Scotsman Guide - May 2009 Commercial Edition

In the Past Month
News from the industry and abroad

By Tony Stasiek, editor

With his group expecting nearly 50,000 attendees to its RECon Global Retail Real Estate Convention this month (May 17-20, icsc. org/2009SC), International Council of Shopping Centers President and CEO Michael Kercheval told Scotsman Guide writer Jennifer E. Garrett of his retail sector’s biggest challenge.

“It’s all about capital markets,” Kercheval said as part of our Q&A, Page 14. “There’s a lot of capital [out there], but it’s not flowing.”

Undoubtedly, folks from all ends of commercial real estate finance would second that motion. The Mortgage Bankers Association announced that commercial originations for 2008’s fourth quarter showed an 80-percent dive from the same period in ’07, down 53 percent from the previous quarter. Hotel-property loans alone dropped 99 percent year-to-year.

Treasury unveils details
of plan for toxic assets

WASHINGTON, D.C. — The U.S. Treasury Department announced its plan to free banks from frozen assets on March 23, using a partnership with the private sector to give more clout to taxpayer dollars.

The program would develop funds to buy banks’ loans and securities to jumpstart lending, according to the Treasury.

To purchase loans stuck in a frozen securities market, the Federal Deposit Insurance Corp. (FDIC) would review assets banks want to sell and would see how much funding the FDIC will guarantee, to as much as a 6-to-1 debt-to-equity ratio. The highest bidder would receive 50 percent of the equity required for the purchase. The private investor would then choose when to sell the assets.

To call lenders and investors finicky funders would be a severe understatement. But for brokers seeking to end the closing-table standoff, a little inside knowledge could go a long way.

This month’s Scotsman Guide features numerous articles devoted to risk management — and how to understand just what makes lenders tick.

In our Lead Article (Page 19), IVI International Inc.’s George Wilson offers seven tips for helping assess a property’s condition. Especially when dealing with potentially troublesome property types — and really, what doesn’t fall into that category? — this due diligence is crucial to avoiding surprises and pitching a deal to the right lender.

On Page 38, attorney Timothy E. Gilsbach of Fox Rothschild LLP takes another angle on property inspections — examining when lenders blanch at the prospect of stating too much in the inspection stage.

Illustration: Dennis Wunsch

Meanwhile, on Page 22, Hatch Jacobs LLC’s Gary A. Horton looks at lenders’ growing practice of having borrowers form single- or special-purpose entities to mitigate banks’ risk in case of bankruptcy.

tony@scotsmanguide.com

What We’re Blogging

GDP has worst quarter since
1982 as corporate profits slip

WASHINGTON, D.C. — The U.S. Department of Commerce confirmed its gross-domestic-product (GDP) estimate for the fourth quarter of 2008, dropping the figure one tick to - 6. 3 percent.

The report said corporate profits in the fourth quarter fell sharply, dropping $250.3 billion after a decrease of $18.5 billion in the third quarter.

The GDP had its weakest quarterly showing since 1982. Economists now estimate the first-quarter GDP for this year will fall between 4 percent and 5. 5 percent.

Congressional watchdog suggests
misuse of SBA low-income-program

WASHINGTON, D.C. — A sample of contracts in a U.S. program targeting neglected business areas indicates that “possibly thousands” of contracts were mishandled, the Government Accountability Office (GAO) said.

The GAO said it found 19 contracts awarded via the U. S. Small Business Administration’s Historically Un-derutilized Business Zone (HUBZone) program that indicated “hundreds and possibly thousands” of improperly awarded contracts, USA Today reported.

The 19 contracts, totaling $30 million, were intended for small businesses in low-income communities. In 2007, the government approved $8 billion in HUBZone contracts, which involved 9,300 businesses, the newspaper said.

On Mortgage Metrics: Commercial, scotsmanguide.com/COMmetrics

“The South shows the largest percentage of high-risk LTVs with 12 percent of its [scenarios on Scotsman Guide Loan Post] having LTVs of 81 percent or greater. The national average was 10 percent.”

— DAN YEH, March 19

Percentage of High-LTV Loan Scenarios by Region

Percentage of Replied Posts

14%

12%

10%

8%

6%

4%

2%

0%

81% to 90% LTV

91% to 95% LTV

96% and greater LTV

South

Midwest Northeast

West U.S.

Source: Scotsman Guide Loan Post

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. Follow Dan Yeh on Twitter: twitter.com/scotsmanguideMM.

IMF downgrades economic outlook
for 2009, citing ‘true global crisis’

WASHINGTON, D.C. — The International Monetary Fund (IMF) announced it would downgrade its assessment of the global economy, said an adviser to the fund’s managing director.

Teresa Ter-Minassian, adviser to Dominique Strauss-Kahn, said the IMF expects the world economy to contract by 0.6 percent this year, down from October 2008’s prediction of 0.5-percent growth, the Financial Times reported.