Commercial real estate may be last to recover
Jack Maher Date last updated: 1/7/2010 10:43:07 AM
DENVER - The newest metro Denver economic snapshot indicates a very slow recovery for the area's commercial real estate sector.
The chief economist for the Metro Denver Economic Development Corporation sifted through the findings on 9NEWS 6 a.m.
Patty Silverstein says the downturn in residential real estate in many ways led the nation into recession, and commercial real estate will be one of the last sectors to return.
According to Silverstein, dysfunctional credit markets and reduced demand for office space drove higher vacancy rates and lower lease rates in 2009, and several major brokerages expect rates will not recover to pre-recession levels for several years.
Silverstein believes commercial construction which slowed in 2009 in metro Denver will remain sluggish.
"Financing for construction projects is the real wild card here," she said. "The money is out there, it's just a matter of where and when it will be spent."
According to CoStar Realty Information, Inc., the total square footage of metro Denver office property completed in 2009 fell nearly 30 percent from the total finished in 2008, and the total volume of industrial property completed was less than one-tenth of the square footage completed in the prior year.
The battered retail market accounted for a majority of commercial construction in metro Denver in 2009, but the market's total annual construction volume fell roughly 42 percent from the volume completed in 2008.
Data from CoStar also shows the direct vacancy rate in metro Denver's office market declined slightly between the third and fourth quarters, but the fourth quarter rate (13.8 percent) was nearly one percentage point above one year ago. Direct office market lease rates fell from $20.73 in the third quarter of 2009 to $20.10 in the fourth quarter.
Silverstein says while the situation is difficult for builders, brokers, and many others who depend on commercial real estate activity, the slowdown in commercial construction should help metro Denver's markets recover faster than metro markets with a larger inventory of new property.
For more on the report please visit:
http://www.metrodenver.org/
Friday, January 8, 2010
Thursday, January 7, 2010
Mortgage rescue: Credit score killer
NEW YORK (CNNMoney.com) -- Most troubled homeowners view President Obama's foreclosure rescue plan as a way out of their financial troubles.
But many don't realize that entering a trial mortgage modification can actually hurt their credit.
CNNMoney recently received a flood of e-mails from readers complaining about the impact of trial modifications on their credit reports.
To be sure, many people who apply for the president's plan are already delinquent in their mortgage payments, which wrecks their credit backgrounds. And obtaining a trial modification should affect borrowers' scores because it shows they cannot meet their original obligation, experts said.
But being in a months-long trial period may only add to the pain.
Jason Axelrod learned that the hard way.
Axelrod, a municipal employee who lives outside Chicago, entered a trial mortgage modification program this spring.
He had not fallen behind in his mortgage, but he was finding it harder to make ends meet after his overtime was cut and his property taxes skyrocketed. Told it would not hurt his coveted 750 score, Axelrod secured a $565 reduction in his monthly payments.
Eight months later, Axelrod is still stuck in the trial modification, trying to satisfy his loan servicer's endless requests for documents.
And to his horror, his credit score has plummeted to 644.
"It's completely destroyed my credit," said Axelrod. "If I had known it would affect my score, I would have never entered the program."
Representatives at JPMorgan Chase (JPM, Fortune 500), which services Axelrod's loan, are instructed to tell applicants that entering a modification could impact their credit histories, a bank spokeswoman said.
Despite his weakened credit score, there is at least some good news for Axelrod: After being contacted by CNNMoney.com, JPMorgan Chase said his permanent modification had been approved.
Credit reporting guidelines
Under the president's plan, troubled borrowers can have their monthly mortgage payments reduced to 31% of their pre-tax income.
Homeowners are first put in a trial modification for several months to prove they can handle the new commitment and to give the bank time to collect the necessary income and hardship verification documents.
During this period, industry guidelines call for loan servicing companies to report borrowers to the credit bureaus according to their status before they entered the modification - either current or the number of days delinquent.
However, borrowers' accounts are also designated with a code indicating they are in a partial payment plan.
The coding alone can impact credit scores, which measure a consumer's financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.
Just what banks are reporting to the credit bureaus remains a matter of some debate. Some servicers have been inconsistent in following the guidelines, according to a Treasury official. Also, they don't always report that their current borrowers have entered modification plans.
Some 24,000 trial modifications were given to those still current with their payments, as of early September. A total of 366,000 trial modifications were in effect at that time. The total number has since risen to just under 700,000, as of the end of November.
