OVERVIEW ~ July 12 through 16 ~ The optimism that pushed the Dow Jones Industrial Average (DJIA) higher through Thursday, July 15, lost whatever power it had by Friday, July 16, when it fell more than 266 points to 10097.90. As the DJIA lost ground, interest rates also edged lower. The 10-year Treasury note, which began the week at 3.24%, fell to 2.94% at the close of the week; the HSH average 30-year mortgage rate (which includes jumbo rates) held at 4.98%; and the Freddie Mac average rate edged down to 4.57%. And, indicative of slackening confidence in our nation’s economic recovery, the dollar lost ground against the euro all week.

FOCUS ~ Analysts had been suggesting the stock markets would benefit from higher corporate earnings reports, but the belief (or, at least, hope) that improving corporate earnings data would be announced last week faded by Friday.

Instead of reigniting the markets with good news about earnings and, indeed, proving that the markets had overreacted to increased worries about the economic recovery, corporate earnings and corporate revenue reports were mostly lower than expected. By the end of Friday, all thirty stocks in the DJIA had lost value.

This can be read, in part, as a decline in confidence in stocks. Not surprisingly, the indicators that suggest what is happening in the real estate market are similarly weak. The purchase money loan applications component of the Mortgage Bankers Association indices of mortgage applications fell another 3.1% to 163.3, down 36.9% from a year ago. And the July National Association of Home Builders Market Index, measuring the relative optimism (and pessimism) among builders about the new-home market, was down 12.5% from the Association’s June reading, and 17.6% from its year-ago reading.

We have seen, on a nearly weekly basis, the inclination of this market to turn around, rising when analysts were most certain that it would continue falling, and falling when it seemed certain to rise.

The week does demonstrate one thing, however. When market conditions weaken, interest rates decline still more. Home (and other) financing simply becomes more affordable, and that fact continues to support the markets in this uncertain time.

30 Year Fixed Rate                         

Normal Closing costs

*4.875%              

30 Year Fixed Rate                         

$250 closing costs

*4.125%              

10 Year ARM                     

Normal Closing Costs

*3.875%              

15 Year Fixed Rate                         

Normal Closing Costs

*4.375%              

15 Year Fixed Rate                         

0 Points

$250 closing costs

*4.50%

FHA/VA 30 Year Fixed

0 Points

Signs of Life in Commercial Property Sales

For several months now, the perception, at least, is that the frozen commercial property sales market is thawing. Now there is some basis for that notion grounded in reality.

Some $9.7 billion in properties valued over $5 million traded in June, according to New York-based researcher Real Capital Analytics. That’s the highest volume since September 2008.

So what’s happening exactly?

RCA notes that U.S. investors brushed off concerns about the sputtering economic recovery and its potential impact on the commercial real estate sector.

Certainly despite more recent fears of a “double dip” recession, sales velocity has increased of late, pushing total volume for the second quarter to $20.6 billion, up by 32% from the first quarter.

Sales in the first half of the year totaled $36.2 billion, which is an 11% improvement over the second half of 2009. It’s also a huge 67.1% gain over the first half of 2009. The gain is smaller when measured by the total number of transactions, up just 6% between the first half of last year and the first half of 2010, at a total of 1,790 properties. That means the average transaction size has increased.

According to RCA, several large corporate portfolios sales accounted for a disproportionate share of total volume in the first half of 2010, particularly in June, when volume was up significantly across the core sectors.

The 31-property iStar Financial portfolio, purchased by Dividend Capital Trust for $1.3 billion, accounted for 14% of June’s total closed volume. Other large June sales included several high-profile office buildings such as 300 N. LaSalle in Chicago ($655 million), 340 Madison in New York ($570 million), and the Wells Fargo Building in San Francisco ($333 million).

Generally speaking, the trendline shows that larger properties are trading at lower cap rates, which have seen their largest declines on apartment, industrial and retail properties.

Nationally, average apartment cap rates fell by approximately 25 basis points between the first and second quarters, to an average of 6.8%. Over the same period, average industrial and retail cap rates fell by approximately 35 basis points and 20 basis points, respectively.

