Commercial Mortgages: are high priced deals masking a decline in New York City commercial real estate?

Are unusually large commercial mortgages masking a decline in mortgage origination in New York City? Two large deals represent the bulk of sales in the second quarter. Without these deals the numbers would indicate a decline in the commercial real estate sales in New York City.

This year has seen an increase in high value mortgages in Manhattan. Deutsche Bank has been at the forefront for many of these loans. Its activity in the second quarter gave it an 8 percent share of the commercial real estate market in the city. The group was the principle originator for the high value mortgages that defined the second quarter. Deutsche was primarily responsible for the 2.3 billion dollar refinance deal of the GM building at 767 Fifth Avenue and the 1.2 billion dollar purchase of 245 Park avenue by Chinas HNA group. These two deals alone represent a massive share of the 5.6 billion in commercial real estate deals that closed in the second quarter.

Data indicates that the New York City commercial real estate market is being propped up by these large loans. The top 5 mortgage originations so far this year have accounted for 20 percent of all commercial mortgages. A steep increase when compared to 2016 and 2015 when large mortgages represented 13 and 14 percent of all commercial loans. In terms of total value mortgage originations appear flat, but without accounting for these massive loans mortgage issuance has declined by some 2 billion dollars so far this year.

The question is are these large commercial mortgages hiding a decline in the New York commercial real estate market?

Sales of commercial real estate are down by 60 percent when compared to the same period last year. Commercial property sales amounted to 5.6 billion in the second quarter of this year. The rise in sales in the second quarter marks a 74 percent improvement over the first, when sales amounted to just 3.2 billion. But the two mortgages mentioned above clearly represent a huge percentage of the total sales this quarter. Commercial mortgage deals are down considerably in terms of volume. Manhattan has seen on average 141 commercial real estate deals close per quarter from 2013 and 2016. Only 71 commercial real estate deals above 10 million dollars have closed so far this year. 66 of these deals closed in the second quarter alone.The decline in total sales volume and the apparently flat rates of mortgage origination suggest a trend, that a few high value mortgages are concealing an apparent slow down in Manhattans commercial real estate market.

Commercial mortgage demand is cooling due to a number of immediate factors, such as interest rate uncertainty and new regulations on Chinese investment.

Interest rate uncertainty is making it harder for many building owners to refinance, or for commercial loans to close. Maturing commercial mortgage backed securities are compounding the need for more tenants to refinance and adding to uncertainty about the mortgage market. But the Chinese government has recently clamped down on the ability of its citizens to acquire foreign real estate. Chinese investors have contributed a staggering 18 billion to Manhattans commercial real estate market. These factors only compound the uncertainty about the future of commercial real estate in New York City.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Mortgages: Borrowers getting the help they need from bridge loans

Bridge loans and similar short term commercial mortgages are growing in popularity. These short term loans are easier to qualify for and in many case are more flexible than traditional loans. CMBS borrowers and retailers are finding bridge loans a vital source of financing in todays economic climate.

Investors with short term financing needs find bridge loans particularly attractive. Bridge loans are held on lender balance sheets usually for periods of 12 to 36 months. These loans are often secured by the real-estate being purchased. Commonly bridge loans are often used to make down payments in order to complete the purchase of property.

These loans are often taken out in lieu of conventional financing and are usually paid off once a property owner finds a more conventional mortgage. Bridge loans can be applied to a slew of different property types and used to finance a multitude of projects. Properties or projects which traditional banks will likely deem too risky to finance.

The lower qualifications involved bridge loans often helps property owners finance necessary improvement projects. Traditional banks are unlikely to approve loans for renovation projects, as these banks prefer locations which already producing a steady income. Once a property owner makes necessary improvements they can pay off the bridge loan and apply for a conventional mortgage. Another advantage of bridge loans is that they require less documentation or collateral up front. Because less documentation is needed the approval process for bridge loans is considerably faster. In some cases, investors may face denial by traditional banks just as a deal is about to close. In these cases an investor can complete the deal by taking out a bridge loan rather than starting the conventional application process all over again.

