Commercial Real Estate problems

[melscuba]

South Florida banks face a new wave in real estate crisis

MIAMI Sept. 14, 2009 Just as the housing market is showing signs of life, here comes another real estate crisis.

Squeezed by plunging rents, empty storefronts, the credit crunch and a dearth of buyers, a growing number of commercial property owners are defaulting on their loans, which could unleash a new wave of bank failures and slow the regions economic recovery.

What were seeing so far in commercial real-estate [foreclosures] is just the tip of the iceberg, said attorney Lee D. Mackson, who represents creditors who filed a foreclosure suit against Biscayne Landing, a stalled project on Biscayne Boulevard in North Miami. Theres going to be a lot more.

Floridas home-grown community banks are heavily into commercial real estate loans for office buildings, shopping centers, hotels and condos.

An exclusive analysis for The Miami Herald found that Florida banks have twice the proportion of commercial loans in their portfolios as banks outside the state.

As a result, Florida banks may have to weather the worst of the commercial real estate meltdown.

A major sign of the festering problem came on Friday, as federal regulators seized Chicago-based Corus Bank, which has been a big lender in South Florida. The bank was brought down by heavy lending in commercial real estate and construction.

The potential impact of the downturn goes far beyond the individual tragedy of a lost business or the jobs that disappear when a single project fails.

Anemic banks are in no condition to lend. And solid banks and other lenders may become even more wary of providing money to start new projects or even refinance loans as they reach maturity, as is common practice.

For consumers, mortgages, home equity loans and lines of credit could dry up even more.

Its another pretty heavy hit to an already hard-hit banking sector, says Sean Snaith, an economist and director of the Institute for Economic Competitiveness at the University of Central Florida. Commercial real-estate problems, he says, could prolong the credit crisis and make it difficult for all sorts of borrowers to get the loans they need consumers, homeowners and small businesses.

According to the analysis by Charlottesville, Va.-based SNL, a data-crunching firm, more than 53 cents of every dollar loaned by Florida-based banks goes for commercial real estate, compared with 24 cents per dollar among other U.S. banks.

At mid-year, 11.2 percent of the commercial real estate loans at Florida banks were delinquent, compared with 7.5 percent at banks outside Florida. And Florida banks have far less set aside to absorb bad loans.

We not only see For Sale and Foreclosure signs in our neighborhoods, but For Lease and Vacancy signs along Dixie Highway, says Ken Thomas, a Miami bank analyst. Prime corner and other retail locations in the best shopping areas from Dadeland to Aventura to Boca are now vacant.

To be sure, the nations biggest banks and Wall Street are also facing a potentially heavy toll from the commercial real-estate downturn.

Among the prominent projects tangled in recent foreclosure suits are the Las Olas Centre in downtown Fort Lauderdale and Biscayne Landing, the latter envisioned as a massive residential and commercial project that was to be the key to revitalizing the city of North Miami. Except for two soaring towers, Biscayne Landing never got off the ground. Instead, it ended up as a bad debt included in securities sold on Wall Street.

Many other local projects are in financial distress, including the former Grand Bay Hotel in Coconut Grove, which is facing foreclosure.

Commercial real estate mirrors the local economy. As South Florida employers lay off workers, the last thing they need is more office space. And retailers reeling from the downturn in sales arent opening new stores or warehouses.

Real estate development has long been one of Floridas biggest industries, and the multibillion-dollar industry also supports spin-off businesses, from property appraisers to interior designers to furniture salesmen.

Its difficult to be a Florida bank without being a major lender in the real estate industry, says Alan B. Levan, chairman and chief executive of BankAtlantic Bancorp in Fort Lauderdale. If you are a major bank in this market, you are going to ride these cycles.

But when times are bad, theyre awful.

Prices on commercial properties, including those in South Florida, have plunged 30 percent or more nationwide since the 2007 peak. Occupancy has slid, and rental rates are off significantly, precipitously, says Charles Foschini, vice chairman of South Florida markets for CB Richard Ellis, a large real estate services firm.

Landlords are cutting rents to attract or keep tenants.

At the same time, financing has dried up. Three years ago, buyers could get 95 percent financing on many buildings, and that easy money drove up commercial property prices, just as it also sent home prices soaring.

Today, theres no money to build anything, and few banks are willing to provide money to buy existing properties.

Still worse for Florida banks, few lenders are willing to refinance maturing bank loans.

A mountain of debt on commercial properties an average of $400 billion each year for the next several years is coming due and hardly any of the traditional lenders are in a position to fill the gap, even if they were inclined.

