SOURCE: Motley Fool

In an article dated July 27 by Motley Fool writer Rick Aristotle Munarriz, the online commercial real estate portal known as Loopnet was once again singled out as a shining performer in the real estate investment arena.

"Earnings rose 50% to hit $0.13 per share, and revenue increased 46% to $17 million," reports Mr. Munarriz, who adds the important side note, "LoopNet has beaten analysts' profit projections in each of its first five quarters as a public company."

Compounding Loopnet's recent success the website reports that commercial listings are up to approximately 518,000 properties, a significant 30% jump from the same time last year. Combine these numbers with the increased exposure their listings are now receiving on the Wall Street Journal real estate sites, and you can see why the Motley Fool likes this stock.

You can also see why they raise the possibility of a buy out in the future... perhaps from a player the likes of eBay? As Mr Munarriz speculates, "eBay would probably love to snap up LoopNet to make a splash in the bigger-ticket commercial real estate loan market."

However, at this stage of their growth, he concludes that Loopnet's best bet is still to remain independent and enjoy the forecasted earnings.

Read full report »

SOURCE: Wall Street Journal

In a report on July 11, Fitch Ratings said the fervid lending conditions from 2005 until early this year allowed landlords and real-estate developers to load up on interest-only loans and loans with high loan-to-value ratios that were underwritten with expectations for rent increases that appear "unrealistic."

While commercial rents are rising at the fastest levels in many years -- especially in some of the strongest commercial markets, including New York and Washington -- Fitch said owners have "overly optimistic expectations of future rental rates, sales growth and market growth."

The warning comes as investors have become more cautious about financing these deals. In the last three months, lenders have pulled back somewhat, tightened covenants and required borrowers to put up more cash. Meanwhile, interest rates have risen, making it harder to use borrowed money to amplify returns.

As investing in commercial real estate has surged this decade and sales prices have skyrocketed, lenders competed aggressively to win market share. Some loans used so-called negative leverage -- when a buyer's debt payment is more than the income the property produces.

In the past, banks underwrote loans based on current cash flow -- typically the rents landlords receive from tenants. As the market heated up and banks competed against each other to produce loans, some began underwriting loans based on expected future income levels.

Even though lenders have turned skittish in recent months and have started to require more equity in transactions, the higher risk loans that were written previously are now working their way into pools of loans packaged into commercial mortgage-back securities -- thus, raising the likelihood of higher defaults for the rest of 2007, said Fitch.

Here at Steelhead Capital, our new Investment Advisory Services are designed to help you make sense of the market changes and plan for your very best long term strategy in the commercial real estate market.

SOURCE: Wall Street Journal

"We'll look forward to seeing how accurate this prediction proves, with many other commercial real estate indicators looking positive for the second half of the year."

-- Steelhead Capital

A study released July 18 by Jones Lang LaSalle Inc., a Chicago-based commercial-real-estate services firm, found that investment activity in commercial real estate surged to $382 billion in the first half, up 16% from $328 billion a year ago. The study tracks investment in existing commercial real-estate assets (excluding multifamily properties) that sell for more than $5 million but doesn't include company buyouts or new development.

Jones Lang LaSalle projects a slowdown in sales activity in the second half of the year to about $318 billion, which would be the lowest six-month tally since 2005. The projected slowdown reflects the rising cost of borrowing money to finance highly leveraged acquisitions and the expectation that "flipping," a practice in which investors buy buildings expecting to resell them quickly at a huge profit, is unlikely to continue.

SOURCE: eMedia Wire

Recent findings from the real-estate research firm, Reis Inc, reported that "Effective rents on office properties leapt an average of 3.1% during this year's second quarter, up from increases of 2.8% in the first quarter and 2.1% in the year-earlier period."

The Wall Street Journal also recently reported these increases as the sharpest quarterly rise since the third quarter of 2000.

Read full report »

SOURCE: Wall Street Journal

According to a series of recent article by Kemba Dunham in a recent WSJ edition, "Judging by the sharp selloff of real-estate investment trusts in recent weeks, it is clear that some investors feel the good times have come to an end for these stocks."

After a seven year climb, real estate investors hit the brakes with end of second quarter 2007 reports showing a 9% drop in returns for equity REIT's, a stark reversal from the trend over the past few years when annual returns averaged a hefty 20%.