Qualifications and loan caps on commercial mortgages are making bridge loans a vital source of financing.

In general commercial property values are stabilizing and in some markets they are even declining. This trend makes it hard for properties owners and investors to refinance for a larger amount, as banks continue to remain uncertain about property values in the long run. A growing number of commercial mortgage backed securities are also coming due. With these securities maturing many CMBS borrowers will need to quickly refinance or risk default. Bridge loans are filling the gap for many of these borrowers.

Struggling retailers are also finding bridge loans increasingly attractive commercial mortgage options.

Vacancies are on the rise at many shopping centers which makes it harder for land lords to refinance.The owners of shopping centers may need financing to make necessary improvements to their locations in order to compete with online retailers. Value add projects on these struggling retail centers (projects traditional banks are not likely to finance), are becoming increasingly necessary in order to attract customers. Land lords are turning more and more to bridge loans. Bridge loans enable them to add amenities to their locations bolster sales and to hold onto existing tenants. In short bridge loans are likely to grow in popularity as investors seek to refinance and to make necessary improvements on struggling properties.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

New Chinese Regulations could put the brakes on many commercial mortgage deals.

Chinese regulators are attempting to put the brakes on overseas real estate acquisitions by its citizens. The new regulations will make it far more difficult for Chinese investors to close commercial mortgage deals.

This July the Chinese government introduced new restrictions on foreign investment that are already impacting US markets. In 2016 Chinese real estate investment totaled a massive 101.4 billion. That number has declined by 46 percent, to 48 billion dollars, during the first half of this year.

The new restrictions make every foreign investment acquisition over 1 million dollars subject to government approval. The question is why has the Chinese government taken such a harsh stance against foreign investment by its citizens?

China wants to ensure investment activity aligns with the communist parties economic and political agenda and also to protect its citizens from “irrational investments.” Regulators are concerned that recent real estate investments in the US by many firms may be backed by large debts. There is also concern on the part of regulators that many US commercial properties are overpriced. However the greatest reason for the new capital outflow restrictions seems to be the frenetic pace of foreign investment by Chinese citizens. Over the last three years 1 trillion dollars has left China. Such a large amount of money leaving the country at such a fast pace could put the Chinese economy at risk. It seems likely that Chinese regulators want to these vast sums to be redirected into the domestic economy rather than invested in foreign real estate.

More and more deals are likely to remain unapproved by regulators. The delay will make it harder for Chinese investors to close commercial mortgage deals.

According to Ten-X Commercial Real Estate Associate Director Conlyn Chan, “Chinese companies looking to invest in foreign real estate are required to submit requests for approval to the government, but the government is not required to respond to these requests, and in some cases they’re leaving them on the table unanswered.” Due to these regulatory hangups, US lenders may become wary of working with Chinese investors. Waiting for approval by regulators will no doubt make it harder for Chinese investors to meet deposit deadlines in real-estate transactions, or to secure down payments needed for commercial loans.

However the new regulations wont impact the demand for commercial mortgages tied to US properties by Chinese investors.

A recent analysis by Colliers expects Asian and Chinese investment in US commercial real estate to moderate. Investment by Chinese citizens in US real-estate will not decline dramatically in spite of the new regulations. These new rules are not likely to have any impact on particularly wealthy Chinese citizens. “The high net worth individuals in China have always found a way. They have their ability to move funds, whether it’s from inside the country or outside the country, despite what the government puts in front of them,” said Edward Mermelstein , partner at One & Only Holdings. The pace of Chinese investment will likely slow, even as wealthy citizens skirt the new regulations. Considering the pace of Chinese investment between 2010 and 2016 the slow down may feel more acute than it actually is. The US commercial real estate market remains fundamentally strong. Mermelstein claims that few of Chinese clients see any reasonable alternative to US commercial real estate as an investment.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Mortgages: How to evaluate the different types of commercial mortgage

C-loans claims there are 12 distinct commercial mortgages. The following article groups these 12 types under three categories, permanent, equity and short term commercial loans.

