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iStar Financial Inc. Message Board

  • jcreech Aug 10, 2009 10:01 AM Flag

    Positive CRE article in two parts

    From the Richmond Times-DIspatch

    Mortgage lending seems poised to open back up

    Published: August 10, 2009

    On many fronts, the economy appears to be looking up.

    But commercial real estate can't seem to shake its perception as "the next shoe to drop."

    If value write-downs by the country's two largest pension funds are any indication, the other shoe has already dropped.

    California Public Employees' Retirement System (CalPERS) wrote its real estate holdings down by 35.8 percent as of March 31. The California State Teachers' Retirement System (CalSTRS) wrote down its holdings by 43 percent for the fiscal year that ended June 30.

    The combination of huge real estate value decreases with the surge in the stock market leaves both pension funds under-allocated for real estate.

    Translation: Even though CalPERS and CalSTRS just absorbed enormous losses in real estate, they now need to focus on making new real estate acquisitions at a time when many buyers are on the sidelines.

    This trend should actually help increase the volume of real estate transactions at a time when investment sales are absolutely anemic.

    Another recent trend in the flow of capital also should help commercial real estate.

    During the past several months, so much money has gone into buying corporate bonds that, from a relative value standpoint, commercial mortgages are starting to look good again.

    So in order to get a better yield than what corporate bonds are offering, several insurance companies are wading back into the commercial mortgage market after months of being away.

    That is good news for borrowers, because as more companies allocate funds to commercial mortgages, rates are sure to drop as competition heats up.

    Along with more pension funds and insurers allocating capital to commercial real estate and mortgages, several community banks have recently shown a healthier appetite for new loans.

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    • jcreech Aug 11, 2009 9:15 AM Flag

      I believe in getting the information out - whether it is opinion or facts. It is up to the individual investor whether to the information is useful or not. When I see something that is negative about SFI or CRE that is not already been spotted by someone else, then I post it. The same is true with positive SFI/CRE information.

      My personal bias is long on SFI/CRE, but I read and make available the information indiscriminately because if the shoe were on the other foot, I would want a full picture so that I could make an informed decision.

      While I am interested in "the WSJ has a big article about Maguire Properties potential bankruptcy" by making it a reply to this post suggests that the writer is wrong because it overlooked a specific bankruptcy; a dam*ing by anecdote. Instead, I would have preferred seeing it as a new post with either a link or the content pasted in the post, while replies to posts such as the one I made reserved for discussion (pro or con) of the points being made by the author.


    • jcreech Aug 10, 2009 10:02 AM Flag

      Part 2

      The increase in lending capacity seems to have more to do with the strength of the bank than the strength of real estate.

      Several macro-level factors help explain the situation. In the last quarter of 2008, virtually every bank pulled its lending vehicle over to the side of the road to let the financial storm pass.

      While banks were in a hold pattern, regulators decided to perform stress tests.

      Fear of bad results brought lending, particularly for new real estate loans, to a standstill.

      Now that the stress tests are completed, stronger banks can focus on lending again. As one local bank president said, "this is a great time to be lending."

      Not every bank emerged from the stress tests in a strong position.

      Virtually no money is available for new construction or unstabilized properties that continue to have lease-up risk.

      Weaker banks with lower capital reserves are still suffering from loan portfolios bloated with stalled-out projects that are waiting for the economy to come back.

      One industry insider coined the phrase, "a rolling loan gathers no loss," which aptly describes current banking protocol where it makes more sense to extend loans rather than push borrowers into default at maturity.

      Borrowers are wise to understand their bank's financial footing before going in to negotiate an extension to a maturing loan.

      Despite more lenders and the prospect of new money coming in to rescue borrowers from the arid commercial mortgage landscape, pricing is still hovering in the 6.75 percent to 7.75 percent range for 5and 10-year commercial mortgages, according to the John B. Levy & Company National Mortgage Survey.

      Community banks offer slightly better pricing and Fannie Mae and Freddie Mac are 2 percent lower for multifamily loans with the same 5and 10year term.

      The Richmond-area real estate market is experiencing many of the same trends found nationally.

      Retail projects are having difficulty finding tenants. Office vacancies are increasing. Residential sales are occurring at a slower pace with pressure on pricing. Community banks are starting to lend again.

      Several projects conceived in a different market are stalled out, but not imploding because lenders are having the patience to ride it out until the economy improves.

      Andrew Little is an investment banker with John B. Levy & Co. He can be reached at


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