William Gauger & Associates Blog

NEW YORK CITY-With 432 commercial real estate loans totaling
approximately $5.2 billion added to the tally, Fitch Ratings' CMBS
"loans of concern"--those that are in special service or whose
performance is declining--increased by 7% between June 1 and July 31,
the agency reported Thursday. Deteriorating property performance and
increasing CMBS defaults were the key drivers, according to Fitch.

A significant new entry to the list is the $227.9-million Resorts
International Casino Portfolio loan, secured by a three-hotel/gaming
portfolio in Atlantic City and Robinsonville and Tunica, MS. Fitch says
it transferred to special servicing on July 23 after the borrower failed
to make the July payment, citing significant declines in cash flow at
the properties, although the loan is performing.

"Properties directly tied to consumer spending, such as hotels, are the
first to exhibit signs of performance declines," says Adam Fox, Fitch
senior director, in a release.

As of July 31, Fitch had designated 5,993 loans totaling $80.7 billion,
or 17% of its US CMBS portfolio, as loans of concern. About 12% of
Fitch's loans of concern were originated in 2006 and 2007.
Seven-hundred-and-thirty-six of these loans have outstanding balances of
greater than $20 million, while 146 have balances greater than $100
million.

Fitch's currently rated CMBS portfolio encompasses 464 transactions with
an unpaid principal balance of $472.1 billion. As of July 31, the
agency's loan delinquency index for loans 60 days delinquent, in
foreclosure or REO was 3.04% on the basis of 1,857 such loans
representing $14.3 billion in UPB.

The ratings agency expects the LDI to reach 5% by year's end, as an
increasing number of loans roll over from 30 days' past due to 60 days.
Along with the usual suspects-stressed fundamentals due to economic
factors such as low consumer spending-Fitch also cites loans with low
debt service coverage that are close to depleting their reserves.

*Source: GlobeSt.com*

NEW YORK CITY-With 432 commercial real estate loans totaling
approximately $5.2 billion added to the tally, Fitch Ratings' CMBS
"loans of concern"--those that are in special service or whose
performance is declining--increased by 7% between June 1 and July 31,
the agency reported Thursday. Deteriorating property performance and
increasing CMBS defaults were the key drivers, according to Fitch.

A significant new entry to the list is the $227.9-million Resorts
International Casino Portfolio loan, secured by a three-hotel/gaming
portfolio in Atlantic City and Robinsonville and Tunica, MS. Fitch says
it transferred to special servicing on July 23 after the borrower failed
to make the July payment, citing significant declines in cash flow at
the properties, although the loan is performing.

"Properties directly tied to consumer spending, such as hotels, are the
first to exhibit signs of performance declines," says Adam Fox, Fitch
senior director, in a release.

As of July 31, Fitch had designated 5,993 loans totaling $80.7 billion,
or 17% of its US CMBS portfolio, as loans of concern. About 12% of
Fitch's loans of concern were originated in 2006 and 2007.
Seven-hundred-and-thirty-six of these loans have outstanding balances of
greater than $20 million, while 146 have balances greater than $100
million.

Fitch's currently rated CMBS portfolio encompasses 464 transactions with
an unpaid principal balance of $472.1 billion. As of July 31, the
agency's loan delinquency index for loans 60 days delinquent, in
foreclosure or REO was 3.04% on the basis of 1,857 such loans
representing $14.3 billion in UPB.

The ratings agency expects the LDI to reach 5% by year's end, as an
increasing number of loans roll over from 30 days' past due to 60 days.
Along with the usual suspects-stressed fundamentals due to economic
factors such as low consumer spending-Fitch also cites loans with low
debt service coverage that are close to depleting their reserves.

*Source: GlobeSt.com

Commercial real estate lending conditions in Denver remain better than
the nation as a whole, but Denver's rate of decline accelerated faster
than the national average during the second quarter, according to
quarterly data published by *Banc Investment Group*
.

"In Denver, the good news is that it hasn't deteriorated as much," said
Chris Nichols, CEO of Banc Investment Group.

"Particularly industrial properties and office properties, while they've
deteriorated, it's been less [than the nation]," Nichols said. "That's
the good news. The bad news is that the rate of decline in Denver has
picked up somewhat, and is accelerating more than the nation. We suspect
there's a lag in the Denver market versus the national."

Banc Investment Group (BIG) is the capital markets subsidiary of San
Francisco-based Pacific Coast Bankers' Bancshares. The BIG CRE Index is
a forward-looking benchmark of relative strength of commercial real
estate (CRE) lending conditions for community banks.

In the second quarter, the nationwide BIG CRE Index fell 9.3 points, or
11.5 percent, to 71.24. From the index's baseline period beginning April
30, 2007, lending conditions for community banks have deteriorated by
28.7 percent, according to the index.