Essentially conventional commercial mortgages differ from residential mortgages, in that commercial mortgages finance the purchase of commercial property. Standard commercial mortgages are sometimes referred to as “permanent loans,” and characteristically have terms longer than five years with some degree of amortization.

Commercial property owners can also take out second mortgages. However second mortgages are uncommon when it comes to commercial property. The terms of many permanent loans expressly forbid borrowers taking out a second mortgage. A more common practice is for corporations to borrow against shares ownership, known as a mezzanine loan. In case default mezzanine loans usually grant lenders the option to buy back shares ownership in a corporation and seize control of the companies property.

Some types of commercial financing are not even loans at all.These arrangements are termed equity partnerships. In a preferred equity partnership a “preferred” investor lends a corporation money for a fixed share of the company’s profits in the future. In addition there are joint venture and venture equity partnerships. Joint venture partners often finance the full price of a construction project in exchange for a fixed share of the properties future income. Joint partnerships are far more difficult to secure in comparison with venture equity partnerships. Venture equity partnerships often involve smaller originators, such as debt funds or real estate investment trusts.

Commercial mortgages differ from residential mortgages mainly in the variety of short term loan options avalable.

Bridge loan are short term loans which give a borrower time to lease or renovate a property. The terms of bridge loans generally run 1 to 2 years. Bridge loans are usually interest only and offer a considerably faster approval process than a traditional commercial mortgage. Construction loans are another type of short term commercial lending. As the name implies, construction loans are used for the purpose of building new commercial developments. Construction loans often have terms of 12 to 18 months, and are only released as a construction proceeds. Notably borrowers only pay interest on the amount of the loan released throughout the course of the construction project rather than paying interest on the total loan amount.

Construction lenders often require borrowers to take out unique and sometimes very costly commercial mortgages before any loan is approved, known as take out commitment loans.

Take out commitment loans are conventional loans taken out before the balloon payment on a construction loan comes due. Take out commitment loans are sometimes issued in the form of promissory notes. This averts the risk for a construction lender that a borrower will default when a construction loan comes due. These notes are referred to as forward and stand by take out commitment loans. These loans take on the form of a letter issued by a mortgage provider that promises to deliver a takeout loan within a period of 18 months after a construction project has been completed. Often these letters stipulate certain construction specifications or occupancy rates. They are usually expensive and often go for one to two points of the total loan amount. There are also stand-by take out commitments loans. Stand by take out commitment loans have far more onerous terms than forward take out commitment loans.

Commercial loans come in many shapes and sizes. It is important to have a clear understanding of what each type of loan entails and how each loan should applied. A conventional mortgage can help purchase property, a mezzanine loan or a bridge loan can help fund expansion and a construction loan is obviously used to get new projects off the ground. Take out commitment loans are usually meant to appease construction lenders, who take on the risk that a borrower may default when a construction loan comes due.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Important Criteria When Getting a Commercial Mortgage Texas

When you are applying for a commercial mortgage Texas, it is important that you know what lenders are looking for. Knowing this information will help you to get the best possible rates.

As you have learned more about the commercial mortgage Texas process, you learned that your creditworthiness is an important part of the equation. Having a credit score over 680 and having no foreclosures or bankruptcies is a basic must to qualify. In addition, your business needs to be three or more years old to demonstrate stability. But you have also learned that a lender is going to be looking at more than just your business to determine if your request is a good risk. The lender will be evaluating the property that you are purchasing to make sure that it meets certain criteria.

The location of the property can play a big part in getting approved for a commercial mortgage Texas. Lenders know that most business owners will be leasing a portion of the property to tenants to assist in paying the mortgage. Having the property in a large metro area will make it a more desirable location for tenants. Building in remote areas, rural areas or places with poor access are harder to lease. This increases the likelihood of the borrower defaulting on the loan at some point.

Leasing History is Critical

Another factor that the lender will want to investigate is the lease term that could be in place. If there are tenants in the building currently, how long does their lease extend? Having a tenant in place from the previous owner is great but having them locked into a long lease is even better. This is simply another sign that the borrower will have extended income from the property and is likely to have less difficulty in making the monthly payments. In addition to any current leasing information, the lender will take into account any past lease history of the property. Have there been any long term tenants in recent years? Has there been a lot of tenant turnover in the past? Again, the lender is trying to gauge the desirability of the property from a tenant’s perspective. Having a strong lease history is a key factor in securing a commercial mortgage Texas at a great rate. It helps to prove that the property will have a positive cash flow in the future and that the borrower will continue to be able to make the payments on the loan.