Office cap rates, which had fallen by more than 100 basis points in Q1’10 from their peak in Q4’09, held steady in the latest quarter, declining by less than 10 basis points to 7.9%.

It’s perhaps not surprising, given the slower pace of economic recovery, that most deals are being done in so-called “top tier” coastal markets, including Washington, D.C., New York and Boston. There, investors are bidding up the few top-shelf investment-grade properties that have come to market.

Washington, D.C. reported an average office cap rate of 6.4% for the first half of 2010, while Baltimore, just to the north, saw an average office cap rate of 9.0%.

The New York and Boston metros each reported over $1.5 billion in total volume in the first half of 2010, corresponding with year-over-year sales increases in excess of 100%. At least one inland Midwest market, Chicago, posted similar results as these two coastal cities.

When it comes to pricing, the picture was mixed. Here are a few tidbits to consider, according to the most recent (June) Moody’s/REAL Commercial Property Price Index report:

• The All Property Type Aggregate Index increased by 3.6% between March and April, down by 6.3% from one year ago, and 33% from April 2008.
• Over the first half of 2010, four of five property types posted increases in average price-per-unit.
• Hotel lead this group, rising by 68%
• In the core sectors, industrial rose the most, by 29%.
• Average per-unit pricing fell in the retail sector by 4%.
• The average size of single property deals fell in both the retail and apartment sectors by over 30%, while in the office sector it fell by 77%.
• In the hotel sector deal size increased by 50% in spite of a drop in per-unit price, because of large resolved and restructured volume in that sector.

Still, one of the biggest question marks overhanging the commercial property sector has not materialized. Where is the tsunami of distressed sales (nearly) everyone has been expecting? Simply put, it’s not here just yet.

As a share of total volume, sales of distressed properties slipped in the first six months of 2010, from 21% in the first quarter to 10% in the second quarter. In June, distressed sales accounted for less than 10% of all sales activity. The higher volumes of distressed sales in the first quarter reflected several large corporate portfolio workouts.

On a “positive” note, more than 25% of all apartment sales in June were classified as distress, the highest share for any property type. This is good news in the sense as fundamentals for both apartments and hotels are showing early signs of stabilizing, lenders may loosen their grip on these assets over the coming quarters.

OKCREview.com national news

30 Year Fixed Rate                         

Normal Closing costs

*4.875%              

30 Year Fixed Rate                         

$250 closing costs

*4.125%              

10 Year ARM                     

Normal Closing Costs

*3.875%              

15 Year Fixed Rate                         

Normal Closing Costs

*4.375%              

15 Year Fixed Rate                         

0 Points

$250 closing costs

*4.50%

FHA/VA 30 Year Fixed

0 Points

OVERVIEW ~ July 12 through 16 ~ The optimism that pushed the Dow Jones Industrial Average (DJIA) higher through Thursday, July 15, lost whatever power it had by Friday, July 16, when it fell more than 266 points to 10097.90. As the DJIA lost ground, interest rates also edged lower. The 10-year Treasury note, which began the week at 3.24%, fell to 2.94% at the close of the week; the HSH average 30-year mortgage rate (which includes jumbo rates) held at 4.98%; and the Freddie Mac average rate edged down to 4.57%. And, indicative of slackening confidence in our nation’s economic recovery, the dollar lost ground against the euro all week.
FOCUS ~ Analysts had been suggesting the stock markets would benefit from higher corporate earnings reports, but the belief (or, at least, hope) that improving corporate earnings data would be announced last week faded by Friday.

Instead of reigniting the markets with good news about earnings and, indeed, proving that the markets had overreacted to increased worries about the economic recovery, corporate earnings and corporate revenue reports were mostly lower than expected. By the end of Friday, all thirty stocks in the DJIA had lost value.

This can be read, in part, as a decline in confidence in stocks. Not surprisingly, the indicators that suggest what is happening in the real estate market are similarly weak. The purchase money loan applications component of the Mortgage Bankers Association indices of mortgage applications fell another 3.1% to 163.3, down 36.9% from a year ago. And the July National Association of Home Builders Market Index, measuring the relative optimism (and pessimism) among builders about the new-home market, was down 12.5% from the Association’s June reading, and 17.6% from its year-ago reading.

