More Bad News coming down the Pipe??!!

I keep reading articles that say commercial Real Estate is headed for a major train wreck, unless the financing for commercial properties can be worked out. Some companies are at the door of foreclosure and more will be, as more and more of the debt becomes due and can not be paid.

Here are a few excerpts from the Wall Street Journal:

'With the commercial real-estate industry bracing itself for the onslaught of hundreds of billions of dollars in maturing loans, the Treasury is considering issuing rules that will make it easier for property developers and investors and their loan servicers to restructure debt, according to people familiar with the matter.
Tax rules make it difficult for borrowers who are current on their payments to hold restructuring talks with the servicers of commercial mortgages that were packaged and sold as bonds. This lack of flexibility was one of the reasons cited by the management of mall giant General Growth Properties Inc. for its Chapter 11 bankruptcy filing in April.
At present, developers and investors complain that only those who are delinquent can talk to servicers of these bonds, named commercial-mortgage-backed securities, or CMBS. But now the Treasury is considering issuing guidance that would allow servicers to start talking about ways to avoid defaults and foreclosures sooner, possibly at least two years ahead of the maturity date of a loan, these people said. The Treasury guidance, which could be released within weeks, would essentially enable loan-modification talks to take place without triggering tax consequences, these people say.' by LingLing Wei and Kris Hudson

Another article mirrors the same train of thought:
This is from a staff writer on the Mercury Sun in the Silicon Valley, George Avalos. This article is specific to the San Francisco, Oakland and San Jose Area.

'A vast auto dealership is empty in Oakland, visible from the freeway. In Pittsburg, a big housing development looms over a downtown street, unfinished and vacant. Hotels in Brentwood and Oakland are isolated behind cyclone fences. A mammoth residential development is idle next to the Caldecott Tunnel.

These troubled projects all are mute testimony to a financial malaise that first sickened the housing market and has now infected a broader part of the wheezing regional economy.

During a half-year period stretching from October through the end of March, mortgages totaling $784 million have slumped into default for dozens of commercial or development properties, including some huge residential subdivisions, in the East Bay.

"The commercial real estate shoe has dropped, and it is sitting on the ground crying," said Christopher Thornberg, partner and economist with Beacon Economics. "This is a huge problem."

This new downturn is also a significant challenge for the economy generally. Undeveloped or partially built projects stalled by foreclosures or bankruptcy can weaken economic growth in a community. Existing projects that are in default can fail to attract retailers or new businesses to a city. Buildings that are delayed in getting off the ground because of financial woes portend fewer construction jobs.

Bottom line: The recession that began with sales of individual houses, then spread to banks, retailers and automakers, now has commercial real estate in its grip. This relapse for the economy has arrived just when the fallen residential sector has begun to stagger off the ground.'

The article goes on the state 'Compared with the October-through-December quarter of 2008, the pace of commercial property defaults accelerated during the January-through-March quarter of 2009, a six-month analysis shows. The survey done by MediaNews compiled data on delinquent mortgages with loan amounts of at least $1 million.'

That is in just one region of California, Other articles report the same thing happening across the nation.

Now would be a good time to get to know commercial mortgage brokers and bankers and investors with deep pockets. Build the relationship's that will bring you deals and money. Investors are always looking for a good deal. If they can come in a save the day and save money, they will happy campers. You will be to, if you can put the deal together.

We at the National Association of Commercial Real Estate Property Scouts (NACREPS) have been training people from all walks of life to be property scouts. Check us out on the web at http://www.nacreps.org

Opportunites In Commercial Properties

It has been said that America is the land of opportunity. In residential properties that is so true. Low values means cash flow the investor that can buy the houses. Also, for the hard working American's that can afford to buy a house at a price where they can have the monthly payment they can manage. Not living on the edge, concerned about whether they make that next payment is one of them loses their job.

O.K., enough the house buyers, what about Commercial Real Estate? What is the wide, wide world of commercial is going on? Who are making the deals? Where are they making the deals? Why are they making these deals?