Property Condition Counts As Well

Another important factor in how desirable the property is to tenants in the overall condition of the building and the grounds. If the property is in disrepair then it will be hard to sign tenants to a long term lease and even harder to keep them in place. In addition, a property that needs a lot of work can quickly turn positive cash flow into negative cash flow. Repairs and renovations can quickly eat up cash and make it difficult to make the mortgage payments. Knowing what a lenders looks for in a commercial property can help you to select a property which will meet your businesses needs and also appeal to a lender as a solid investment.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Steps for a Successful Commercial Mortgage Texas

Having a plan to follow makes any process easier and that is certainly true for getting a commercial mortgage Texas. These steps will help you to determine a time line and know what to expect as you complete the process.

The first step in securing a commercial mortgage Texas is finding the best lender to meet your needs. You will want to speak to several lenders and gather information before you make your selection. If you have a strong relationship with your bank then this can be a good place to start. You might also want to research online which lenders provide the most loans in the price range that you are planning to spend. Selecting a lender who is accustomed to financiering loans of a certain dollar amount is wise. This means that every step of the process should be well documented and from application to approval the process should run smoothly. You can also speak to a broker for a recommendation.

Once you have selected a lender, then you are ready to begin the application process for a commercial mortgage Texas. There may or may not be a fee for the application process and that will depend on the lender that you have selected. Most lenders will require that you submit financial statements including business and personal records from the last three years. Some specific documents would include operating statements, tax returns, bank statements and net worth statements. When you speak to the lender they should be able to provide you with a detailed list of the documents that they will require.

Once you have submitted your documentation, the lender begins the evaluation portion of your commercial mortgage Texas. Using the financial information that you provided they calculate the likelihood of you being able to make the payments on the loan on a regular basis. While this process is underway, another group will be conducting a background check and credit check.

Property Evaluation is the Final Step

The lender will set up a property appraisal, which you will be paying for, to determine the current value and condition of the property. They will also research the title of the property to be sure that it is clear and able to be transferred. You will also need to pay for an environmental inspection of the property. This is to make sure that the soil is not contaminated and that there is no health risk or danger. Once all of the inspections are completed, all of the findings will be evaluated as a whole to determine if you will be given the loan.

Completing the Loan Agreement

If you are approved for the loan then you have one more round of paperwork to face. It is best that you involve a lawyer who specializes in commercial loan documents. They can review the document for you and be sure that the terms are correct and that you understand the contract prior to signing it. If you have any questions about terms that you do not agree with, then your lawyer can return the contract and request that changes be made. Once both you and the lender agree on terms, you sign the contracts at the closing and also make the down payment. Funding will typically be available within a few days of the closing.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Getting the Best Terms on Your Commercial Mortgage Texas

When you are seeking a commercial mortgage Texas, it is important to understand the criteria that the lender is looking for to determine your creditworthiness. Meeting or exceeding these requirements can afford you much better terms from a convention lender.

Applying for a commercial mortgage Texas is a process that requires time, planning and also the payment of some nonrefundable fees. You will want to be sure that you understand the requirements to qualify for a loan before you submit your documents to avoid wasting time and money. A lender is going to require documentation to verify your credit rating, liquidity, net worth and the value of the property that you are going to purchase. All of these factors will help the lender determine if you are a good risk and if they are willing to loan you the money.

In general terms, to qualify for a commercial mortgage Texas, you should have a credit score of over 680 and have no foreclosures, bankruptcies or tax liens on your recent credit reports. Your business should also be three or more years old. If the business does not meet these criteria, then you should expect to be asked for your personal financial information. As long as you have good credit and are financially stable, then the lender would ask you to provide a personal guarantee on the loan. This means that if the business fails or you close the business for any reason, you would still be personally responsible for repaying the loan.