"Yet," as the article surmises, "some analysts and investors believe that the heavy selling was too extreme and that some REITs -- particularly those in the office and retail sectors -- could stage a comeback. Indeed, just as the residential housing slump has produced some steals for home buyers, the REIT sell off may similarly yield some good deals for stock-market investors."

But the article itself goes on to note many potentially positive spins on this news, as well as offering a few speculations as to the reasons behind the recent drop in the REIT index.

Dunham offers, "There are many reasons why investors have seemingly turned their backs on REITs, which are publicly traded real-estate companies that distribute at least 90% of their taxable earnings in dividends. Many worry that rising borrowing costs could slow the pace of REIT property acquisitions. Others simply think the trend of the past few years, when annual returns for REITs averaged 20%, is unsustainable."

Here at Steelhead Capital, our new Investment Advisory Services are designed to help you make sense of the market changes and plan for your very best long term strategy in the commercial real estate market.

Commentary:

"Investors should be careful when acquiring a single tenant NNN property in a secondary or tertiary market. The re-leasing exposure is higher when compared to a major MSA market and therefore the risk should be priced appropriately."

- A Sean Aguilar, CCIM, Steelhead Capital

SOURCE: CoStar Group

Buildings in Strong Property Markets Can Shrug Off a Tenant Default

Lease-payment defaults by the largest tenants in a property were the most common factor driving U.S. commercial real estate loans into special servicing last year, says Moody's Investors Service in a new report.

Moody's report examines a number of 2006 commercial real estate loans in special servicing -- distressed or defaulted loans that servicers are attempting to make whole -- and that are securitized in Moody's-rated conduit, fusion, and CTL commercial mortgage-backed securities (CMBS).

The report finds that, of the loans in special servicing at the time of Moody's 2006 review, 37% were the result of corporate tenants' defaults, excluding assets such as multifamily apartments and manufactured home communities that rarely have corporate tenants.

Read full report »

According to a new report from NAI Global, commercial real estate markets in the Southwestern region of the United States are particularly well-positioned to benefit from U.S. population growth and strong local economies. The report cites large working and immigrant populations, attractive quality of life offering, and moderate climates as key factors supporting continued corporate expansions and relocations to the region.

The following are select market highlights from the report:

Denver - Increasing profits continue to drive commercial real estate leasing and investment. The completion of a new rail system serving downtown districts, as well as increases in employment, contributed to strong performance in 2006.

Los Angeles - Long Beach - Santa Ana: In addition to its thriving entertainment, aerospace, technology, fashion and tourism industries, Los Angeles is the largest manufacturing center in the United States. It is estimated that the area will add 100,000 jobs between 2007 and 2009.

San Diego - Carlsbad - San Marcos: Home to dozens of military institutions, biotechnology, and computer sciences companies, approximately 65% of San Diego's population is between the ages of 18 and 65. The diversity of the local economy and low unemployment has supported demand for office space and new construction activity.

Las Vegas - Paradise Metropolitan Area: Though high construction costs and land prices are slowing development, the commercial real estate market is expected to continue to flourish. The hotel market, in particular, continues to thrive, with roughly $28.3 billion in expansion expected through 2010.

Dallas-Fort Worth Metropolitan Area: The job base continues to grow. At the geographical center of five oil-abundant regions, Dallas is the headquarters to some of the world's largest companies, including ExxonMobil, 7 Eleven, Frito Lay and Texas Instruments.

Houston Metropolitan Area - Known for its energy industry, the city is actually one of the most economically diverse in the region. The many biomedical, aerospace, petrochemical, engineering, and banking and financial services companies located in Houston support a growing local economy. The city is second only to New York City in Fortune 500 headquarters.

Phoenix Metropolitan Area - Over the past two decades, the local economy has rapidly diversified. In recent years, a large number of high-tech and telecommunications companies have relocated to the area. Phoenix also benefits from seasonal tourism stemming from its large golf industry and warm winters.

Read full report »

SOURCE: Capital Synergies

Capital Synergies Real Estate Investment podcast with Mr. A Sean Aguilar, CCIM, and Vice President of Steelhead Capital.

On this show, Sean speaks with the host about the beginning phase of the commercial lending process, and discusses some of the key differences between investing in commercial real estate vs residential real estate.

Sean offers quite a few tips for "doing your research" prior to selecting your property to purchase, and discusses some of the recent valuation of commercial assets in light of the increased cost of the residential market.

Click to Listen Now »
Download MP3 (6mb)
Read Transcript