There is opportunity at every turn, you just have to look. Some are finding them the traditional way, through a commercial Real Estate Broker. Some are finding them through special asset managers in banks, or the short sale managers. Some are finding defaulted notes, or notes about to go into default. Some area's are coming out of the ground on new projects. Some buyers are finding projects that have run out of funds and need a white knight. Some banks are letting the notes float, hoping that the mortgagee will catch up the back payments and come current.

In some parts of the country, building cranes can be seen all over the place, other cities, not so many. Raw land and residential developments are definitely on the back burner except for the rare land banker, that is dug in for the recovery.

Some investors are motivated by the headlines of doom and gloom and do not take action. While the real investor is guided by the numbers and a few other factors. Do the numbers work? Will I make money it I make this purchase? Can I get this financed or backed buy securities and equity partners.

So at the end of the day, the commercial real estate market is an opportunity either way. You can get in and find a deal, money opportunity. Or you can wait on the sidelines and have a missed opportunity. As always, the choice is yours.

What are you going to do? Pass or Play.

If you do not have the money to play, you can sure learn a lot about commercial property by checking out http://www.nacreps.org and learn to scout for commercial property.

Take Care,
Ted

Is the Sky Falling??

Everyone knows the story of chicken little. The little chicken that thought the sky was falling on her, when she was hit on the head by a falling acorn. In today's economic climate, a lot of people are joining the band wagon, thinking the sky or building as fallen in on them.

True, time are tough, if you listen to the news for any length of time. We have new leadership in Washington and their actions do not seem to be making a difference except putting the nation under a greater burden of debt. Companies, small business owners, the workers in the plants and industries across the nation, as well as the home owners and renters are wanting debt relief.

The experts are predicting the start of the commercial down turn in a lot of metropolitan marketplaces. Some of the cities are already seeing it in the number of vacant retail spaces and big box stores, as major chains are closing their doors.

So is the sky falling or is this the time for doing your homework and finding the commercial deals that can be salvaged and help turn the economy around, buy creating jobs and cash flow.

The Wall Street boys have been waiting on the side lines for the last year or so waiting to see which way the wind was going to blow. They are still waiting. Some bankers are working with commercial notes that are in default and helping to get things sorted out. Some are not and as a result we have a foreclosures, climbing on the commercial side of real estate.

So if the commercial down turn accelerates, there is a good chance more and more property owners are going to need help. Who will be there to help them? Will you? Will a team of knowledgeable team of committed people be in place to help? Will the government help? Will the bankers help? Will investment groups help?

I know that there are people who scout for commercial properties on a regular bases. They are trained and work hard at finding the deals that make sense. They watch the market and keep an ear to the ground for possible deals everyday.

If you are motivated and committed to finding commercial deals. If you are interested in getting active in commercial property scouting, check out http://www.nacreps.org/

Till next time, enjoy life.

Is Now the Time to Invest??

Hey, I am back. Did you miss me? Just joking...
Took some time off to enjoy the family and life. There is more to life then blogging.

New president, new faces in Congress and the Senate, new spending galore, but to what end. Still lots of gloom and doom. Market tanking here, market tanking there, foreclosures up, bank failing, bad loans left and right. People losing their jobs, companies bleeding all over the street, going out of business, leaving the landlords and property owners holding the bag.

From talking to other Phoenix Commercial investors, they are looking forward to the turn down in the Phoenix Commercial marketplace. They are actively looking, they know that good deals can be had. When I talk to other investors and brokers in different parts of the USA, they to are looking to make deals, both on the buy and sell side.

While the Wall Street boys are standing on the sidelines watching to see which way the wind is blowing, they to are looking for good deals in the major metropolitan areas. They have been out of the raw land deals for the last two years, whether commercial malls, office buildings or new residential. Everybody is holding their investment dollars, but they to turn the page soon or stand to lose even more money because the money is not moving.