JPMorgan Chase, Wells Fargo (WFC, Fortune 500) and Citigroup (C, Fortune 500), which are among the nation's largest servicers, declined to be interviewed for this article. A Bank of America (BAC, Fortune 500) spokeswoman said the bank follows industry guidelines.
According to the Mortgage Bankers Association, an industry group, servicers are required to report all information about their clients, including whether they are in modification plans. For seriously delinquent borrowers, this may improve their status somewhat since they will start making payments again.
"If you are in the trial period, over that three month period, you are going to improve your situation in most cases," said Vicki Vidal, the group's associate vice president for government affairs.
Once borrowers receive a permanent modification, their payment status is listed as current. However, the delinquency remains on their credit reports for up to seven years.
On top of that, the longer homeowners are listed as delinquent, the greater the impact on their credit score. That's one reason why servicers should be quicker to convert borrowers from trial modifications to permanent adjustments, said Jan Jones, a housing counselor in Alaska.
Financial institutions have come under fire in recent weeks for dragging their feet in evaluating borrowers for permanent adjustments.
"What's making people upset is the length of time lenders are taking to consider these workout plans," said Jones, who works for Consumer Credit Counseling Service of Alaska.
Axelrod is already feeling the impact of his lower credit score. He ordered a new car this summer, believing it would come with a lower monthly payment. It arrived in mid-December.
But because of his newly blemished credit background, his two credit unions turned him down for a car loan. His dealership told him the best he could get is a 12% rate, a hefty hike from the 4.7% he was paying before.
"This is the biggest nightmare," he said. "My credit is completely useless."
Tuesday, January 5, 2010
Universe of Commercial Mortgages Dips Again in 3Q to $3.43 Trillion
| Universe of Commercial Mortgages Dips Again in 3Q to $3.43 Trillion |  |  |  |
| Thursday, 17 December 2009 | |
| Commercial Real Estate Direct Staff Report The universe of commercial mortgages outstanding in the United States continued to decline during the third quarter, falling by $28.3 billion, or 0.8 percent, to $3.43 trillion from the second quarter, according to analysis of Federal Reserve Board flow of funds data by the Mortgage Bankers Association. The decline in the size of the universe should be no surprise as lenders in general remained very skittish in terms of writing new loans and CMBS lenders, specifically, were still on the sidelines. With new origination levels down from previous periods, it's only natural that the volume of loans would decline as a result of run-offs facilitated by writedowns among investors holding loans. Only government entities, including Fannie Mae and Freddie Mac, and private pension funds saw an increase in the volume of mortgages they own. The two housing-finance agencies saw their share of the commercial mortgage pie increase to 5.7 percent from 5.6 percent in the second quarter. They held $197.4 billion of loans at the end of the third quarter, up 1.7 percent from the second quarter. In addition, mortgage pools issued by the two hold another $162.2 billion of loans, up from $160.1 billion a quarter earlier. Commercial banks saw the biggest dollar decline in the size of their mortgage holdings, to $1.53 trillion from $1.55 trillion. But that drop is due largely to a reduction in the amount of construction loans they hold, according to the trade group's analysis. Exclude those and their holdings actually increased by $6 billion. REITs saw the biggest percentage decline in their holdings. They ended the third quarter with $31.9 billion of loans, down 11.6 percent from the second quarter. The MBA has found that 48 percent of the commercial real estate loans held by the country's top 10 commercial real estate bank lenders were related to owner-occupied commercial properties. Those properties rely on some operating business, as opposed to rental income, for their cash flow. CMBS now holds $708.6 billion of mortgages, for a 20.6 percent share of the market. That's down from $718.1 billion and a 20.7 percent share. And life-insurance companies hold $310 billion of loans, down from $311.9 billion in the second quarter. Meanwhile government - state, federal, their agencies and bonds they issue - now hold $531.1 billion of loans for a whopping 15.5 percent share of the entire commercial mortgage universe. That's up from a 15 percent share in the second quarter. If you look at only multifamily loans, the government's share of the market is even greater. It holds $443.8 billion of loans, or 49 percent of the country's $911.66 billion of apartment loans outstanding. CMBS and other private-label securitization structures now hold $110.3 billion of apartment loans, or 12.1 percent of the universe, down from $112.1 billion or 12.3 percent in the second quarter. Banks hold $216.8 billion, or 23.8 percent of the total, just about unchanged from the second quarter. Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211. |
Credit crunch: Home equity lending evaporates
Credit crunch: Home equity lending evaporates
Posted: 12/25/2009 09:39:19 AM MST
Updated: 12/25/2009 09:39:19 AM MST
Hocking the house for quick cash is a lot harder than it used to be, and it's causing headaches for homeowners, banks and the economy.
