FINANCING NEWS FOR COMMERCIAL REAL ESTATE

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

Weekly Housing Inventory AZ

I always look forward to Karl's reporting and the report below shows activity that we haven't seen in awhile and it was so encouraging. Everyone was feeling enthusiasm and a thread of excitement that just maybe we had turned the corner and then for some unknown reason with lots of speculation as to why, it just stopped three weeks ago. Some say it is tax time, some the rates went back up and the list goes on but it certainly did a number on deflating the balloon. Hopefully this is only temporary and we get a zip in our step again.

Weekly Inventory Level comparison
©2008 Karl Stauffer

As of Friday, 2/22/08

Current rate of closings has jumped by over 8% in the last week! Closes in the previous month were up to 2668, which gives us a supply of 17 /4 months, a substantial improvement over the previous week
Current Pendings also continue to increase dramatically. They have increased over 50% in the last 6 weeks from 3323 on 1/11/08 to 5309 this week. They are at the highest level that I have seen since early July 2007, PM (Pre-Meltdown). This will translate in to more closings in the next month. Total Listings remain unchanged at 46069.

Best markets in the Valley continue to be Scottsdale under $1M at a 13 1/2 month supply, followed by the SE Valley at 14 1/4 months supply.
Luxury Markets, by contrast, are at 42 1/4 months of supply in Scottsdale $1M+, and 40 1/2 months in Paradise Valley.

The comparison of current active listing change is based on the previous week’s inventory. Supply numbers are based on the number of closings in the previous month, divided in to the total number of active listings. This data is for Single Family Detached homes only and does not include patio homes, condos, or town homes.
Entire MLS (Maricopa and Northern Pinal county), listing inventories are unchanged from last week. Total of 46069 active listings. Based on current rate of closings, about a 17 1/4 month supply.
200’s area (Central Phoenix). Listing inventories are up 1% from last week. Total of 6539 active listings. About a 19 1/4 month supply.

300’s area (West Valley). Listing inventories are unchanged from last week. Total of 15125 active listings. About an 18 month supply.

400’s area (NE Valley), Listing inventories are up 1% from last week. Total of 7792 active listings. About an 18 3/4 month supply.

500’s area (SE Valley), Listing inventories are unchanged from last week. Total of 11549 active listings. About a 14 1/4 month supply.

Scottsdale over $1m. Listings inventories are up 1% from last week.
Total of 1645 active listings. About a 42 1/4 month supply.

Scottsdale under $1m. Listing inventories are up 1% from last week. Total of 2628 active listings. About a 13 1/2 month supply.

Paradise Valley. Listing inventories are up 1% from last week. Total of 446 active listings. About a 40 1/2 month supply.

I hope this information is useful to you.

Karl Stauffer, Associate Broker
480-515-2202 (office)
karl@sonorangmac.com

The market place is terrific for those wanting to buy- prices that we haven't seen in a very long time and multi family units with equity built in http://www.cactuscountryproperty.com/multiunitandland.htm

