SBA Financing - The Recovery Act provides $730 million to the SBA to make changes to the agency's lending and investment programs. The Act provides $375 million for the temporary elimination of fees on SBA-guaranteed loans and increased SBA guarantee percentages of up to 90 percent on certain loans. In addition the Treasury Department is committing up to $15 billion to help unlock the secondary mortgage markets. These changes will result in lower financing costs (more than 3% of the loan amount) and an increased supply of credit, as lenders enjoy increased credit protection and secondary market liquidity.
Commercial Mortgage Consulting Services - Commercial real estate owners and lenders are facing a complex set of circumstances that are creating stress in even the most conservatively underwritten real estate investment. The current economic conditions are challenging all areas of commercial real estate property management and lending compared to the peak years of 2006-2007. Robert T. Gibney & Associates has assembled a team of seasoned professionals to review, analyze, and restructure commercial real estate loans.
Your real estate clients may benefit from these services:
• Objective analysis of the subject property in relation to competing properties in the sub-market
• Develop strategies to reduce the risk of loan default for loans maturing in the next 3-5 years
• Assist in negotiating Loan Workouts and Modifications
Link for additional information
http://www.azcommercial.biz/pdf/RTG_Commercial_Mortgage_Consulting.pdf
Underwriting Update – New financing continues to be available from a select group of balance sheet lenders. These lenders use their own capital to fund loans. In addition they retain loans on their balance sheet for the entire loan term. In contrast to recent years, lenders are using a traditional approach to underwriting using the following criteria:
PROPERTY
• Actual Cash Flow – trailing 12-month data (Net Rent Collections, Operating Expenses, Vacancy Rate). Consideration is given to declining trends in net operating income.
• Debt Coverage Ratio – 1.25 to 1.5 debt coverage ratio
• Reserve for Debt Coverage – Reserve account held by lender to be used in the event that existing tenants default or fail to renew their leases
BORROWER
• Global Cash Flow – A detailed evaluation of the borrower’s cash flow for all real estate investments, businesses, and personal obligations
• Exposure to Short-Term Liabilities – Evaluation of the potential risk associated with the borrower’s need to payoff loans in the next 1-3 years
• Post-Closing Liquidity – The availability of cash and marketable securities is an important consideration for many lenders. Loans may include a covenant requiring the borrower to maintain a minimum amount of liquid assets during the term of the loan
IN THE NEWS
MULTIFAMILY - WSJ April 8, 2009 - The nation's apartment market deteriorated in the first quarter as rising unemployment dashed landlords' hopes that the housing downturn would create a soft landing by bringing former homeowners back as renters. The vacancy rate for the top 79 U.S. markets jumped to an average 7.2%, a full percentage point increase over the past two quarters and the highest level since the first quarter of 2004, according to statistics from Reis Inc., a New York real-estate-research firm. The jump in vacancies came even as landlords reduced rents. Asking rents, which exclude concessions and are often the starting point for rent negotiations, fell 0.6%, the largest fall since Reis began its count in 1999. Effective rents, or the rents that landlords actually collect, fell 1.1% in the first quarter to $984.
COMMERCIAL – WSJ April 8, 2009 - Commercial landlords continue to lose retail tenants at an accelerating pace, indicating that the industry's troubles are worsening. The amount of occupied space in U.S. shopping centers and malls declined a net 8.7 million square feet in the first quarter of 2009, according to real-estate-research company Reis Inc. The amount of occupied space lost in that one quarter was more than the total amount of space retailers gave back to landlords in all of 2008 and any other year in recent history, according to Reis.
All of this information was made available to me from
Robert T. Gibney & Associates
4300 N. Miller Road, Suite 212
Scottsdale, Arizona 85251
Phone (480) 429-3642 Mobile (602) 315-5671
Email rgibney@AzCommercial.Biz
www.AzCommercial.Biz
Mortgage Broker Lic. MB0904411
Maureen Karpinski
Find your Phoenix Arizona Property at Cactus Country Arizona Homes & Properties
Showing posts with label Commercial Financing. Show all posts
Showing posts with label Commercial Financing. Show all posts
Wednesday, April 15, 2009
Sunday, January 11, 2009
Multi Unit Loan Alternatives
In a difficult loan enviroment for investors buying and investors wanting to transfer ownership of a multi unit these days here are possibile alternatives. You can produce creative alternatives and stay in compliance with the lenders and all legal responsibiltes.
