Setabay Private Hard Money Lender

Wednesday, October 25, 2017

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Tuesday, October 10, 2017

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.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Foreign Investors are pulling back from the US market. Evaluating what this means for the rate of commercial real estate financing?

Commercial real estate financing has been expanding rapidly in the face of historic rates of foreign acquisition. But it appears many foreigners may have lost interest in the US commercial real estate market this year.

Foreign commercial real estate acquisitions in the US are down from their record highs in 2015. Chinese and Canadian investors have been particularly active in US commercial real estate. Both groups accounted for 44 percent of all US commercial real-estate acquisition by volume in the 4 quarters preceding March 31^st of this year.

But this year has seen some pull back on the part of foreign investors. Foreign Investment in commercial real estate has declined at far greater pace than investment by US citizens. In the four quarters leading up to March 31^st, the rate of foreign investment fell by 33 percent when compared to 2015. Investment by US citizens in commercial real-estate fell by just eight percent over the same period. Analysts give many reasons for this apparent decline in the purchase of commercial real estate by foreign investors.

The rate of foreign investment is perhaps being hampered by a particularly strong US dollar. Other reasons may include political uncertainty, in particular with regard to the Trump administrations tax reform agenda. But the consensus among many analysts appears to be that real-estate assets particularly in traditional gateway markets like New York or San Fransisco are simply overpriced. Bob O’Brien, Deloitte’s global and U.S. real estate and construction sector leader, claims that the decline started with the perception that, “particularly in some of our major gateway cities, real estate was starting to look pretty fully priced.” In essence the record pace of foreign investment in 2015 may have pushed prices in certain real estate markets to unsustainable highs.

US Commercial real-estate remains strong. New deals and the rate of commercial real estate financing will more than likely stabilize from the record highs of previous years.

The question is what fueled the record rates of commercial acquisitions by foreign investors in the first place? Brexit and other factors supported the perception of global instability from 2015 to 2016 , which made US real estate seem particularly attractive. There were also concerns (which still remain) of a debt bubble in Chinas real-estate market which fueled real estate acquisitions by Chinese citizens. The first half of 2016 saw a 19 percent year over year increase in commercial real estate investment on the part of Chinese nationals. While this rate may be declining, the US market remains strong and some speculate foreign investors are simply waiting for prices to stabilize.

The decline in foreign investment isn't likely to have a long term impact on the rate of commercial real estate financing. Foreign investors are not retreating entirely from US commercial real estate.

Foreign commercial real estate investment still remains above historic norms. Deals brokered on behalf of foreigners still accounted for 14 percent of all the deals that closed this year. While this is down from 2015, such rates of foreign investment in US commercial real estate were likely unsustainable. “Investment volume in calendar 2015 hit an astronomically high level and not what I would consider would be a sustainable level,” said O’Brien, “it created an investment environment in 2015 that was just off-the-charts strong. The pullback is somewhat natural.” Analysts speculate that many foreigners are simply waiting for prices to return to normal. Foreign money will likely return to the US commercial real estate market once investors can purchase properties at a greater value.

In spite of the apparent decline of foreign interest in US commercial real estate the fundamentals of the market remain strong. Foreign investment will likely stabilize closer to historic averages and as demand cools prices are likely go down.

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.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Is Commercial Lender Deutsche Bank in danger of failure?

Commercial lender Deutsche Bank struggles this year have not gone unnoticed by investors. The bank is struggling to maintain in the face of immediate and long term challenges and some are calling for the resignation of the groups CEO John Cryan.

The banks stock has been selling at record lows this year. Its share price has declined by 45 percent since new CEO John Cryan took over in 2015. Fitch recently cut Deutsche Banks credit rating from A- to BBB+.

Fitch cites it is unlikely that there will be considerable improvement in the banks performance any time this year. Fitch claims that restructuring costs will continue to eat away at the banks profits. Deutsche's revenue from sales and trading has fallen by 18 percent so far this year. Among the banks 13 main competitors only Barclays has fared worse. However there is no one single reason for the banks poor performance.

A primary problem for Deutsche Bank is that it still relies heavily on investment banking. Deutsche's Investment banking profits have only grown by a tepid 2 percentage points. Deutsche formerly relied on cheap loans with minimal equity to prop up its balance sheets. The Great Recession has made that practice far more difficult. In 2007 70 percent of the banks profits were related to investment banking. Higher capital requirements and other regulations have made this sector far less profitable. Deutsche has also retreated from lending in emerging markets, such as Russia. This retreat has hampered the groups ability to increase revenues from its currency exchange, a significant profit center for the bank. Legal issues have also not only eroded the groups profits but they have also damaged the banks image.

People are increasingly questioning Cryans ability to lead the commercial lender

Cryan has made a slew of notable missteps during his tenure. Some shareholders now, such as Union Investment Group, demand his resignation. His open discussion of inevitable job losses no doubt had a negative impact on employee morale. Many also cite Cryans inability to articulate a clear vision for the banks future. Cryan appears indecisive as he recently wavered from his restructuring plans less than a year after they went into effect. Research group Autonomus LLC, recently proclaimed Deutsche's impending demise. The group cited the banks lack of technology investment in particular as a primary reason for its down fall. Deutsche has increased its technology spending to 4.1 billion dollars; however this is still far below JP Morgans 7.4 billion dollar investment in technology. Stuart Graham co-founder of Autonomous summed up the perception of many investors, saying, “When we consider the basics of what makes a bank a winner -- trust (or brand), balance-sheet muscle, technology and its people -- Deutsche looks to be in very bad shape, in such situations it is inevitable that some investors start to question whether the bank has the right leadership.”

