Good morning to Springtime, and Earth Day Celebrations;
Commercial Lending
The Business and Investor Side of Our Business
In our next letter, we will shed more light onto my expectations regards rate cuts, deficit spending, inflation and such.
For this letter it is about 2 stories. CBD (Central Business District) plus the rest of the market. But first the general market updates
1) Interest rates: Reacting to Iran/Israel and Ukraine spending, plus stronger, across the board US inflation numbers. Such numbers are again hitting high-water marks and will likely hold until after Iran/Israel/Ukraine foreign spending, reverses direction. Build here, sell there.
The 10-Year is in the top range of 4.25 to 4.75 %, running about 4.6 %.
2) Residential Real Estate: Not much new to report, as any amount of noticeable change will take months, not days. Overall, business is brisk. Buyers are actively seeking property, with the well publicized stumbling block, low inventory. Continuing to exacerbate the business, while at the same time offsetting the sticky high interest rates. Market leaders and current data continue to point to strong price support and mild appreciation for the year.
3) Commercial Real Estate: Like residential, people are shopping, sellers are selling, but far off the volume seen post Co-Vid. Cap rates are trending up, but slim volumes are helping to keep the increases modest, at best. Then there is the occasional “If It Bleeds, It Leads” headlines… Blackstone is moving into ‘special servicing’ on a 195M loan in a CBD for a property fully leased (although some see-through floors) on a loan that matured with no refinance in sight. Probably, the ‘negotiations to extend’ are at more favorable interest rates than current open market.
Good News: “WeWorks” has put into place, plans to come out of bankruptcy, end of May. Through lease-restructuring, estimates are for $8 billion in future rental saving. This includes some locations being relinquished, with the rest continuing on their current leases.
4) Federal Reserve: Coming off of most recent inflation reports, plus updates to GDP, the economy appears robust. Thus, as much as the market would like the 3 rate cuts intimated last December, my expectations for this weeks Fed meeting, will be to dial back such hope.
Let us hope the Fed continues to roll off the balance sheet and trusts this will keep the leash on the economy enough. If not, expectations may shift to a future rate increase or two.
The labor market continues strong, as does the economy. But there are more than a few cracks in the foundation – increasing credit balances; upticks in credit card and auto loan defaults.
As a State, California has its’ own self-generated problems. Did you notice. California has once again taken over the top spot for the highest State un-employment rate. If you are a small business, it is quite the challenge to open, operate, hire, and sustain profitability.
Good News: Commercial investing, as a whole, is quite diversified, thus able to match and meet most investor’s financial goals and interest. Our goal: Best matching our clients with the best lending options and customized programs. Let’s talk, today. Early preparation is key.
Call us. We are ready to help today.
I hope you find these insights and economic news helpful for Commercial Investing
as well for our Residential work! Key to Both – Discipline, Preparation, and Patience.
Banking and Financing: DIY or using a Broker.
DIY: Benefit: You can trade on your historical connection with your Bank. Downside: You are not always sure they are actually getting it done. The Bank loan agent brings the deal in the door, but they are not allowed to tell you the percentage of actual closings.
Broker: Yes, you do pay a point – Except with SBA and residential lending. Benefits: Our connections to lending sources, interaction with industry groups, and continued conversations with our peers. This brings about true and open competition able to quickly adapt to the shifting landscape and your unique situation. Do you benefit from hiring Mike Ryan? Time proves to be Yes. And with future challenges ahead, all the more reason to call. As a Broker, your victory is my win.
Metrics of the General Commercial Market Segment:
Commercial: Many media heads and market experts believe commercial will bounce back with approximate 20 % deal flow increase over last year. For one, I believe this happens, only if one includes the occasional distressed sale – a property going for pennies on the dollar. A sale yes, but not one truly representing. For me our focus is upon residential apartments, SBA owner occupied businesses and small commercial projects. This segment continues to trade on fundamentals, not speculations. Investors able to weather storms, moving properties because they want to, and not a choice outside their control. The perfect ‘Tale of Two Cities’.