Loan Workouts / Modifications / Assumptions – It may be possible to structure sales based on a negotiated agreement with the existing lender. New financing may not be a viable option in the current market. The following points may be considered:
Negotiation with lender – In many cases, the borrower / property owner is not the best person to conduct negotiations with the lender. A qualified real estate broker, mortgage broker or attorney may be best suited to represent the borrower. I am available to work with you and your client to present the best case to support a loan workout or modification based on current market conditions.
Loan Assumption / Modification – A new buyer may agree to assume personal liability and to reduce the principal balance in return for a reduction in the interest rate, a short-term period of interest-only payments, or other loan modification as part of a property acquisition negotiation.
Seller Carryback – The current owner may structure a carryback (subordinate financing) as an incentive for the buyer to complete the transaction. A carryback reduces the cash equity required from a buyer to close a purchase transaction, while enabling the seller to create an income producing promissory note secured by a deed of trust
Loan Workouts / Modifications / Assumptions – It may be possible to structure sales based on a negotiated agreement with the existing lender. New financing may not be a viable option in the current market. The following points may be considered:
Negotiation with lender – In many cases, the borrower / property owner is not the best person to conduct negotiations with the lender. A qualified real estate broker, mortgage broker or attorney may be best suited to represent the borrower. I am available to work with you and your client to present the best case to support a loan workout or modification based on current market conditions.
Loan Assumption / Modification – A new buyer may agree to assume personal liability and to reduce the principal balance in return for a reduction in the interest rate, a short-term period of interest-only payments, or other loan modification as part of a property acquisition negotiation.
Seller Carryback – The current owner may structure a carryback (subordinate financing) as an incentive for the buyer to complete the transaction. A carryback reduces the cash equity required from a buyer to close a purchase transaction, while enabling the seller to create an income producing promissory note secured by a deed of trust
Tuesday, September 18, 2007
Commercial Financing
September 11, 2007
COMMERCIAL FINANCING UPDATE
Reduced Interest Rates from Portfolio Lenders
A combination of factors, including the recent bond rally and the emergence of portfolio lenders, has resulted in 5-year fixed rates of 6% for average quality multi-family properties. Commercial property financing is available at slightly higher interest rates (6.25% to 6.5%). Portfolio lenders have strengthened their strategic position in the current market, while many conduit/CMBS lenders have elected to cease issuing loan quotes or Letters of Interest. Those conduit/CMBS lenders that are issuing loan quotes have increased the spreads to compensate for challenging capital market conditions. A portfolio lender funds loans with its own capital and has the ability to hold loans on its balance sheet.
Many commercial and multi-family property owners are choosing to pay-off their existing mortgages by refinancing with portfolio lenders to:
1- Lock-in historically low interest rates for 5-7 years
2- Obtain flexible prepayment penalty – i.e. declining 5-4-3-2-1 for 5-year fixed rate
3- Improve the property cash-flow through a combination of reduced interest rates and gradually-increasing rental rates
Understanding Appraised Value in Relation to Sales Price and Loan Amount
Commercial/Multi-Family real estate purchase contracts have customarily excluded any contingency provisions related to the appraised property value as it relates to the sales price. This practice differs from A.A.R, residential purchase contract language, which includes an appraised value contingency provision. According to the residential purchase contract, buyers have the right to cancel the contract in the event that the appraised value is less than the purchase contract. Commercial/Multi-Family real estate buyers waive all contingencies prior to the end of the financing contingency period, based on their receipt of a financing commitment from a reliable lender. The property appraisal is intended to meet the underwriting requirements of the lender, and is not intended for the use of the buyer or seller.