This is the perfect time to strike a deal, but you really have to do your homework and due diligence, for money is tight on certain types of commercial loans and private money will only move when the deal is vetted to the core, not based on a lot of speculation.

Investors are looking to find properties that cash flow or break even, that can be turned around with better management or taking care of the deferred maintenance. Or will cash flow, as they fix the building one unit at a time and make plans to convert to condo's for when the market turns around. Lots of plans and ideas. Certain parts of the country are building new apartments and office complexes.

So, go out there and find those deals, hook them up with investor's and let the games begin.

To find out more on Commercial Real Estate Property Scouting, check out http://www.nacreps.org and get in action.

Till next time.

Five Things to Do in the Troubled Times

Mostly in the blog I talk about Commercial Real Estate and investments. Today, though, I came across an article that caught my eye, and I’m going to pass these suggestions on to you - just in case you might be tempted to panic with the stock market gyrations. The news is grim. No doubt. The stock market hasn’t seen this level in many years and people are worried. The bailout of the banks and financial institutions is all the talk.

Still, you can protect yourself. Here are five tips to help you weather this storm.

1. Don’t panic. This market has given even the hardiest investors a case of the heebie-jeebies.

Converting all of your investments to cash at this time may cause you more harm that good. Unless you need the money short term - say, within two years, its best to remember that good and bad times pass. Historically, the market’s made up all its losses fairly quickly.

Since 1945, there have been 11 recessions as officially defined by the National Bureau of Economic Research. The S&P 500 — the index of widely held stocks used as a barometer for the overall market — generally has hit bottom six months into the typical 10-month-long recession.

After that point, the market typically starts regaining its footing. If you include the very worst meltdowns, when the S&P 500 lost more than 45 percent of its value, it took 19 months for investors to recoup their losses. But exclude the mega losses, and you find that it’s actually taken just eight months on average for the index to bounce back.

In other words, don’t freak out. Stay calm.

2. Don’t put all your eggs in one basket. We’ve all heard this many times, and actually, right now would probably not be the best time to re balance your portfolio.

But, if you’re reading this you are probably already a Property Scout. And as all good scouts know, investing in Commercial Real Estate takes time. But if you’re working the process, you have definitely started another nest for your “eggs for the future.”

Some of you may already have a good job - that’s great. I’ll be talking more about that in Tip number 4. Even if you do have a good job, Property Scouting can be a hedge against losses you might be taking now in the market. If you’re losing money now, even though the market will eventually rebound, continuing to invest in your future through Property Scouting may pay off big for you down the road.

This is the time to ramp up your search and find the golden opportunities.

3. Don’t allow your home to become a trap. This could be a catch-22 if you still have a mortgage on an option ARM (Adjustable Rate Mortgage.)

If, you’ve been reading anything lately — and how could you not-about the sub-prime melt-down and the supposed catalyst to the current market debacle, you know the dangers of the option ARM.

You may have gotten in to your home with an initially low interest rate - knowing that at some point the interest rate would rise - along with the payments. If you’ve got a relatively new loan with an ARM, you may be able to ride it out until the storm abates.

If you’re unlucky enough to be nearing the end of the low rates, you could be in for some problems. Try to get your house refinanced if you can. Otherwise, tighten your belt and hold on as long as you can. New legislation passed within the $700 Billion rescue package, could help you!

4. Update your resume. Working hard can help protect your job, but may not be enough. Instead, be strategic and figure out where you stand. Workers who cost employers money are most likely to be laid off. These include support staff in bureaucratic positions or workers in overstaffed departments.

By contrast, employees who add to a company’s revenues are more likely to be viewed as valuable assets. So, try to take on work that no one else can do, or volunteer to head up long-range projects vital to your employer.

Meanwhile, start networking now. It takes time to get a new job, especially if you’re already several rungs up the career ladder. Entry-level employees in lower-paid positions need roughly two months to get re-employed. But higher-paid executives generally will spend five months on average to find another position.