Aside from the financial health of your business, the next most important piece of information is the actual property that you want to purchase. This is the property that will be the collateral for the commercial loan. With that in mind, the lender wants to be certain that the property will retain its value for the entire life of the loan. This is the lenders safety net in case you default on the loan. The lender would then foreclose on the property and sell it to recover their money. Because commercial property values can fluctuate rapidly, the lender for a commercial mortgage Texas will want you to make a substantial down payment to ensure that you have instant equity and also to be certain that the property value remains greater than the balance of the loan.

Negotiate for Good Terms

When you begin to speak to lenders you will want to ask for a list of all fees that they charge to process a commercial loan application as well as all of the fees associated with processing an approved loan. You will also want to negotiate the best interest rate that you can. Making a larger down payment can often reduce your interest rate by as much as a full point. Having all of these numbers will allow you to calculate the total amount that the loan will cost you.

Select the Best Loan

Once you have determined the actual cost of each loan option, you will want to determine which lender best meets your needs. In most cases you are looking for the lowest cost but there can be other factors. You might be looking for a longer term and be willing to pay a little more interest over the course of the loan to have more time to make payments. The lower monthly payment could be more critical to you than the total cost of the loan. With your research complete you need to select the lender and the loan that best meets your needs.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Texas Commercial Mortgages: Billions at stake due to Hurricane Harvey

Hurricane Harvey puts many securitized commercial mortgages in Texas at risk.

Moody’s claims some 1,500 properties may have been impacted by Hurricane Harvey amounting to 19.4 billion in outstanding CMBS loans. The number of CMBS financed properties at risk varies with each analysis. Competing methods of analyzing the storms damage to investors’ portfolios have emerged. One method is to consider the wider area impacted by the storm, the other is to consider the areas that were more acutely impacted.

One method of analyzing the damage is to consider properties in the disaster area declared by Governor Gregg Abbott. The area includes 54 counties and reaches as far as San Antonio. An opposing approach is to consider the disaster area declared by FEMA, an area encompassing some 33 counties. The first approach gives a broader sense of the storms potential impact on CMBS properties, while the second offers a more clinical assessment.

In the state declared disaster area there are about 1,200 CMBS loans amounting to 15.1 billion dollars that could be impacted by the storm. These loans are not government sponsored, and therefore, pose a higher credit risk to investors. Retail properties have the highest exposure among these loans. Making up 32.9 percent of the total, or 5 billion dollars, of the outstanding CMBS loans.

Considering the areas impacted according to FEMA the number of CMBS loans at risk is smaller, but the overall impact remains the same. In the 33 counties declared “disaster-areas” by the agency there are 900 non-government sponsored CMBS loans, amounting to a balance of 12.2 billion dollars... Retail properties again face the greatest exposure, making up about 30.1 percent of the total.

It will be difficult to directly quantify the impact of Hurricane Harvey on the CMBS market and Texas commercial mortgages in the short term.

Whether analysts consider the broader area impacted by Hurricane Harvey or the areas more acutely impacted the extent of the damage to the CMBS market will be difficult to estimate in the short term. The damage to each individual property will have to be assessed.

What is clear from both overviews is that retail makes up the largest share of CMBS loans potentially impacted by the storm. The performance of these loans in the future will largely depend on how the local economy recovers and whether these retailers will be able to retain their customers.

In the long term securitized commercial mortgages in Texas will continue to face risk from natural disasters.

Simply put CMBS lenders don't underwrite the potential cost of natural disasters. Therefore the market will always face exposure when disasters like Hurricane Harvey take place. Flood insurance, FEMA assistance and the willingness of private insurers to underwrite risk encourages development in disaster prone areas, in Texas and throughout the nation. Insurance may repair the damage caused by these disasters on the surface, putting some investors at ease. But the damage Hurricane Harvey inflicted on the local economy remains unclear. With retail properties facing the greatest exposure, the greatest risk to CMBS loans is not superficial damage that can be repaired, but Harvey's long term damage to the local economy and whether retailers can secure customers in areas where the population is displaced.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage