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How to predict the real estate cycle and profit - part 1

Is it possible to know what the real estate market is going to do in the future? Sorry, to get your hopes up, but there is not a way to foretell what the market will do tomorrow.

However, there are methods to predict what may happen based on trends that occurred in the past. Analyzing the trends in the financial and real estate markets over many years gives economists the ability to recognize a cycle.

Want to know how to profit during each phase? Review “your strategy” in each section below to find what you can do as a savvy investor.

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Real Estate, Opinions and the President

“My psychiatrist told me I was crazy and I said I want a second opinion. He said okay, you're ugly too.” Rodney Dangerfield isn’t exactly a philosopher I commonly quote, but this quote rings true when you look at the number of opinions circulating online.

 

Now that we know who will be in the big chair for the next four years I asked myself in what ways may this help my client or hurt. Scanning the many media channels for answers is not only mind-numbing, but full of conflicting information and a plethora of opinions.

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Commercial Real Estate Debt Wont Be the Next Shoe to Drop, Economists Say

For months, the buzz has been that commercial real estate—with $3.4 trillion in outstanding debt, $1.4 trillion of which is coming due by the end of 2012—would precipitate the next leg in the credit crisis and possibly derail the broader economic recovery. To some, that mountain of debt coming due represents a clear parallel to the trillions of dollars in residential loans that helped destroy more than 100 banks and made the current recession the deepest and longest since the Great Depression.

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Commercial Mortgage Defaults to Continue to Rise

New projections from Real Estate Econometrics LLC predict that the default rate on commercial mortgages held by U.S. banks will hit a peak of 5.4 percent in 2011, the highest level since 1992, when the default rate hit 4.6 percent. The 5.4 percent figure is nearly double the 2.9 percent default rate banks posted at the end of the second quarter, according to FDIC data analyzed by the research firm.

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NAR: Commercial Market Decline Slowing

The decline in commercial real estate activity caused by a severe credit crunch, sustained job losses, and weak consumer spending appears to be slowing, according to the National Association of REALTORS®' latest report. A forward-looking indicator shows commercial real estate will remain weak into 2010, but recent actions by the Federal Reserve should improve some flow of capital into commercial lending, NAR reports.

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Understanding the Housing Stimulus Package

How to Help Homeowner's Understand Obama's Foreclosure Plan March 4, 2009

Courtesy of: Jake Baker, Pacific Mortgage Consultants, (415) 847-2670

Making Home Affordable Programs

Key Refinancing Qualification Guidelines:

  • This program is designed to enable the refinancing of homes that have lost value into today’s lower rates until June 2010
  • Across the board $729,750 1st mortgage maximum!
    • It appears that restrictions by county were eliminated!
    • Homeowner must be able to qualify for and afford the new, lower payment
      • Primary residence will be verified by tax return, credit report, & utility bills
      • Income verified by one year tax returns & recent pay stubs
      • No more that 30-days late on your mortgage payment in the last 12 months
        • In other words, no more than one 30-day late in the past year
        • Current 1st must be held or controlled by
          • Fannie Mae: 1-800-7FANNIE (8am to 8pm EST)
          • Freddie Mac: 1-800-FREDDIE (8am to 8pm EST)
          • Some details are not as clearly stated as loan mod details...
            • For example, 105% LTV for the 1st mortgage was stated in last week's press release
              • In other words, if your mortgage happens to be at the new limit - $729,750; but your home value has fallen to $766,237 -- congratulations, you just made it!
              • However, I cannot find that same LTV cap in the official release today
              • For now, we can assume a 105% LTV is still in effect
              • Nor is it perfectly clear how 2nd mortgage lenders will be dealt with
                • 2nd mortgage payments will still be in the back end debt ratios
                • Will they voluntarily subordinate to the new 1st?
                • There is a cash incentive to cooperate in the loan modification program that will be paid by the FED to the 2nd lien holders; perhaps this will be allowed in the refinance program, too

Key Loan Modification Details:

  • $75 billion to the 3-4 million who are now "Underwater" due to legitimate hardships goes to 2012
    • How the FED will monitor on-going hardships still TBD
    • Only loans currently owned or controlled by Fannie Mae and Freddie Mac
    • Homeowners can go direct to their Lender -- no 3rd parties needed
    • Maximum $729,750 home value, and no LTV requirements
    • Homeowner DOES NOT have to be delinquent in order to qualify
    • Required Docs: most recent tax return; two pay stubs; hardship letter
    • Loans are 5-year fixed going for as low as 2%
    • Payments will be lowered to 31% of income
      • Lenders must drop payment to 38%"
      • FED will share the further drop down to 31%
        • Example: 1st Mortgage = $500k @6.25% = $3,078/month
        • Income = $4,000 per month X 31% = new payment of $1,240!
        • Cash incentives will be paid to lenders to cooperate
        • Cash incentives will be paid to borrowers, too!
          • As long as the borrower stays current on his or her payments, he or she can get up to $1,000 each year for five years paid towards loan principle

Just Published: Watch List (Dec. 16-22): This One is all about Money

Retail

Facing Financing Crisis, Fast-Growing Centro May Sell Assets

In another ominous sign of how tight commercial real estate credit has gotten in the U.S., the fifth-largest shopping center owner/manager in the United States is having trouble refinancing $2.3 billion in short-term financing.

Land

Simon, General Growth Write Down Cash Value of Residential Holdings

The two retailers take about $100 million of impairment charges.

Financing

Lack of Exit Financing Keeping DURA Automotive in Bankruptcy

DURA Automotive Systems has elected to postpone its exit financing process in light of abnormally challenging credit market conditions.

Hotels

Tight Credit Market Blocking Hotel Deals

Sonesta decides not to sell; and one buyer can't get financing to buy.

Industrial

Loan Repayments Stop on Troubled Water Bottling Plant

Loan repayments have quit coming in on LeNature's nearly brand-new 530,856-square-foot water bottling plant in Phoenix.

Funds

Money To Spend

Now after all that bad news, here is news of four groups that have lined up new funds to invest in underperforming assets.

Downsizings

Facility Closures and Mass Layoffs

This week's listings include downsizings in California, Florida, Georgia, Missouri, New Jersey, New York, Ohio, Pennsylvania, Texas, Virginia and Washington.

Properties

Watch List

This week's properties on the Watch List are in: Oakland, San Francisco and San Mateo, CA; Lansing and Shelby Township, MI; Lagrange, OH; Seaside, OR; Havertown, PA; Allen, Ennis, Houston and Lubbock, TX.

Source: CoStar Group

US commercial property sales down in October-report

NEW YORK, Nov 20 (Reuters) - U.S. office building sales fell 70 percent in October from a year earlier, yet another sign the credit crunch that began in the U.S. housing market has spread to the commercial real estate market, Real Capital Analytics said on Tuesday.

But the five-year bull run on commercial real estate may not be over, although the participants have clearly changed, the real estate research firm said.

Source:  Reuters

The Effect on the Real Estate Market of a Divided Jerusalem

When taking into account the causes that influence the real estate market, one usually considers factors such as current trends in real estate purchases, the economy, stock market, mortgage rates, employment resources, the area’s crime rate, transportation services, and a slew of other causes - including the threat of war. National suicide has yet to be considered. I have been asked by a number of citizens, what will happen to real estate prices if the government divides the city?

Source:  Arutz Sheva, IsraelNationalNews.com

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Amazing what other parts of the world contend with!  It makes our problems with defunct sub-prime loans and high foreclosure rates minuscule up against war and a divided country.

Burt

Watch List (Nov. 11-17): Guarded Apprehension for Commercial Demand

Economy

Demand Is Biggest Concern to Office, Industrial Markets

The economy and property market fundamentals are losing steam.

Turnarounds

Management, Access to Financing Keys To Turning Around Distressed Firms

The dynamics of restructuring efforts for distressed companies has changed.

CMBS

Outside of RMBS, Structured Debt Deals Holding Up Fairly Well

Underlying strength of collateral supports strong performance in the CMBS and CO sectors.

Funds

Three New Firms Formed To Buy Distressed Assets

LandCap Partners, Onex Corp. and The Schuster Group go shopping.

Properties

Behringer Harvard Working its Dallas Assets

Slow down in activity could slow sale of assets.

Downsizings

Facility Closures and Mass Layoffs

This week's listings include downsizings in Alabama, Arizona, California, Florida, Illinois, New Jersey, Ohio, Pennsylvania, Texas, Virginia and Wisconsin.

Properties

Watch List

Read all of the above stories plus others, and access this week's properties on the Watch List in: Cordele, GA; Fort Wayne, IN; Portage, MI; Biloxi and Ridgeland, MS; Rahway, NJ; Batavia and Henrietta, NY; Dallas and Houston, TX.

Source: CoStar Group

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