During the housing boom, millions of people borrowed against the value of their homes to remodel kitchens, finish basements, pay off credit cards, buy TVs or cars, and finance educations. Banks encouraged the borrowing, touting in ads how easy it is to unlock the cash in their homes to "live richly" and "seize your someday."
Now, the days of tapping your house for easy money have gone the way of soaring home prices. A quarter of all homeowners are ineligible for home equity loans because they owe more on their mortgage than what the house is worth. Those who have equity in their homes are finding banks far more stingy. Many with home-equity loans are seeing their credit limits reduced dramatically.
The sharp pullback is dragging on the economy, household budgets and banks' books. And it's another sign that the consumer spending binge that powered the economy through most of the decade is unlikely to return anytime soon.
At the peak of the housing boom in 2006, banks made $430 billion in home equity loans and lines of credit, according to the trade publication Inside Mortgage Finance. From 2002 to 2006, such lending was equal to 2.8 percent of the nation's economic activity, according to a study by finance professors Atif Mian and Amir Sufi of the University of Chicago.
For the first nine months of 2009, only $40 billion in new home equity loans were made. The impact on the economy: close to zero.
"The home as ATM is yesterday," says Keith Gumbinger, vice president of HSH Associates Financial Publishers, which publishes consumer loan information.
Millions of homeowners borrowed from the house to improve their standard of living. Now, unable to count on rising home values to absorb more borrowing, indebted homeowners are feeling anything but wealthy.
Holly Scribner, 34, and her husband took out a $20,000 home equity loan in mid-2007—just as the housing market began its swoon. They used the money to replace sinks and faucets, paint, buy a snow blower and make other improvements to their home in Nashua, N.H.
The $200 monthly payment was easy until property taxes jumped $200 a month, the basement flooded (causing $20,000 in damage) and the family ran into other financial difficulties as the recession took hold. Their home's value fell from $279,000 to $180,000. They could no longer afford to make payments on either their first $200,000 mortgage or the home equity loan.
Scribner, who is a stay-at-home mom with three children, avoided foreclosure by striking a deal with the first mortgage lender, HSBC, which agreed to modify their loan and reduce payments from $1,900 a month to $1,100 a month. The home equity lender, Ditech, refused to negotiate. Scribner's husband, Scott, works at an auto loan financing company but is looking for a second job to supplement the family's income.
The family is still having trouble making regular payments on the home-equity loan. The latest was for $100 in November.
"It was a huge mess. I ruined my credit," Holly Scribner says. "We did everything right, we thought, and we ended up in a bad situation."
It's a mess for the banking industry, too.
Home equity lending gained popularity after 1986, the year Congress eliminated the tax deduction for interest on credit card debt but preserved deductions on interest for home equity loans and lines of credit. Homeowners realized it was easier or cheaper to tap their home equity for cash than to use money taken from savings accounts, mutual funds or personal loans to fund home improvements.
Banks made plenty of money issuing these loans. Home equity borrowers pay many of the costs associated with buying a home. They also may have to pay annual membership fees, account maintenance fees and transaction fees each time a credit line is tapped.
In 1990, the overall outstanding balance on home equity loans was $215 billion. In 2007, it peaked at $1.13 trillion. For the first nine months of 2009, it's at $1.05 trillion, the Federal Reserve said. Today, there are more than 20 million outstanding home equity loans and lines of credit, according to First American CoreLogic.
But delinquencies are rising, hitting record highs in the second quarter. About 4 percent of home equity loans were delinquent, and nearly 2 percent of credit lines were 30 days or more overdue, according to the most recent data available from the American Bankers Association.
A rise in home-equity defaults can be particularly painful for a bank. That's because the primary mortgage lender is first in line to get repaid after the home is sold through foreclosure. Often, the home-equity lender is left with little or nothing.
Banks are applying the brakes.
Bank of America, for example made about $10.4 billion in home equity loans in the first nine months of the year—down 70 percent from the same period last year, spokesman Rick Simon says. The also started sending letters freezing or cutting lines of credit last year, and will disqualify borrowers in areas where home prices are declining.
"This was just solid risk management," he says.
Jeffrey Yellin is in the middle of remodeling his kitchen, dining room, living room and garage at his home in Oak Park, Calif. He planned to pay for the project with his $200,000 home equity line of credit, which he took out in January 2007 when his house was valued at $750,000.