We have seen, on a nearly weekly basis, the inclination of this market to turn around, rising when analysts were most certain that it would continue falling, and falling when it seemed certain to rise.

The week does demonstrate one thing, however. When market conditions weaken, interest rates decline still more. Home (and other) financing simply becomes more affordable, and that fact continues to support the markets in this uncertain

Loan-to-Value Ratios Spike Following Wave of Reappraisals, Says Trepp

Jul 21, 2010 11:11 AM, By Matt Valley, NREI Editor-in-Chief

 

Special servicers face a daunting task in trying to resolve billions of dollars in troubled commercial real estate loans based on new research from Trepp LLC. Of the 1,125 CMBS loans on properties that were reappraised during the first half of this year, 986 recorded loan-to-value ratios of greater than 100% largely due to falling valuations.

It’s a cause for concern because the unpaid principal balance exceeded the new property appraisals by a wide margin in many cases. The average loan-to-value ratio among the 1,125 CMBS loans in the survey sample was a whopping 160%, up from 72.7% when the loans were securitized. (The 1,125 loans total $15.4 billion in volume.)

“In many cases you really almost have no choice but to have a distressed sale of the property because the value of the loan is less than the mortgage outstanding,” says Paul Mancuso, vice president with Trepp, a New York-based commercial real estate data and analytics firm.

“The new valuations will go a long way in determining the best workout strategy for a loan. The end goal is to preserve the most value for the CMBS trust,” emphasizes Mancuso.

Rather than sell real estate assets at fire sale prices, however, many special servicers prefer to work with financially strapped borrowers to extend existing loan terms in the hope that the tide will eventually turn in their favor.

“Why are you extending a loan right now?” Macuso says rhetorically. “Because you believe that we have fundamentally reached the bottom of the market. People are almost immune to bad news right now. It can only get better. The hope is that if you extend for 12 to 24 months the fundamentals of both the property and the economic environment will have improved enough to generate positive cash flow.”

Worst performers

Not surprisingly, loans originated from 2005 through 2007 dominate the list of underwater properties. The period was characterized by inflated property valuations. For example, when a $22 million CMBS loan on the Northland Inn hotel and conference center in suburban Minneapolis was originated in 2006, the appraised value of the asset was $34.2 million. Today’s appraised value on Northland Inn— whose status is classified by Trepp as real estate owned (REO)— is just $2.5 million (see table above).

In the survey sample, 300 of the 986 loans in special servicing with loan-to-values exceeding 100% are in the retail sector, followed by multifamily (245), office (183), lodging (126) and other sectors (132). By dollar volume, the office sector has the largest concentration of loans under water ($3.59 billion), followed by retail ($3.24 billion), multifamily ($2.97 billion), and lodging ($2.1 billion).

In total, 1,097 loans in the sample lost a staggering 51% of their value, falling from $23.9 billion at securitization to $11.8 billion currently. Conversely, only 22 of the 1,125 loans in the sample experienced an appreciation in property value since the loans were securitized.

Loan-to-Value Ratios Spike Following Wave of Reappraisals, Says Trepp

Dallas High-Rise Condos Sell at Auction

Jul 21, 2010 11:29 AM, By NREI Staff

The Metropolitan, a high-rise condominium in Dallas, has sold all 35 of its residences for more than a combined $6 million. Auctioneer REDC oversaw the sale before 400 attendees at the Downtown Sheraton Dallas.

Converted from a 1970s office tower, The Metropolitan underwent a $50 million renovation that included the construction of a six-story parking garage topped by a pool deck. It overlooks the Davis Building, the Magnolia Hotel, the Mercantile Building, Reunion Tower, the SPG Building, the Wilson Building and the Santa Fe Building.

“The Metropolitan has a mid-century modern look in a growing urban community in the heart of downtown Dallas,” says Jeff Frieden, chief executive officer of REDC.

Based in Irvine, Calif., REDC provides real estate auction services nationwide as well as brokerage services, asset management, short sale facilitation and title insurance. Its primary clients include residential and commercial mortgage lenders.