Wall Street used to provide a large portion of money for commercial properties by bundling loans into securities. But that market is dead.

The Treasury Department is working to jumpstart the mortgage packaging market by offering attractive loans to encourage investors to buy the new securities.

Miami-based Ocean Bank has nearly 65 percent of its loans in commercial real estate, and almost 27 percent of that portfolio is delinquent. The bank says it has been dealing aggressively with troubled loans and expects the level of delinquencies to decline.

But another challenge for Ocean and other banks is that even good, performing loans are facing a problem called maturity default. In such cases, a borrower may have been making payments all along but cant find a new lender to pay off the balance once the existing loan matures, a normal part of commercial real estate lending.

Thats because the property value has plunged. And with rental rates down and vacancies up, the properties look like poor risks to lenders.

When cash flow and equity allow it, We are having to extend maturities on existing loans until the credit markets open up, says Walter De Villiers, vice president and head of real estate lending at Ocean Bank.

Again, when the banks cant extend the loans, the customers end up in default, typically hurting both the borrowers and the banks.

Las Olas Centre illustrates the refinancing challenge. Last month, Wachovia filed a $220 million foreclosure suit in state court against Los Angeles-based BentleyForbes, which bought the property at the markets peak in 2007.

The upscale towers at 350 and 450 Las Olas Blvd., which included office and retail space, boast such prominent tenants as Huizenga Holdings and Smith Barney.

Stephen B. Meister, a New York attorney for BentleyForbes, said Wachovia had encouraged the commercial real estate company to borrow funds to buy the Las Olas property with an agreement to repay the debt with proceeds of an initial public offering. But the stock offering was abandoned amid the market turmoil, he added.

According to court papers, Wachovia has extended the loan maturity several times. A Wachovia spokeswoman declined to comment.

This property has 95 percent or greater occupancy, and its in great shape, Meister said. There just is no refinancing market right now.

Copyright 2009, The Miami Herald, Martha Brannigan. Distributed by McClatchy-Tribune Information Services.

This is exactly the kind of thing I was catching wind of. Curious as to how it will effect the residential lending market and therefore, the market pricing.

 

[Bob]

Now's the time to buy....

I've heard that one before.

If you want a second home, can handle the carrying costs and don't mind losing some money on your investment, go ahead and buy a place. If what you are talking about is investing money in panhandle real estate in order to get a good return on your money, forget it.

why do you post?

 

[Smiling JOe]

IRS to ease commercial mortgage refinancing

WASHINGTON – Sept. 16, 2009 – The IRS issued new rules Tuesday designed to make it easier to refinance some commercial real estate loans in an effort to curb the number of defaults.

The rules would allow commercial loans that are part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

The investment pools were designed to encourage mortgage-backed securities by offering tax benefits not typically available through other investment vehicles. However, under the old rules, investors could have lost those benefits if loans in the portfolio were restructured.

The new regulations come as Wall Street braces for a wave of defaults on commercial real estate loans. More than 90 U.S. banks have already failed this year. Hundreds more banks are expected to fail in the next few years largely because of souring loans for commercial real estate.

“These changes will affect lenders, borrowers, servicers, and sponsors of securitizations of mortgages in REMICs,” the new regulation says.

The changes will not affect commercial mortgage loans held by investment trusts. However, the Internal Revenue Service said Tuesday it is soliciting comments on possibly expanding the changes to other investment vehicles.

Concept Capital, a New York-based institutional broker, welcomed the changes but cautioned that they will not solve the commercial real estate crisis alone.

“We have all heard stories about commercial real estate loans that are performing now but cannot be refinanced because of the tax rules,” Concept Capital’s Washington Research Group said in a report issued after the regulations were released. “The IRS attempted to ease the tax code problem for these modifications.”

But, the report said, “We still question if there is enough financing available to deal with the wave of commercial real estate loans that must be refinanced by 2012.”

Copyright ? 2009 The Associated Press, Stephen Ohlemacher. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 

[langley]

Thanks for sharing your official problem with us. Make sure, we may face lots of problems while do real estate business in online or offline. We should follow any tactics or legal ways for avoid this bad situation.

 

[Aleena27]

Affordability is a big issue in commercial real estate today, so before you go to a bank, you should work with an accountant to determine your budget. Bankers will want to see high—quality financial statements and evidence that the profits you generate are being retained by your company. All of this will play a big role in determining whether you get the loan you want.