Trouble With CRE Loans Could Be Good News for Agents

New Office Measurement Standards Are Issued

Commercial Financing May be Returning

 

                                                                                                                            Mike Moloney, President


Trouble With CRE Loans Could Be Good News for Agents

The Congressional Oversight Panel (COP) predicts trouble with CRE loans.

COP was created to report back to Congress results from the Troubled Assets Relief Program (TARP). In a 184 page report released last week, COP expresses concern for the small community banks, which are 40% of all banks. The concern derives from the high percentage of small bank assets that are CRE loans. This report supports our suggestion that you establish contacts with your local community banks, for distressed CRE product. There could be pressure from both the FDIC and the Federal Reserve for those smaller banks to resolve the problem that most of the loans coming due in the next 3 years are upside down. Both of these agencies, however, have recently issued rules that permit extensions of such loans without a new appraisal (aka “mark to market”.), so they will be “performing assets”, and not drag the bank into red ink, on paper.

Part of the problem COP anticipates is that the quality of many of these smaller loans will not be sold to generate cash for the bank’s balance sheet, because the loans are not “institutional” in quality. TARP could be used to buy those loans, but the feds simply don’t have trained staff ready to tackle such a volume of smaller loans. (Sounds like the same problem that the banks are having!)

This may be good news for local commercial real estate agents. If the “paper” doesn’t sell, the bank may have to foreclose and sell the properties themselves as REOs. They’ll need us to accomplish those sales. They’ll also need local property management services.

New Office Measurement Standards Are Issued

BOMA has issued new standards for measuring space in a multi-tenant building. The standards are used almost universally for multi-tenant office, and some retail, buildings. In brief here is a layman’s summary of some of the basic changes:

•Single Load Factor Method. A new calculation applied to the occupant area of each floor to determine the rentable area and is the same for all floor levels of a building. This method is referred to as “Method B.” This method was not permitted in the 1996 version.
•A new class of space, “Occupant Storage” has been created for measuring certain occupant areas in a building, such as basement occupant storage, that is not calculated in the Single Load Factor.
•Regional leasing practices, particularly for tropical climates, are included in the new standard to allow for enclosure requirements and limited (unenclosed) circulation.
The new standard manual costs about $60, at www.BOMA.org

Commercial Financing May be Returning

In a first serious step toward rejuvenating the Commercial Mortgage Backed Securities system, one of the largest players in that field, Deutsche Bank, has just funded a very stable commercial loan for $40M+ that it intends to include in a larger new CMBS issue. The property is a multiple tenant business park in Pennsylvania. Furthermore, the owner also got a $12M “second” from Pembrook Capital. The “second” is probably a high interest corporate debt that can converted to equity in the property, commonly called a “mezzanine”. The fact that the property is a multiple-tenant income property is a hopeful indication that commercial financing for such properties may be coming back soon.


More coming March 1.