Dallas High-Rise Condos Sell at Auction

Image Catalog Can Help Resolve Property Disputes

Jul 19, 2010 10:17 AM, By Daniel Beaird, NREI Senior Associate Editor

ConstructionPhotoDocs.com takes time-sensitive photographs of developments and renovation projects in progress.

A new Web platform from ConstructionPhotoDocs.com (CPD) allows property managers to document a property’s condition over time. Through a photographic record, any maintenance or renovation work on the property can be recorded in chronological order and indexed in one place.

The Web-based servicer CPD, based in Woodland Hills, Calif., was founded as a provider to developers and contractors who needed a photographic index of their construction projects. Clients can view floor plans and photos from numerous angles, along with any requests for information, change orders and related documents.

“In a world where liquidated damages can run up to $10,000 per day or more, it’s an affordable way to document and index the work,” says Scott Yahraus, co-founder of ConstructionPhotoDocs.com. The program cost for property managers starts at $69 per month.

Before disaster strikes
ConstructionPhotoDocs.com documents the condition of a property before a catastrophic event, protecting a developer or owner for insurance purposes. It also creates a chronological record of repair for the property as well as gauging a development’s progress.

For property managers, CPD’s new Web platform provides similar services, except that the on-site managers are responsible for taking the photographs. All the images are stored in chronological order on the Web platform for authenticity and security, and are accessible to any authorized viewer.

“This gives property management companies a tool to create a visual record that can be used to show property owners how their properties are being maintained,” says Yahraus.

The property manager provides the Web-based servicer with a copy of a property’s complete floor plan and CPD indicates the locations from which the photos should be shot. Property managers can then shoot and transfer the photos to CPD, which loads the images onto the Web platform.

And should there be a question as to the quality of a vendor’s work, CPD’s services can be used to protect the property manager through a visual record.

Developer finds program helpful
CPD’s Web platform has been put to use at the Westlake/MacArthur Park Metro Rail Station development site in Los Angeles. Phase I of the mixed-use development broke ground last April. The project is being constructed directly above the Metro Rail station entrance, and it will include 82 affordable housing units and a retail component.

“It gets complicated when you’re sitting on top of a subway tunnel,” says Dan Falcon, senior vice president of development for McCormack Baron Salazar, one of the project’s developers. “It helps to have a third-party baseline so there’s no potential claim something wasn’t shown or provided because we didn’t disclose it.”

The images are taken through the project’s end to help avoid any disputes between the involved parties.

CPD typically takes pictures three to four times per month on a construction site to avoid change orders and to document milestones.

Financiers track progress
The MacArthur Park project has eight separate financiers. Some are local while others are not. By taking photos of the construction site every seven to ten days, those partners can keep up with the project from their own offices.

“It helps to have one place in which all eight of our funding partners can view the project,” adds Falcon. “They’ve all been appreciative as it reduces their amount of travel to the site.”

This is McCormack Baron Salazar’s first venture using ConstructionPhotoDocs.com. Before this project, McCormack typically ran into what many developers face as different project entities may have all taken site photos at different points in development. But there wasn’t an assemblage of information in one place.

“We also don’t have to depend on a particular contractor or sub that may be taking pictures from a certain angle and looking to avoid another angle,” says Falcon.

Now, as a developer of affordable urban housing with projects in 25 U.S. cities, McCormack wants to use CPD’s services in other locations.

Image Catalog Can Help Resolve Property Disputes

HFN fully supports this type of innovation. We offer to our clients, picasa web-based photo sharing via google. www.picasa.com a highly innovative way to share interactive web-based google mapping and photo sharing for our catalog of photos.  HFN’s public photo catalog can be visited here: http://picasaweb.google.com/ktc629

The Feedback from this resource tool has been highly suggested and supported by our database of clients. Using this tool you can track users to gauge your success.  The GEO tagging features can create a high traffic count to the photo album and also provide detailed area information for prospective clients. This tool is highly supported by our group and can be affective in your marketing plans.


WASHINGTON – Picture this: You’ve signed a contract to sell your house. Your buyers say they’ve nailed down the right mortgage. All is well. But then the appraisal comes in low – $25,000 to $50,000 under what was agreed in the contract.