In the event that buyers and sellers of commercial/multi-family real estate are considering the use of the property appraisal in the negotiation of the sales price, there are several unique considerations that should be addressed:
1- Appraisal Assignment Requirements – The appraised value is based on the appraiser’s analysis according to the lender’s assignment requirements. For example, the assignment requirements may specify the use of market vs. actual rents. Since buyers and sellers are not a party to the appraisal, they have no control over the specific scope of work.
2- Copy of Appraisal – The appraisal is the property of the lender. Some lenders may not authorize the release of the appraisal to the buyer or seller.
3- Appraised Value and Net Operating Income (NOI) – The lender determines the loan amount based on the property’s NOI (i.e. minimum 1.15 debt coverage ratio) and appraised value (i.e. loan not to exceed 75% LTV).
It is important to note that the NOI is one of three factors used by the appraiser to determine the appraised value. Appraisers apply an appropriate Capitalization Rate to determine the value based on the income approach. For example $100,000 NOI divided by .055 cap rate equals $1,800,000 value. The other two valuation methods are the cost approach and sales comparison approach. The appraiser uses his professional judgment to use one or a combination of the three valuation approaches to arrive at the final Reconciled Appraised Value.
Receiving an appraised value equal to the sales price does not assure the buyer of a 70-75% loan. For example, multi-family appraisals frequently agree with the sales price when appraisers use current market cap rates. NOI has not kept pace with the increases in the price/unit paid for apartments over the past several years. This has resulted in historically low cap rates.
Since the primary factor in determining the loan amount is the Debt Coverage Ratio (i.e. NOI divided by 1.15), the maximum LTV for many properties is 60-65% of the purchase price. Based on $100,000 NOI, the maximum loan amount for a 6% interest rate is $1,200,000 (67% of $1,800,000 – see above).
In most cases, the ability of the buyer to obtain a minimum loan amount is more critical than the confirmation of the property’s appraised value. Many buyers knowingly pay more than “as-is” appraised value based on their assessment of the potential for increased property value. Increased value may occur from future rental increases, reduced operating expenses, property appreciation, or property repositioning. According to Vince Davis, of Davis Valuation Group, “Appraisers are required to comply with USPAP standards when preparing appraisals for clients. When preparing an “as-is” appraisal report, these standards include the use of actual rental rates and operating expenses. This valuation method does not account for other factors that may increase the property value after close of escrow.”
Conclusion
An appraiser’s conclusion of property value may not be a reliable basis for a commercial/multi-family contract negotiation. Experienced real estate brokers and their clients are in the best position to establish a property’s sales price based on a consideration of:
Current market conditions
Financing Terms – interest rate, portfolio vs. conduit, loan-to-value ratio, etc.
Experience and financial ability of the buyer to complete the transaction successfully
Resources
Vince Davis, Davis Valuation Group – Contributed technical information and editorial review for this article
430 E Southern Ave, Tempe, AZ 85282 – 480 968-7449 -
www.davisvaluation.com
Commercial Real Estate Institute – Continuing Education and Professional Designations for Commercial Real Estate Agents and Brokers
602 285-1433
www.commercial-real-estate-institute.com
Robert T. Gibney & Associates
4300 N. Miller Road, Suite 212, Scottsdale, Arizona 85251
480 429-3642
www.AZCommercial.Biz
COMMERCIAL FINANCING UPDATE
Reduced Interest Rates from Portfolio Lenders
A combination of factors, including the recent bond rally and the emergence of portfolio lenders, has resulted in 5-year fixed rates of 6% for average quality multi-family properties. Commercial property financing is available at slightly higher interest rates (6.25% to 6.5%). Portfolio lenders have strengthened their strategic position in the current market, while many conduit/CMBS lenders have elected to cease issuing loan quotes or Letters of Interest. Those conduit/CMBS lenders that are issuing loan quotes have increased the spreads to compensate for challenging capital market conditions. A portfolio lender funds loans with its own capital and has the ability to hold loans on its balance sheet.