5. Look to the long term. Its’ more important now than ever to take a long-term approach to your future.

That’s the good news with Property Scouting. Finding the right property in this market, that our investors can pick up at bargain prices, will mean a big payout for you in a few years. This could be just what you need to weather the storm.

It seems that everyone I talk to now, is amazed by what’s going on. It’s actually a historical time to be alive - and for some it’s very exciting! For others its more disconcerting.

Just remember, the market always recovers. We live in the greatest county in the world, and we Americans are not just survivors - we’re THRIVORS! I plan to thrive - I hope you’ll join me!

So as a property scout, I am always talking to and listening to my friends in the know. I am also asking about new properties and deals all the time. YOu never know when one will show up.

If you are a scout keep looking. If you want to be a scout, check out http://www.nacreps.org

Till next time.
Ted

Market Cycles for Commercial Properties

Now you might not all be fans of The Apprentice, but certainly you can appreciate all that The Donald has done for Commercial Real Estate! If you’re ever feeling like you need a motivational read, pick up one of Donald Trump’s books. I like “The Art of the Deal” and I also like “Trump - Strategies for Real Estate: Billionaire Lessons for the Small Investor“ which was written by Trump’s long time attorney, George Ross.

They said all markets have phases that they go through — some phases favor the buyer and others favor the seller. Let’s take a look at the phases in real estate market and see what we can expect.

The the first phase is the Expansion Phase. This is a time of prosperity and market growth as the name implies. People are buying, and building, and selling – the money flows freely in many directions. What eventually happens however, is that the market becomes over-built. So many people see the incredible profits being made, they all jump on the building band-wagon at once, causing huge numbers of unsold inventory to come online at the same time triggering the next phase which is the Decline Phase. The economy may begin to slow, unemployment creeps up and property movement becomes stagnant - seller’s aren’t selling, buyer’s aren’t buying. Finally, the market moves into recovery, the over-building is becoming absorbed, and the flow begins again. This is called the Absorption Phase and heralds the beginning of recovery.

Someone like George Ross, who is 80 years old, has seen markets go through these phases many times over the years and its always the same — like winter, spring, summer and fall. The phases come in exactly the same order over and over again. The only difference is how long each phase can last. A complete cycle of Expansion, Decline and Absorption can last anywhere from 8 to 12 years — no exact science here!

He is very quick to point out that The Donald loves being in the Decline and beginning of the Absorption Phases as those are truly the market in which you can make the most money.

If you read either of the books I mentioned above, you’ll read the story of when Trump bought one of his first buildings in a horrible part of town, in an economy in which New York City was in dire straits financially. The entire purchase of the Commodore Hotel was literally pieced together one tiny step at a time. Donald was able to purchase the old hotel in 1975 for $1 million! Today it is the Grand Hyatt Hotel at Grand Central Station — one of the most luxurious Hyatts in the world and worth hundreds of millions! It’s a great story with all kinds of twists and turns, but the point is this:

At the time, the real estate market in New York City was in serious Decline, which makes for a buyer’s market. The old hotel was purchased for only $1M by 27 year old Trump and he’s turned it into a thing of beauty. So Trump’s motto is to buy in the Decline Phase and during the first part of the Absorption Phase, then fix the property up and sell it toward the end of the Absorption Phase into the Expansion Phase.

Another thing to keep in mind is that one area of the country may be in a very different phase from another. Let’s take a couple of examples. Phoenix, Las Vegas, Miami and the like were in an Expansion Phase just a few short months ago. But what happened is that over-building flooded the market with excess inventory and building came to a halt. When building shuts down, many jobs are impacted. Construction workers migrate to where they can find work, construction wholesalers and retailers lay off workers, the service industries are impacted by people tightening their belts — its a chain reaction that causes the Decline Stage to trigger. Now Phoenix, Las Vegas, Miami and other areas have inventory just sitting.