With this, many of our buyers are on the side-lines holding onto the belief that B-qualify properties should be trading with an 8 cap and higher rate. As with the Federal Reserve, I believe both are missing the supply side constraints leading to values holding up. Wage growth, GDP growth, and high cost to construct all lead to lower cap rate dynamics.
Yet one key remains true. All real estate is local, confirming my statement: A ‘tale of two cities’, the overall commercial market will be driven by local fundamentals. SF is different than LA. And then one goes into the micro for the specific answers.
In todays market one needs to carefully watch and review what one has, seeks, or needs. We can help address many of your questions. Yet for some, extra patience will be needed, taking note that waiting may have its’ own trade-offs. This is where our conversations becomes key to our goals: Improve perspective, consider the potentials of all relevant possibilities, and weigh the difference. This conversation is what I enjoy most. Let the process begin – Call, today.
Apartment Sector: Rents are holding flat to slightly up for the most part. Good result, especially, as a helpful number of units continue to come online, thus easing some supply constraints. Yet, dig into the weeds and one discovers all the new units are either rent subsidized or AAA – nothing in the working class market. Add to this, the slowdown in permits due to high costs and tight labor availability.
Office Sector: Here is the true ‘Tale of Two Cities’. Core Business Districts are struggling with the limited numbers of workers be called back to the District. While at the same time major corporations doing on-going resizing of their workforce. Go out into the secondary and tertiary markets and these effects are much less. Thus, companies did not expand with low cost Wall Street money, leaving little excess space.
Retail Sector: Surprisingly finished 2023 good. Vacancy rates dropping in shopping centers, as consumers are not sitting at home. Retail sales continue to show strength. Outer lying areas appear quite normal. If the area historically had slow infill, they have slow infill now. If quicker, they are now quicker. This is an area with resilience tracking the overall economy.
Industrial: After a number of years of great growth, I see a pause. Mega factories continue to be built (think inter-model hubs, automotive and tech factories). Low vacancy rates, but coming in with slow vacancy increases, supports current rents with a cooling of increases.
Small Business: The heart of the American engine. Little known: SBA’s 504 program offering refinancing options to move out of the traditional “7a” loan program – of moving into long-term, fixed rate loans. These loans are still coming in with an interest rates of 6 and 7 and this rates, when the “7a” adjustable, are tracking low double digit rates.
Good News:
Our commercial successes continues. The depth of our lending partners allows us to work with certainty of execution. We are getting it done, because we the proven credibility !
An area we are receiving the most calls: Out-of-state properties. For us, the loan amounts seem quite small – sub 1 Million. – plus they have their own bucket of challenges. The difficulty: Smaller loan amounts – within smaller populated areas – often causes main stream banks and lending platforms to leave them alone. Regardless. We dig deep, seeking solutions for the unique projects of our clients. Who do you know scratching their head, regards a small, out-of-area project? Call us ! We can begin today.
Consider as well the breadth of our lending, from `1) business-purpose loans – with light documentation – to 2) re-development building projects for housing plus 3) commercial property purchases. How does this work? It works because of who we are. We offer a broad range of lending partners able to provide flexible loans, excellent programs, and great terms. It is how we help move your life forward and our track record shows it. It is what keep our phone ringing. Let’s talk. We can help.
Consider Loans Coming Due: They are in high demand, as evidenced by our increased work to refinance various commercial properties. Recent statistics show 30 % of maturing loans were refinanced, 25 % were modified and 40 % are in default. In todays market of uncertainties, it’s key to check loan parameters and due dates. For certain, don’t miss the annual lender requested financial statement. Key: Stay ahead of coming due dates to keep your lender smiling. Good organization is most worthy.
At the same time, if you have troubles, please note: We can help with loan modifications
Good News: We have great lending partners. They respect our work and attention to detail. This is good news for you, as they trust our approach and loan packages. In response, we carefully strive to maintain the quality of their depository relationships. This is called team chemistry and is what makes our lending relationship, a winner. Join our team.
You have heard me say: It starts with a first conversation. Let’s talk today.
Enjoy your family and friends this Spring season. With all the financial talk, key is who we have around us and with us. Be well and be safe, knowing we are here for you.