Feb 22, 2010 - CRE News

In a sign that the period of large monthly price declines may finally be over, commercial property pricing in December increased for the second consecutive month, according to the Moody's/Real Commercial Property Price Indices, or CPPI.

The 4.1% hike to 113.58 follows a 1% gain in November that was the first monthly increase since December 2008 in the indices' all-property component. CPPI is a collaboration of Moody's Investors Service and Real Estate Analytics and tracks repeat sales of properties. December's increase also is the largest monthly gain ever recorded by the index.

Still, pricing ended last year 40.8% below its peak in October 2007, and was down 29.2% from the end of 2008. The largest monthly drops last year occurred in the first half, while prices declined at a steadily slowing pace in the second half before reversing course and heading upward in November.

"Although we are unable to conclude the bottom is here, we do feel that the period of large price declines is over," Moody's said.

It noted that higher sales volumes often indicate pricing bottoms may be near. December's 716 total sales for a combined $9 billion was up 75% by count and more than double in dollar value from November's sales activity.

December's dollar volume also was up 5% from December 2008, and marked the first year-over-year gain in volume since credit markets became dislocated in late 2007.

The December 2009 transactions included 162 repeat sales with a combined value of $2.2 billion.

Pricing in the fourth quarter of 2009 increased from the preceding quarter for every property sector except retail, which dropped 1.5% to an index of 139.61.

The office sector led the fourth-quarter pricing upticks with a 7.9% gain to 122.15. It was followed by multifamily's 7% gain to 125.89 and industrial's 5.6% rise to 127.3.

For the full year, however, pricing for each sector was down by levels that range from 19% for retail to a high of 23.2% for industrial.

Within the 10 largest metropolitan markets, office pricing in the fourth quarter increased a whopping 26.8% to 134.65, but was still down 14.6% for the entire year. New York registered the largest full-year decline in office pricing at 38.1% to 141.17.

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Feb 23, 2010 - CRE News

Fundamentals for small-capitalization properties have continued to deteriorate, according to Boxwood Means Inc., with key metrics such as rents and tenant demand weakening last month.

National rents were down across the board in January when compared to a year ago. The declines range from 3.34% to $18.94/sf for medical-office buildings, to 8.23% to $7.17/sf for industrial properties. Office properties in general saw a 4.04% decline in rents to $17.57/sf, while retail properties have seen a 6.31% drop to $17.55/sf.

When compared to a month earlier, rent declines ranged from 0.2% for medical offices to 0.74% for industrial.

Boxwood Means is a Stamford, CT, research firm that focuses on small-cap properties, which it defines as those with less than 50,000 square feet. It compiles property-level operating and sales data through a partnership with LoopNet Inc.

It also compiles Days on Market, a calculation of how long it takes to rent vacant space that it uses as a gauge for tenant demand. It said the metric is at its highest level in nine months, meaning space is languishing on the market.

Despite the bad news in the data, Boxwood Means noted that declines in rents and demand are no longer as steep as they were in previous months. But it cautioned that fundamentals would continue to weaken until the national jobs picture improved and consumer confidence rose. Today, the Conference Board reported that consumer confidence had fallen sharply this month.

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Phoenix Business Journal Friday, February 26, 2010 (Excerpts) - Karen Mills was sworn in as head of the U.S. Small Business Administration last April, just as the economic stimulus bill was starting to revive the SBA’s lending programs. Now she is pushing President Barack Obama’s jobs plan, which calls for increased lending to small businesses, tax breaks for hiring and business investment, and programs to help innovative businesses grow.

Mills sat down Feb. 18 with Kent Hoover, the Washington Bureau chief of American City Business Journals, to talk about increasing small businesses’ access to capital...

...We have a program called 504. It’s for owner-occupied real estate, if you expand and create jobs. Temporarily, let’s use 504 to do owner-occupied real estate refinancing -- not the bad stuff, not the speculative portfolios that have been accumulated; but owner-occupied, and you haven’t gone into default. It’s probably less risky than funding an expansion. It looks like we can do it for zero subsidy; we’ll charge a fee to take on the risk, and we’ll need a little administrative oversight. We think we can do $7 billion to $10 billion at very little or no cost to taxpayers.

We have the infrastructure to do that right now. We know the demand is going to be there. (end)

How to get a SBA Guaranteed Loan

Washington Post February 19, 2010: Unlike residential mortgages, which often can be paid over 30 years, commercial real estate mortgages typically must be paid off or refinanced within five years. Commercial properties mortgaged in 2005, 2006 and 2007, at the height of the boom, are reaching their maturity date. "Do the math on this," Warren said. "This is a significant problem."

Nationwide, at least $1.4 trillion in commercial real estate debt is expected to roll over during the next three years. Warren said that half of commercial real estate mortgages will be underwater by the beginning of 2011. A fifth of residential mortgages are underwater now, she said.

Unlike residential mortgages, which often can be paid over 30 years, commercial real estate mortgages typically must be paid off or refinanced within five years. Commercial properties mortgaged in 2005, 2006 and 2007, at the height of the boom, are reaching their maturity date. "Do the math on this," Warren said. "This is a significant problem."

It is a good time to buy office space if you have the cash. With the markets as depressed as they are, prices have dropped significantly on office building purchases. Reading the news, you will see many stories of lost office buildings or office buildings sold at a loss stories. Check out our Lease vs Buy section to find out if it would be a good decision for you.

One way to get into an office building purchase is to take advantage of the SBA’s 7(a) Loan Program: “This is SBA’s primary and most flexible loan program, with financing guaranteed for a variety of general business purposes. It is designed for start-up and existing small businesses, and is delivered through commercial lending institutions.

The 7(a) Loan Program is SBA’s primary program to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels. The name comes from section 7(a) of the Small Business Act, which authorizes SBA to provide business loans to American small businesses. SBA itself does not make loans, but rather guarantees a portion of loans made and administered by commercial lending institutions.”

The SBA also offers the HTML clipboard CDC/ 504 Loan which provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a Certified Development Company (CDC - funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower. The maximum SBA debenture generally is $1.5 million (and up to $2 million in some cases).

Generally, you will need only 10% down and can borrow up to $2 million. Since this is through a traditional lender, you will need to meet their standard qualifications and probably only qualify if you are in a large market. The banks do not want to have to take advantage of the guarantee.  If they do too often, they will find themselves off the list of banks allowed to make the 7a loans.

See our Financing Section for other alterntives.