In October, his lender, Wells Fargo, sent a letter informing him that his credit line was being cut to $110,000 because his home's value had fallen by $168,000, according to the bank.
He is suing the bank, alleging it used unfair standards to justify its reduction, incorrectly assessed the property value, failed to inform customers promptly and used an appeals process that is "oppressive." Jay Edelson, a lawyer in Chicago who is representing Yellin, says homeowners are increasingly challenging such letters in court. He says he's received 500 calls from upset borrowers.
Wells Fargo declined to comment on Yellin's lawsuit but said it reviews of customers' home equity lines of credit to make sure that account limits are in line with the borrowers' ability to repay and the value of their homes.
"We do sometimes change our decisions when the customer provides sufficient additional information," Wells Fargo spokeswoman Mary Berg said in a statement e-mailed to The Associated Press.
Work has stopped at the Yellin's home. The backyard, used as a staging area for the remodeling job, is packed with materials and equipment.
"Now, I've got a backyard that looks like 'Sanford and Son' almost," he says.
Read more: http://www.denverpost.com/economy/ci_14069724#ixzz0bkNSunDH
Monday, January 4, 2010
Denver real estate fares better than most
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Friday, December 25, 2009
Denver real estate fares better than most
Denver Business Journal - by Paula Moore
Times were tough for metro Denver commercial and residential real estate businesses in 2009, but not as bad as in many other U.S. cities.
The constricted debt market remained one of the biggest problems for all real estate businesses, including commercial developers and homebuilders. Lenders, partly because of new federal regulations, kept a tight rein on debt financing.
In the residential arena, sales of high-end homes slowed to a trickle this year. But the federal government’s $8,000 first-time homebuyer tax credit did what it was supposed to — stimulating sales of both newly built and existing homes in lower price ranges.
The tax credit and low mortgage rates drove most home sales.
“For Denver’s housing market, 2009 was a year of so many industry changes, from short sales to new loan and appraisal rules,” said Leeann Iacino, president/CEO of Re/Max Professionals: Colorado’s Most Prestigious Real Estate Co. “It was a year for not only the real estate professionals to retool their business, but also for the consumer to really understand all the changes.”
Iacino merged her company, Prestige Real Estate Group LLC, with Re/Max Professionals Inc. in April to survive the housing downturn. “We’ve been profitable since then,” she said.
Looking at commercial real estate, some tenants shopped around for new space, but many opted not to move because of instability in the job market and the economy at large, brokers said.
There were few large sales of office buildings, shopping centers and warehouses, but there was a steady trickle of sales in the $10 million to $20 million range. With property values down, brokers advised property owners not to sell unless they had to.
Many cash buyers sat on the sidelines much of the year, waiting for asking sales prices to hit bottom, but became more active as the year wore on. In what’s likely to be the metro area’s biggest apartment property sale of ’09, CB Richard Ellis Investors LLC — CBRE Investors for short — paid $55 million cash for The Metro apartments near Coors Field in mid-December.
Big sale in Q2
But even in the second quarter, metro Denver managed to have one of the country’s largest office-building sales for the period, when HRPT Properties Trust (NYSE: HRP) of Newton, Mass., bought the 667,000-square-foot Seventeenth Street Plaza high-rise in downtown Denver for $134.3 million.
“Denver is doing less worse than other cities and regions around the country, some of which are almost hopeless,” said Greg Morris, president/CEO of Denver-based Fuller Real Estate. “That’s just not the case in Denver. It all stems back to job growth.”
Morris and other experts believe the first half of 2010 will be challenging for commercial real estate, but that market will stabilize in the second half of the year. Real estate investors are already positioning themselves to make purchases in the new year.
There were still plenty of problem commercial loans and home mortgages this year, but in the latter part of ’09, lenders were more open to loan workouts to avoid foreclosures.
Despite those efforts, Colorado had a record 12,468 home foreclosure filings in the third quarter, according to the Colorado Division of Housing. But the amount of completed residential foreclosures was down 8 percent in the state for ’09’s first three quarters year over year.
More home foreclosures expected
Residential brokers expect more home foreclosures in 2010, partly because many adjustable-rate mortgages (ARMs) will come due in the fall.
The Denver area had relatively few commercial foreclosures this year, exceptions being the 1860 Lincoln office building in downtown Denver and the Ritz Carlton, Denver hotel’s condo component and athletic club space. But a wave of commercial loans are expected to come due next year, which could cause a spike in commercial foreclosures.
