A Sean Aguilar

SOURCE: Real Estate Forum

A. Sean Aguilar was interviewed in the July 2008 issue of "Real Estate Forum" magazine, in a very interesting and timely article called "What's Old Is New Again" by author Michelle Napoli. Here's an excerpt:

Steelhead Capital vice president A. Sean Aguilar was expecting to close at the end of June on the refinancing of a single-tenant property, a deal he began working on about eight months earlier. With its 10 year financing on a Pier 1 Imports Inc. store in Barbourseville, WV coming due, his client got an early start on the process, something Aguilar advises for anyone who needs financing in today's market. The tenancy proved a challenge, since the retailer has had sales performance issues of late. However, the real estate, located on an outparcel of a regional shopping mall, was good.

After speaking with 50 different lenders, only three would write a term sheet on the deal, San Francisco-based Aguilar reports. Ultimately, a regional bank agreed to provide an approximately $1.1 million, five-year loan, which matches the five years remaining on the property's flat 15-year lease with below-market rents. The debt carries recourse, has a fixed-interest rate of 7.25% and leverage of about 60%. The client is happy with the outcome, but "it was tough geting this done," Aguilar says. "The environment has totally changed."

In many ways, the transaction Aguilar describes illustrates the new debt financing landscape for single-tenant, net-leased properties: there are fewer competing lenders and they are more conservative in their underwriting; local and regional banks are increasingly seen as the go-to source of mortgage dollars, particularly for deals with lesser credit and in secondary or tertiary markets; full or partial recourse is back on the table; leverage is lower; and loan terms do not exceed the length of the lease. On the whole, it's back to basics.

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SOURCE: Wall Street Journal

Capitalization rates for commercial real estate were mixed last month. The average cap rate for apartment buildings rose to 6.50% in June from a revised 6.44% in May. Meanwhile, the average cap rate for office properties in central-business districts declined to 5.93% in June from a revised 6.43% the previous month. The cap rate is a calculation of rental income in the first year of ownership, divided by the purchase price.

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SOURCE: Bloomberg

The Federal Reserve will be able to lend more easily to failed banks under government control because of a provision in legislation that bailed out Fannie Mae and Freddie Mac.

In the rescue signed into law by President George W. Bush yesterday, the Fed will no longer have to pay penalties on loans it makes to institutions taken over by the Federal Deposit Insurance Corp.

The measure may mean more use of the central bank's balance sheet to prop up the U.S. financial system, after the Fed began lending to investment banks in March, analysts said. The FDIC has taken over seven banks this year, with 90 on a watch-list of troubled firms as lenders are hit by the surge in credit losses.

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SOURCE: MarketWatch

The Quarterly Commercial Loan Delinquency Survey conducted by the California Mortgage Bankers Association (CMBA) found only seven loans were more than 30 days delinquent, totaling $53.9 million of a combined total loan servicing portfolio of $96.1 billion. This translates into a loan delinquency ratio of 0.06%, triple the previous quarter's rate.

However, the ratio is still near the lowest since June 30, 2002 when it was 0.01%. Three months ago the delinquency ratio was 0.06%; a year ago it was 0.03%. Fifteen of the seventeen commercial mortgage banking firms that participate in the survey reported no loans more than 30 days delinquent.

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SOURCE: Bloomberg

The Federal Reserve extended its emergency lending programs to Wall Street firms through January after policy makers judged that markets are still "fragile."

Commercial lenders will be able to borrow from the central bank for a longer period, and the Fed boosted its swap line with the European Central Bank.

The central bank also will start selling 84-day loans to commercial banks under the Term Auction Facility beginning next month, in addition to the sales of 28-day loans that have occurred since the program began in December. The biweekly sales will alternate between auctions of $75 billion in 28-day loans, and $25 billion in 84-day loans.

The Fed plans to keep the TAF program at $150 billion and released a schedule indicating it will remain at that size through November.

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SOURCE: Wall Street Journal

The Fed's Beige Book report paints a gloomy picture: the economy is slowing down, particularly in the manufacturing and housing sectors, while pricing pressure is going up.

Despite the $107 billion in economic-stimulus checks that have been doled out to millions of Americans since late April, the report said consumer spending was reported as mixed, weak or slowing in nearly all districts.