In Denver, the office sector conditions index was at 83.54 in the second
quarter, compared with 78.73 for the nation. But Denver's office index
declined nearly 6 percentage points from the first quarter to the second
quarter, compared with a drop of 4.8 percent for the national index.

Denver's retail index fell nearly 18 percent to 66.55, while the
national retail index fell 15.8 percent to 65.99. Denver's multifamily
and industrial sectors also declined, to 85.63 and 62.92, respectively.

Denver is facing the same trends seen across the country, Nichols said.

"Mostly, it's just general economic decline, which means less demand for
office and industrial space," he said. "We're also seeing the secondary
effect of notes being sold at discounts, so less cash flow is required,
giving more catalyst to drop rents."

Investors who buy CRE notes at discounts don't have as much principal at
risk, and require less cash flow, Nichols said. That makes them more apt
to lower rents, which pressures rents on surrounding properties.

Source: Bizjournals

With the debt markets in the doldrums but the equity markets roaring,
the U.S. commercial real estate sector may be ready for a new round of
public companies in what could be a replay of the early 1990s, said the
head of Simon Property Group Inc ( SPG - news - people ) , the largest
U.S. real estate investment trust (REIT).

Simon's ability to raise more than $1.8 billion issuing new shares this
year helped crack open the equity market for other REITs to launch
similar follow-on offerings. So far this year, public property REITs
have raised more than $15 billion in new share offerings.

The market's receptiveness is likely to help launch a new round of
REITs, as private real estate companies with the need for cash tap the
public equity markets by launching initial public offerings of shares,
Simon said.

"They won't be companies that are just thrown together," David Simon,
chairman and chief executive officer of the company his father started
in 1960, told Reuters in an interview Thursday at the company's 14-story
Indianapolis headquarters.

"They'll be companies that over a period of time have put together a
good portfolio that need to get a better balance sheet."

Other IPOs will be former public companies taken private during the boom
years of 2004 through 2007, said Simon, who spent his first five years
out of Columbia Business School working as an investment banker, first
with First Boston and then with Wasserstein Perella & Co.

Source: Reuters

A Federal Reserve program to spur commercial real estate lending may
provide a bit of a jolt, but the amount of financing will likely be
limited because the infrastructure needed to produce commercial
mortgage-backed securities in bulk is still broken. The Fed threw a
lifeline to the battered commercial real estate sector in June by
opening up its consumer and business lending program, the Term
Asset-Backed Securities Loan Facility (TALF), to commercial mortgage
backed securities (CMBS).

Through the TALF program, investors who buy newly issued CMBS can borrow
directly from the Fed. Investors in existing CMBS can also borrow under
the program. While there has been some participation for existing CMBS,
there have been no new commercial mortgage bonds available for the
program as it takes months to structure new CMBS.

Source: Reuters

HUD has established new rules limiting the percentage of units in a building that can get FHA loans. Developers cry foul, calling it a bias against affordable housing and density.

"[Developer] Diana Chevalier, owner of Project Approval Services, said she was so upset when she learned of HUD's new restrictions that she hopped the first plane to Washington, D.C."

"'I took a $1,000 flight, and I met with Margaret Burns,' Chevalier said of the director of HUD's Office of Single Family Program Development. 'What the FHA is doing is trying to limit their exposure in existing condos and new condos and this is their way of monitoring their exposure.'"

Full Story: HUD Rules May Hurt Builders Source: San Diego Business Journal, August 24, 2009

 

The number of new renters will exceed the supply of apartments by as much as two times, according to the president and CEO of Associated Estates Realty Corp. Jeffrey Friedman.

In an interview with MHN, Friedman argued that demographic patterns in this and next decade dictate that there will be strong demand for apartments that will outstrip supply. 

Friedman explained that the homeownership rate is about 65 percent currently, and that the total number of households in the US is about 120 million. "If 35 percent of the population rents, we are talking about 40 million households that are renters," he said.

According to the census bureau, there will be 15 million new households over the next 10 years, translating to about 1.5 million new households per year. If only 30 percent of these households rent, says Friedman, this will mean there will be 450,000 new rental households per year in the next 10 years. 

However, apartment starts have been hovering at around only 200,000 units from the supply standpoint. "We know there is no overbuilding," says Friedman. If this pattern holds, "In fact, there will be half as many new apartments built as new renters coming into the market," he says.

The difficulty for the apartment sector in the mid-2000s was the number of renters going into homeownership, says Friedman. "There is a tremendous number of young people coming into the market. If there is a high number of new households and the propensity to rent is high, what keeps them from renting is homeownership."

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