“The velocity of troubled loans should be more dramatic in 2010, but I don’t think we’ll see the level of commercial foreclosures some are projecting,” said Mark Lucas, managing director for Chicago-based Jones Lang LaSalle Inc.’s (NYSE: JLL) Denver-area operation. “We’ll see loan workouts continue to be the first preference of lenders.”
JLL’s metro-area office added a dozen brokers this year and beefed up its distressed real estate services. The firm also hired one of the Denver area’s top commercial real estate executives, Ann Sperling, to be COO of the company’s entire Americas division, after Sperling was let go by Catellus Development Group earlier in the year.
Catellus is part of Denver-based ProLogis (NYSE: PLD), one of the world’s largest owners of distribution centers.
ProLogis, after launching a major retrenchment in late 2008 to deal with the challenges of the soft global commercial real estate market, had raised $5.5 billion by fall.
Those funds were used to chip away at the company’s $11 billion debt and return to development mode.
To keep stimulating the housing market, the U.S. Congress extended the first-time homebuyer tax credit in November, and added a $6,500 credit for existing homeowners interested in buying a home. Both credits expire April 30, 2010.
Efforts to refine the complicated short-sale process also were put in place this year, and are expected to continue in ’10. Short sales are those whereby mortgage lenders allow homes to be sold for less than what’s due on their loans to avert foreclosure.
Sales of high-end homes — those priced at $600,000 and more — are expected to tick up slightly in the new year.
Some area homebuilders think the metro-area housing market appears to have hit bottom and is on its way back up. Frank Walker, vice president at Denver-based Oakwood Homes LLC, expects his company to increase metro-area sales 20 percent next year.
Sunday, January 3, 2010
Foreclosures create some deals among luxury homes
business
Foreclosures create some deals among luxury homes
Posted: 01/03/2010 01:00:00 AM MST
Even as Denver's overall housing market shows signs of improvement, the number of high-end homes slipping into foreclosure continues to climb.
Last week, 31 homes valued between $500,000 and
$4 million went into foreclosure, including four over
$1 million, said Ron Woodcock, a broker with Re/Max Southeast who tracks foreclosures.
Much of the problem stems from the inability of potential buyers to obtain "jumbo" loans — financing above $417,000.
"Jumbo money has dried up across the country, and that market is going to be a disaster," Woodcock said.
Sales of homes over $1 million plunged 40 percent between 2008 and 2009, said Lon Welsh, managing broker of Your Castle Real Estate, and sales of non-distressed homes declined 46 percent. But foreclosure sales increased 56 percent, from 16 to 25 homes sold, in that time frame.
Short sales were up 433 percent, from three to 16 sales.
"We expect to see that the number of luxury distressed sales will continue to increase dramatically in 2010," Welsh said. "If you are a buyer with a long time horizon, 2010 will be a great time to hunt for deals."
Even homes that aren't in foreclosure are being offered at deep discounts.
Luxury real-estate specialist Edie Marks has twice dropped the price of a Cherry Hills Village estate that's been languishing on the market. The 15,000-square-foot house on 4.7 acres initially was listed at $8 million. Today, it can be had for $3.5 million.
"The people that have money are sitting in a kind of cocoon," Marks said. "They're not making decisions because they're concerned about what's coming down, in terms of taxation and vindictiveness against the wealthy."
The good news is this is a once-in-a-lifetime opportunity for buyers to purchase the home of their dreams at below-
market pricing, said Rollie Jordan, a luxury-real-estate specialist at The Kentwood Co. at Cherry Creek.
"There are some great values out there," said Jordan, whose last three deals have been foreclosures and short sales. "My clients are happy, and I am happy that they were able to get a great buy."
It's also a better deal for banks, said George Leonard, a broker with Your Castle. The property remains occupied, so the bank does not have to worry about maintaining it or keeping it heated.
"Banks are beginning to see that it's cheaper to do a short sale than it is to do a foreclosure," he said. "When a foreclosure happens, the bank loses about 70 percent. If they do a short sale, they only lose 40 percent."
But getting a great deal through a short sale is likely to take some time. It takes an average of three or four months for the bank to approve an offer, said Jon Cole of RealtyTMS, a Boulder company that manages short sales for realty agents.
"It can linger on, depending on how difficult the bank is, how responsive they are and what requirements they're seeking, and how long the buyer is willing to wait," Cole said. "Sometimes, the buyer gives up and moves on to another property."
Read more: http://www.denverpost.com/business/ci_14111783#ixzz0bYcSxSPi
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