The report also shows that tighter credit standards and tough real-estate conditions are beginning to pinch commercial real-estate activity. Several regions cited tightened financing as a constraint on business.

Across the country, companies reported rising prices, particularly for fuel, metals, food, chemicals and other petroleum-based materials. The grim outlook for consumer spending has put many companies in a tough spot, as they worry that raising prices to compensate for higher costs will correspond to a "decrease in customer demand and overall sales volume," the report noted.

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SOURCE: Reuters

California-based IndyMac, which specialized in a type of mortgage that often required minimal documents from borrowers, became the fifth U.S. bank to fail this year as a housing bust and credit crunch strain financial institutions. Adam Compton, co-head of global financial stock research at RCM in San Francisco said "IndyMac is a company that was pretty much 100 percent invested in mortgage assets, and we're in a bad mortgage market, and it had no capital. It's not complicated".

The Office of Thrift Supervision (OTS), who is IndyMac's primary regulator, said that they do not expect significant market impact from the IndyMac closure because the firm is not a systemic institution and is without numerous counterparties.

Daniel Alpert who is an investment banker at Westwood Capital in New York predicts that "IndyMac's takeover by the FDIC is one of many to come". A former FDIC official, Ann Graham said that it isn't unprecedented for the FDIC to start running a bank after it fails. This allows the FDIC to shop around before selling the institution rather than hurrying a sale. They are allowed to operate the institution for up to two years.

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SOURCE: The Earth Times

The National Multi Housing Council (NMHC)/National Apartment Association (NAA) feel there is a silver lining to the housing difficulties that are being seen nationwide. This comes in the form of a positive change in our energy consumption with more families enjoying apartment living.

In a statement regarding the housing stimulus bill that has just passed the Senate, a noteworthy comment was made. Not only are apartments and more compact development increasingly desirable, they are increasingly necessary in reducing our nation's carbon footprint and creating more sustainable communities. Apartments are an inherently 'green' housing choice because they use resources more efficiently, help preserve greenspace and are often transit-oriented.

More and more people are finding that their American Dream is to live within an area that includes shops and entertainment, and that which encompasses the lifestyle they desire. Apartment living is proving to provide that flexibility as people choose to live near their employment as well.

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SOURCE: The New York Times

Due to the heavy loses that both Fannie Mae and Freddie Mac have been experiencing their shares have been dropping rapidly causing their borrowing costs to rise. The Bush administration is considering a government takeover that will place them in a conservatorship if things continue to worsen for the two mortgage giants.

The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing (and commercial lending) market.

It is felt that if the difficulties that Fannie and Freddie are experiencing aren't resolved, economies worldwide could be damaged. This is in part because the securities of both Fannie and Freddie are held by many financial institutions, central banks, and investors overseas.

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SOURCE: bizjournals

Jeffrey S. Sweeney, Grubb & Ellis president and management partner feels that the commercial real estate industry is close to the bottom of this cycle and he doesn't feel there will be a significant drop from the levels seen currently. In a statement released Friday, Sweeney stated "Now is when the strong developers, the strong brokerage firms will survive and in some cases thrive".

Sweeney noted that by anticipating the recent decline and taking action by controlling costs and expenses they have remained profitable. He foresees that beginning October, the pace of loans on development and existing commercial properties will pick up.

He also feels that the retail sector will take longer to recover than office and industrial as consumer confidence has declined. In addition, the rising fuel costs will leave a lasting impact on retail activity.

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SOURCE: Wall Street Journal Online

Retail property vacancies have risen to multiyear highs as retailers have been closing stores and reducing their expansion plans. The faltering economy has taken a heavy toll on malls and shopping centers in the second quarter, but it didn't hurt the rental-apartment market as much as expected.

Apartment-complex vacancies have stayed at the same levels and rents have been rising by more than was expected. Landlords are continuing to benefit from the housing slowdown which has created more renters. The slowdown has also kept existing renters from purchasing a home as the mortgage market has tightened.

Rent growth itself was stronger than anticipated with an increase in rents by 1.1% in the second quarter. The vacancy rate has remained at 5.9%. It is felt that due to greater rent growth caused by the economic slowdown and weaker wage growth, landlords have more power than would normally be seen in this cycle.

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