Multi Family 101

Thinking of upgrading rental properties, perhaps moving from single-family homes to multi-family buildings? Have no fear. While managing these complexes, whether they have six apartments or 60, can sometimes feel more like running a business than managing a real estate investment, many of the tax, landlord and general real estate investing rules that apply to single-family housing also apply to multi-family investments.
Purchasing: Obviously, the overall cost of a multi-family building or apartment complex is much higher than a single unit. Small buildings with say, six units can range anywhere from several hundred thousand on up into the millions of dollars depending on the market, so you’ll probably need to have more cash available up front than if you’re buying a single-family home. The cost “per door” varies widely from market to market but is typically lower in larger properties, a result of various economies of scale.
An ideal building has a good mix of two-and three-bedroom apartments, the larger of which provides an opportunity to rent to families. Complexes with all one-bedroom or studio units tend to stay empty longer since they significantly narrow the pool of tenants they can attract. Of course, this all depends on the location of the property. A building near a college campus, for instance, might very well find plenty of tenants looking for one-bedroom apartments. In most scenarios, though, buildings with a good mix of unit sizes will outperform those packed with studios or one-bedrooms.
Location matters, so if you can, choose a property near the bus lines, local shopping centers, recreation facilities and other local attractions. Well located buildings command better sale prices and higher rents because they will be more desired and sought out by landlords and tenants alike.
Financing: Generally, a residential loan is all that is needed for buildings with one to four units, while a commercial loan is necessary for buildings with five or more units. Typical financing for one to four units will require 20 percent cash down, and loan fees vary, but usually average around 3.5 percent of the purchase price. In order to add larger properties to your portfolio you need to apply for a commercial loan, which has different underwriting and approval processes. For smaller residential loans, the banks generally look at the investment potential of the real estate and then fall back on the borrower’s personal financial and credit history. That’s not strictly the case with commercial loans where lenders are much more interested in profit and loss histories for the project itself. That can make convincing your bank to give you the money based on forward-looking projections more difficult. If possible, you should provide at least a three-year (five is optimum) historical report of income and expense data with your application package.
You may also run into trouble finding a bank that wants a commercial loan for less than $500,000. That means you’ll either have to think bigger and spend more upfront or shop around until you find a bank willing to finance smaller deals. Overall, lenders tend to look at all cash flow considerations including the amount of money you have in reserve to cover unforeseen expenses. They’ll also look at other costs you’ll incur besides the mortgage; these will include taxes, regular maintenance management fees and vacancy rates. Remember, banks need to see an ability to make repayments on a monthly basis in order to approve a loan. Many banks will have a set income to debt ratio, called debt service coverage ratio or DSCR that you will be required to maintain. A DSCR of 1.0 means for ever dollar of income there is a dollar of debt repayment. Expect most lending institutions to require a DSCR of at least 1.25 — one dollar and twenty five cents net income for each dollar of debt repayment — before they consider a loan viable.
Cash Flow: One big advantage of a multi-unit complex is that you will get payments from multiple tenants each month, making both vacancy rate hiccups and deadbeat tenants easier to absorb. If a single-family home is empty, vacancy is instantly 100 percent and cash flow plummets to zero. In a building with six units, if one or two of the apartments are empty there is still income flowing to help pay the bills. Compare that with a single-family house where just a few months without rent can quickly put a landlord in a cash flow crunch.
Because valuations of multi-family properties are tied more to cash flow and net income than single-family units, they tend to be less prone to wild speculative swings in value during both rising and falling markets. These values are often stated in the form of a “cap rate”, which is the ratio between the net income and capital cost. For example, a building purchased for $1 million that generates $100,000 in net operating income has a cap rate of 10 percent. When valuing properties, it is useful to think of the cap rate the same way you would look at a rate of return for any other investment. The higher the cap rate, the higher the rate of return on the investment, but also the higher the perceived risk. Cap rates vary depending on the location, size and history of the property. A fully tenanted apartment complex in a rapidly developing area will command a lower cap rate than an older building in a questionable part of town which is perceived to be a higher risk proposition.
Maintenance: This might be the first tangible difference many investors feel after the purchase process is completed. Even if purchasing and financing your first complex was easy, chances are you’ll soon feel pressure from the extra tenants you’ve taken on. Managing your first multi-unit project can feel like a full-time job. Real estate professionals will advise you to be prepared for the worst, and you should plan accordingly. Instead of that one perfect family you rented a house to with little fanfare, you’ll have several tenants with their leaky pipes, noisy neighbors and lost rent checks to deal with at any given time. Also, keep in mind that the same commonsense rental rules apply to apartments as homes. That means the more units you have, the more you will have to repaint, clean and inspect before a new tenant moves in.
However, if you currently manage several single-family units in different locations, buying a single larger complex could provide an advantage for you. Instead of six families living in six separate homes, your tenants will now share a single roof, lawn, and parking lot, leaving you only one area to maintain instead of six.
It may be advantageous to hire a property maintenance company to supervise, maintain and field calls for you. This will cut into your profit, but if you are a serious investor who wants to spend your time vetting new projects, it may well be to your advantage hiring someone else to take care of broken toilets and overgrown lawns on a day to day basis.
The Right Bet
Investing in apartment complexes should be considered a longer-term and possibly deeper commitment than owning and renting out single-family homes. It takes longer to sell a building or large complex than a home and it may take some time to get the hang of managing such a large property. However, if it’s done right, owning a multifamily complex can provide a constant source of income for years to come with considerable upside along the way. Any investment is a balance of risk, work and reward, but if you’re ready to take on a bigger challenge and move to the next level of investing, then a multifamily project might be the right bet.

Check out Maureen's multi family units at "http://www.cactuscountryproperty.com/multiunitandland.htm