all the unsold houses, leaving a dearth of first-time buyers for the next five to 10 years.  Many economists agree are banking that the younger generation, particularly Generation Y, will drive the housing market in the next decade.

Full Article


Vacation Homes: Why It May Be Time to Buy

According to a recent article in the Wall Street Journal, the upscale vacation-home market is starting to accelerate. While prices are still falling in most regions, the luxury segment is picking up, and brokers are reporting more inquiries than they have had in years.

According to the National Association of Realtors, the median second-home price was $150,000 in 2010, down 11% from 2009 and roughly 25% from 2006.  This was only slightly worse than the 22% drop for the overall housing market. The higher end of the market (homes in the $5 million-plus range) has held up better and has sprung upward more quickly.

Properties situated in prime locations, such as on the water or near a ski slope are selling well, but homes in less desirable spots are languishing on the market.

Some locations, such as Hilton Head, have benefitted from tough restrictions on building, which kept inventories manageable during the bust. Prices there have risen by 4% during the past year.

The other market is still very much in crash mode. In places like Miami, Fla. and even Martha’s Vineyard, Mass., prices have continued to drop as foreclosed properties flood the market. But bargains abound as sellers cut their asking prices or accept less to unload properties. In March, for example, a three-bedroom home on Palm Beach Island, Fla., listed for $4.6 million sold for just $2.5 million.

While over time vacation-home markets don’t appreciate better than primary-home markets, most vacation-home buyers aren’t looking to make big investment profits. According to a survey by the National Association of Realtors, more than 80% of second-home buyers reported that they bought for consumption reasons (i.e. to live in the house and enjoy it).

And many second-home buyers are wealthy enough to pay in cash.  Last year, 36% of vacation-home transactions were all-cash deals, up from 29% in 2009, according to the National Association of Realtors.

Blue Chips

These markets are stabilizing and, in some, prices already have started to rise.

  • Santa Barbara, CA
  • Aspen, CO
  • The Hamptons, NY
  • Hilton Head, SC

Depressed Markets

These areas are still suffering.

  • Martha’s Vineyard, MA
  • Vail, CO
  • Miami, FL
  • Palm Beach, FL

Full Article

Offshore investors snapping up Fla. real estate

According to an article in the Miami Herald, offshore investors are flocking to Florida’s distressed real estate prices as major companies with ties to Hong Kong, Spain, Argentina and Malaysia are snapping up properties sensing the local market has bottomed.

Many of these investors are buying at half the price of the bubble and see potential appreciation of 60 to 70 percent in the next five years.

International investors still perceive the U.S. as the most reliable country in the world and see the country where you can place your money for investment and know it’s safe.

South Florida’s has seen the most deals with ties to investors with connections to major international companies such as Swire Properties (part of Hong Kong-based real estate and airline owner Swire Pacific), Malaysia-based Genting Group (who owns 50 percent of Norwegian Cruise Lines), Agave Holdings (with ties to the owner of Jose Cuervo tequila), and Espacio USA (the American arm of Spanish real estate company Inmobiliaria Espacio).

According to the Miami Association of Realtors, Brazilians have led the Miami condo market resurgence, accounting for 9 percent of unit purchases among international buyers of Miami single-family homes and condos.

Brazilians believe U.S. real property a relative bargain while in other countries like Venezuela, political instability is a factor; they want a safe haven for their money.

Full Article

Posted by Scott R. Lodde

Our Philosophy

Our philosophy revolves around a simple goal - To achieve the objectives of our clients. Our plan is to introduce the necessary talents and resources to our clients and enhance their business goals and profitability

Our Services

*Hotel Management---------------------- *Asset Management---------------------- *Advisory Services----------------------- *Distressed Property Services------------- *Insurance Claim Support Services------- *Development Services-----------------