The lender insists on cutting the mortgage amount to reflect the lower appraised value. You refuse to negotiate anywhere near the price indicated by the appraisal, and suddenly – poof! The whole deal is off. You, the buyers and the realty agents involved are all left sputtering over the appraisal that scuttled the transaction.

This scenario is not unusual in many markets across the country, say homebuilders, realty agents and appraisers. One little-publicized reason why: Lenders unilaterally may be lowering the numbers on the appraisals submitted to them in order to avoid accusations that the loans they sell to giant investors Fannie Mae or Freddie Mac are based on inflated appraisals – even slightly inflated. Such value inflations can expose lenders to dreaded “buyback” demands, forcing them to repurchase loans at huge costs.

The vice chairman of the National Association of Realtors’ Appraisal Committee, Frank K. Gregoire of St. Petersburg, Fla., says it’s a widespread problem – large numbers of legitimate home sales “sabotaged by lenders and underwriters arbitrarily reducing the value estimate” provided by the appraiser.

Typically, Gregoire says, the lender orders a low-cost electronic valuation – based on publicly available statistical data with no on-site inspections – to review the accuracy of what was submitted by the appraiser. If there’s a discrepancy between what the computer says and the appraiser’s report, the lender’s underwriters sometimes simply cut the number – even if this means knocking the real estate transaction off track. Or they demand an immediate explanation from the appraiser.

But all this may be about to change. Effective Sept. 1, Fannie Mae is prohibiting lenders who sell it loans from changing appraisers’ numbers. In guidance issued June 30, Fannie Mae said lenders must contact appraisers to “resolve” any disagreements about the valuation. If that’s not possible, they should order a second appraisal – not just chop the value supporting the real estate contract.

Appraisers applauded the new rule. “This is huge,” said Gary Crabtree, president of Affiliated Appraisers of Bakersfield, Calif., and a member of the national government relations committee of the Appraisal Institute, an industry group. Pat Turner, an appraiser in Richmond, Va., said Fannie’s new requirement “is great news for consumers” because loan underwriters hundreds of miles from the property “no longer will be able to change the appraiser’s valuation” simply because they pulled a lower number off a computer.

Turner said these electronic models “are often inaccurate,” and provide no information on property condition. He said an appraisal completed recently in Virginia was challenged by a review company based in California using a proprietary electronic valuation system. The reviewer wanted to know why Turner hadn’t used a specific property in the area as a “comparable” in doing his appraisal on the house. Turner checked out the suggested “comp,” and it turned out to be a vacant lot, worth far less than the house – not a true comp “by any stretch of the imagination.”

Fannie Mae’s new guidelines also attempt to clarify other issues that have arisen during the past year, including the widespread use of inexperienced appraisers who are unfamiliar with local market conditions. Realtors, builders and mortgage brokers have complained to Congress that rules adopted by Fannie Mae and Freddie Mac in 2009 encouraged lenders to use “appraisal management” companies to value properties.

Those companies, in turn, often pay appraisers deeply discounted fees – half off traditional prevailing rates in some cases – and require them to complete their assignments far faster than normal turnaround times. Critics have charged that low-budget appraisers working for management companies frequently travel long distances to do their valuations, have minimal access to local realty data, and make excessive use of foreclosures and short sales as comparables – thereby depressing the values of non-distressed sales in the area.

Fannie’s letter attempts to clarify its “appraiser selection” standards. Tops on the list: Appraisers should be experienced, “have the requisite knowledge” about local market conditions, plus access to all local data sources. Fannie also emphasized that the demonstrated experience of an appraiser should always trump fees or turnaround times – a clear swipe at management companies who literally bid out their work on the latter two criteria.

Asked whether Freddie Mac plans to issue similar rules on appraisal quality standards, a spokesman said “we’re definitely looking at it.”

30 year fixed rates are averaging 4.75% with no points and approximately 4.50% with an origination fee (which is the rate quoted on a national basis).

The 10 year fixed w/ 30 year amortization is a great program to consider with rates at 4.25% on average! How many home buyers stay in a home or mortgage longer than 10 years?

Fixed rates are hard to pass up in this market, however this 10 year program is a great alternative to a lower monthly payment…

Have a great weekend!