Many commercial and multi-family property owners are choosing to pay-off their existing mortgages by refinancing with portfolio lenders to:
1- Lock-in historically low interest rates for 5-7 years
2- Obtain flexible prepayment penalty – i.e. declining 5-4-3-2-1 for 5-year fixed rate
3- Improve the property cash-flow through a combination of reduced interest rates and gradually-increasing rental rates
Understanding Appraised Value in Relation to Sales Price and Loan Amount
Commercial/Multi-Family real estate purchase contracts have customarily excluded any contingency provisions related to the appraised property value as it relates to the sales price. This practice differs from A.A.R, residential purchase contract language, which includes an appraised value contingency provision. According to the residential purchase contract, buyers have the right to cancel the contract in the event that the appraised value is less than the purchase contract. Commercial/Multi-Family real estate buyers waive all contingencies prior to the end of the financing contingency period, based on their receipt of a financing commitment from a reliable lender. The property appraisal is intended to meet the underwriting requirements of the lender, and is not intended for the use of the buyer or seller.
In the event that buyers and sellers of commercial/multi-family real estate are considering the use of the property appraisal in the negotiation of the sales price, there are several unique considerations that should be addressed:
1- Appraisal Assignment Requirements – The appraised value is based on the appraiser’s analysis according to the lender’s assignment requirements. For example, the assignment requirements may specify the use of market vs. actual rents. Since buyers and sellers are not a party to the appraisal, they have no control over the specific scope of work.
2- Copy of Appraisal – The appraisal is the property of the lender. Some lenders may not authorize the release of the appraisal to the buyer or seller.
3- Appraised Value and Net Operating Income (NOI) – The lender determines the loan amount based on the property’s NOI (i.e. minimum 1.15 debt coverage ratio) and appraised value (i.e. loan not to exceed 75% LTV).
It is important to note that the NOI is one of three factors used by the appraiser to determine the appraised value. Appraisers apply an appropriate Capitalization Rate to determine the value based on the income approach. For example $100,000 NOI divided by .055 cap rate equals $1,800,000 value. The other two valuation methods are the cost approach and sales comparison approach. The appraiser uses his professional judgment to use one or a combination of the three valuation approaches to arrive at the final Reconciled Appraised Value.
Receiving an appraised value equal to the sales price does not assure the buyer of a 70-75% loan. For example, multi-family appraisals frequently agree with the sales price when appraisers use current market cap rates. NOI has not kept pace with the increases in the price/unit paid for apartments over the past several years. This has resulted in historically low cap rates.
Since the primary factor in determining the loan amount is the Debt Coverage Ratio (i.e. NOI divided by 1.15), the maximum LTV for many properties is 60-65% of the purchase price. Based on $100,000 NOI, the maximum loan amount for a 6% interest rate is $1,200,000 (67% of $1,800,000 – see above).
In most cases, the ability of the buyer to obtain a minimum loan amount is more critical than the confirmation of the property’s appraised value. Many buyers knowingly pay more than “as-is” appraised value based on their assessment of the potential for increased property value. Increased value may occur from future rental increases, reduced operating expenses, property appreciation, or property repositioning. According to Vince Davis, of Davis Valuation Group, “Appraisers are required to comply with USPAP standards when preparing appraisals for clients. When preparing an “as-is” appraisal report, these standards include the use of actual rental rates and operating expenses. This valuation method does not account for other factors that may increase the property value after close of escrow.”
Conclusion
An appraiser’s conclusion of property value may not be a reliable basis for a commercial/multi-family contract negotiation. Experienced real estate brokers and their clients are in the best position to establish a property’s sales price based on a consideration of:
Current market conditions
Financing Terms – interest rate, portfolio vs. conduit, loan-to-value ratio, etc.
Experience and financial ability of the buyer to complete the transaction successfully
Resources
Vince Davis, Davis Valuation Group – Contributed technical information and editorial review for this article
430 E Southern Ave, Tempe, AZ 85282 – 480 968-7449 -
www.davisvaluation.com
Commercial Real Estate Institute – Continuing Education and Professional Designations for Commercial Real Estate Agents and Brokers
602 285-1433
www.commercial-real-estate-institute.com
Robert T. Gibney & Associates
4300 N. Miller Road, Suite 212, Scottsdale, Arizona 85251
480 429-3642
www.AZCommercial.Biz
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