On the other hand, places like Dallas, Atlanta, Denver, and Chattanooga to name a few, were in the Declining Phase several years ago. The excess inventory in those areas has been used. Over time the population continues to expand, people begin to move in and eventually, the supply of housing has reached equilibrium with demand. Now building starts are beginning to increase, and those areas of the country are in the Absorption Phase. This is a GREAT time to buy in these areas as demand is picking up and when demand exceeds supply the advantage shifts from buyer to seller. Right now, buyers who are savvy enough to read the signs in the market phase can end up making large profits very quickly!

This is an excellent time to be buying in MANY areas of the country — find areas where the over-supply of housing is declining, where job growth is increases, where existing properties are being rehabbed, where rents are beginning to rise. These are the market areas that are ready to move into the Absorption Phase — buy with both hands!!!

So take some time and find out what phase your area is in and plan accordingly. Also, find an area that is moving into the Absorption phase and network with the broker's in that area, because good things are about to happen.

Happy scouting. Go to http://nacreps.org to become a commercial property scout.

Commercial Real Estate is not Folding, Just Slowing Down

While the housing market continues to decline in a lot of the nation, the multifamily sector is still growing. Let's face it, people need a place to live. Apartments, duplex, triplexes, fourplexes, etc are in great demand, especially ones that are cash flowing and have a good upside. Or even ones that have gone into foreclosure due to any number of reasons and are now being bought at prices will below market value.

There is money out there for commercial aquistions, but you can rest assured the properties are vetted and number are verified really work before they are purchased. The big boys on wall street are buying defaulted mortgage notes for both single family residences (SFR) and commercial property.

Land banking is not happening, except in very hot growth area's and only in the path of progress. Developer after developer of SFR's are unloading some, if not all of their land holding to free up cash and stop the bleeding. Some few builders/developers are converting to apartments, which are marketable the majority of the time.

While Fannie Mae and Freddie Mac are in the SFR mortgage business, it is interesting to see them get on the multi-family housing mortgage train. While their investments tend to be on the smaller order of multi-units, they are building their mortgage portfolio.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corp. (Freddie Mac) hold or guarantee more than $6 trillion in mortgages - nearly ½ the nations total. Most of that is for single-family residences, but the two agencies and the Government National Mortgage Association (Ginnie Mae) also held $157 billion in multifamily debt in their portfolios at the end of the first quarter of 2008 and nearly $143 billion in mortgage-backed securities.

These agencies hold more than a third of the nation’s multifamily mortgage debt. Even though experts believe Fannie and Freddie are too large and too important to fail, some investors worry about their continued role in multifamily mortgage financing.

But in a article I read yesterday, a Fannie Mae representative came out touting their current role in supporting the apartment industry. In fact, the volume of deals done the first half of 2008 was larger than it was in the first half or 2007. The spokesperson reiterated, “We plan to continue investing and growing the multifamily mortgage market.”

The article was extremely optimistic about the assurances from Fannie Mae and Freddie Mac of their financial health and their ability to continue sponsoring loans. With the regulators and the Fed’s willingness to provide additional liquidity, the risks seem minimal.

Jamie Woodwell, vice president of commercial/multifamily research at the Washington-based Mortgage Bankers Association had this to say: “From my perspective on commercial real estate and commercial real estate finance, the commercial and multifamily mortgages have been performing extremely well. They’ve been strong assets for those investors in the mortgages. So I think there are a lot of reasons for those investors to continue to look to commercial real estate finance as a place to put their money.”

This is good news for us. Multi-family properties will continue to do well AND with the commitment of Freddie Mac and Fannie Mae to continue to support multifamily mortgages, this is one segment of Commercial Real Estate that is remaining strong.

If you are interested in getting into commercial real estate at a scouting level, check out http://www.nacreps.org

The National Association of Commercial Real Estate Property Scouts stays on top the shifts in the commercial real estate market and keeps their scouts looking for the next deal.