Scotsman Guide - November 2008 Commercial Edition

By Tony Stasiek, editor

Prior to the past two months’ bank failures, bailouts and Katie

Couric interviews, the news of the day was the government’s

reining-in of Fannie Mae and Freddie Mac.

As we dig out — or at least fan away the shovelfuls of dirt yet to be dumped on the commercial real estate industry — it might in fact be the federal conservatorship of the former government-sponsored enterprises (GSEs) that dictates the direction of the multifamily sector heading into the New Year.

As noted in October’s From the Editor ( scotsmanguide.com/3214), Fannie and Freddie have boosted their multifamily financing. According to the Mortgage Bankers Association, Fannie’s and Freddie’s multifamily-loan share grew 66 percent in the second quarter of this year compared to the second quarter of 2007.

Two big benefits there. First, relatively sound commercial mortgages have provided necessary stability for Fannie’s and Freddie’s portfolios, seeing as how many of these loans don’t carry the documentation and insurer risks of residential mortgages. Second, and most obviously, backing from the former GSEs — even at their pickiest — has been a small boon for brokers in a market where money simply isn’t changing hands.

And that market hasn’t been much better, of late. On Sept. 30, the London Interbank Offered Rate (LIBOR), which banks charge each other for short-term loans, reached its highest level ever. The MBA also announced that total commercial origination volume fell 63 percent in the second quarter, compared to the same period in ’07.

Regardless of the impact of federal assistance on market liquidity, how the government manages the former GSEs could make or break numerous deals for multifamily brokers.

How do things look in the interim? Actually, not bad, according to Second Angel Bancorp’s Richard H. Zahm. In his article on Page 40, he details numerous factors that could point to “market immunity” in the multifamily arena. One supporting point: Occupancy rates are stable at about 94. 5 percent, according to the most-recent data from M/PF YieldStar.

For brokers tackling multifamily for the first time, RBC Streamline’s Cheryl Higley offers tips for presenting a loan to lenders. The key is to be prepared, she writes on Page 24.

Illustration: Keith Negley

After all, anything could happen.

tony@scotsmanguide.com

This Month on Mortgage Metrics
From scotsmanguide.com/COMmetrics

“Mixed-use was the most popular property type on our commercial lender search in August.

“The trend toward mixed-use developments, particularly with condominiums or rental properties over retail stores, has been growing in recent years. High gas prices, leading some to shorten their commute, are a factor.”

“Land loans were the most popular property type on the hard-money lender search. This makes sense given that most of the traditional commercial lenders have shied away from funding raw-land deals.”

— DAN YEH, Sept. 25

August Property-Type Searches

PrOPer T Y T YPe

Mixed-use 8.2% Hospitality 8%

retail 7.5%
Office 6.6%
Land 5.7%
Automotive 5.7%
Multifamily 5.5%
Churches 4.2%
Owner-occupied 4%

Industrial 3.8%

0% 2% 4% 6% 8% 10% PerCen T Of TO TAL

Source: Commercial Lender Search, scotsmanguide.com

Scotsman Guide’s Mortgage Metrics: Commercial blog presents data from our award-winning lender-search engines and Scotsman Guide Loan Post. It’s updated each Thursday at scotsmanguide.com/COMmetrics.

In the Past Month
News from the industry and abroad
President signs $700 billion
financial-bailout bill

WASHINGTON, D.C. — President George W. Bush signed into law the far-reaching rescue package for the U.S. financial markets passed by Congress on Oct 3.

Bush said the plan, which allows the secretary of the U.S. Department of the Treasury to buy as much as $700 billion in troubled assets, will help the economy weather the financial crisis, CNNMoney.com reported.

“We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said.

SEC accounting-rule change
draws MBA’s praise, analysts’ ire

NEW YORK — The Securities and Exchange Commission announced new, relaxed accounting rules on Oct. 1 that could change the way U.S. businesses assess their assets.

The rules say firms do not have to use the lowest prices when assessing the value of their own securities. The accounting rules previously tied this process to the lowest prices, even if a struggling firm had to sell similar securities at less than full market values, USA Today reported.

John A. Courson, chief operating officer of the Mortgage Bankers Association (MBA), said in a statement that the announcement “should have an immediate impact, allowing companies to reflect the true value of their mortgage assets and increasing capital and liquidity in today’s stalled credit markets.”

Conversely, analysts told USA Today that the illiquid assets pose a “serious problem,” with the new rule positing a “very deceptive statement,” said Donn Vickrey, co-founder of Gradient Analytics.

Dow weathers worst one-day
tumble in its history

NEW YORK — Slumping U.S. markets went into a record-setting freefall on Sept. 29 as the House of Representatives rejected the first stab at a plan to stabilize the economy.

After House members turned down plans to add liquidity to markets, stocks plummeted, with the Dow Jones industrial average falling 777.68 points in its worst one-day fall on record. During the previous weekend, numerous large financial institutions also had changed hands or filed for bankruptcy protection.

On Oct. 6, the Dow also closed below 10,000 points for the first time since October 2004.

Fed joins numerous international
banks in Oct. 8 rate cut

WASHINGTON, D.C. — Central banks in Europe, Canada and the United States cut key lending rates in tandem on Oct. 8, the Federal Reserve announced.

The Federal Open Market Committee elected to lower its target rate by 50 basis points to 1.5 percent, while the Bank of England, the European Central Bank, Sveriges Riksbank in Sweden and the Swiss National Bank also lowered their rates. The Bank of Japan “ ex-presses its strong support of these policy actions,” the Fed statement said.