In spite of all these fears some major shareholders have continued to express faith in Cryans ability to lead the commercial lender into the future.

Commentary by the Financial Times lauded Cryan for his ability to resolve the immediate issues that were plaguing the bank, notably the banks legal woes and its lack of equity. HNA Group of China owner 10 percent of Deutsche stock recently expressed in Cryans abilities. Another major shareholder, the Qatari Royal Family echoed HNA’s sentiments.

Calls for Cryans resignation will likely go unheeded. Spokesman, Paul Achleitner, says Cryan will continue running the bank until his contract expires in 2020. Predictions are that by then the bank should look far healthier in consideration of higher interest rates and the cost cutting measures the bank has already embarked on. Still considering Deutsche’s lack of technological innovation it remains to be seen whether the bank will be able to keep pace with its competitors.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Real Estate Loans: Chinas regulations to curb new home purchases are fueling speculative demand

Efforts by the Chinese government to slow down commercial real-estate loans on multifamily properties are doing little to curb demand.

This year regulatory authorities in China issued a spate of new rules to slow down speculative home purchases. The new rules raise the minimum down payment required for mortgages and limit the number of apartments that each citizen or family can own.

However these new regulations are simply raising prices on multi-family apartments in many regions. Price increases that fuel speculation that home values will only continue to climb. This speculation has led to a wave of investment property purchases throughout China. Many speculate that the new restrictions will be lifted in the near future as the government attempts to spur economic growth. Should the multi-family market encounter any trouble there is a general consensus that the government will take drastic steps.“The government will spare no effort to make sure there are no big swings in the property market,” said Ni Pengfei of the Chinese Academy of Social Sciences.

The explosion in the multi family market stems from the Chinese governments increased reliance on household borrowing in order to fuel growth. As a percentage of GDP Corporate debt has reached an unsustainable 164 percent. Recently the government turned to household borrowing as a way to prop up growth. Early in 2016 the government relaxed its housing policies due to the economic slow down in China. President of the Peoples Bank of China Zhou Xiaochuan declared that residential mortgages were “relatively safe.” Mortgages for new apartments grew by 10 percent year over year immediately following his comments. Chinese households once carried relatively little debt, which once gave some assurance that the housing boom would not result in a wave of catastrophic defaults. But household debt has now peaked at 42 percent of GDP. Notably household debt in the US stood at 85 percent prior to the housing crisis and Chinas household debt may be rapidly approaching a similar number.

Commercial real estate loans and lending practices are fundamentally different in China easing some fears about an impending crisis.

Chinese Home buyers must still make a substantial 30 percent down payment on any mortgage they take out. In contrast the lending environment prior to the Great Recession was characterized by the issuance of mortgages with little to no money down. The incentive to expand lending to unqualified borrowers is lower too, as Chinese lenders have few ways to securitize and sell off large pools of loans. Many US households were over burdened by home equity loans prior to the recession. This type lending has not caught on in China.

Commercial real estate loans used to finance the construction new apartments are have become essential to fueling Chinas growth.

Activity related to the construction of new apartments now accounts for a third of Chinas economic activity. Any slow down in this sector could cause regulators to lift safeguards in order to boost the economy. Moodys states that 68.8 percent of Chinese household assets consist of real estate. A decline in home values would eat away at the assets of many Chinese citizens. There is the further danger that half of recent sales were for the purpose of investment, according to Ni Pengfei. Should these investments falter any related mortgages will likely default. If that happens the US will no doubt feel the effect as the economies of both nations depend so closely on one another.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Setabay Private Hard Money Lender

Wednesday, October 25, 2017

test

Tuesday, October 10, 2017

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.

The question is are these large commercial mortgages hiding a decline in the New York 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.

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

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

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

Foreign Investors are pulling back from the US market. Evaluating what this means for the rate of commercial real estate financing?

Commercial real estate financing has been expanding rapidly in the face of historic rates of foreign acquisition. But it appears many foreigners may have lost interest in the US commercial real estate market this year.

US Commercial real-estate remains strong. New deals and the rate of commercial real estate financing will more than likely stabilize from the record highs of previous years.

The decline in foreign investment isn't likely to have a long term impact on the rate of commercial real estate financing. Foreign investors are not retreating entirely from US commercial real estate.

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.

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.

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

Is Commercial Lender Deutsche Bank in danger of failure?

Commercial lender Deutsche Bank struggles this year have not gone unnoticed by investors. The bank is struggling to maintain in the face of immediate and long term challenges and some are calling for the resignation of the groups CEO John Cryan.

People are increasingly questioning Cryans ability to lead the commercial lender

In spite of all these fears some major shareholders have continued to express faith in Cryans ability to lead the commercial lender into the future.

Commercial Real Estate Loans: Chinas regulations to curb new home purchases are fueling speculative demand

Efforts by the Chinese government to slow down commercial real-estate loans on multifamily properties are doing little to curb demand.

Commercial real estate loans and lending practices are fundamentally different in China easing some fears about an impending crisis.

Commercial real estate loans used to finance the construction new apartments are have become essential to fueling Chinas growth.

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