Good morning to Springtime, and may the helpful rains continue;
Commercial and Residential Lending
The Business and Investor Side of Our Business
Let’s jump right into my critical grasp of economic news.. the statistics
1) Interest rates: Most commercial loans are priced on either the 5 year or the 10 year. For the past 3 months the 5-Year has traded within 3.75 – 4.5 %. Last week ending under 4.25 %
The 10-Year is similar in range of 3.8 to 4.5 %, ending last week also under 4.25.
The 2-Year vs 10-Year yield curve has been negative since July of 2022. 3X hitting 1 % negative (March, June and July of last year). 1980 was last time the negative period was this protracted. .
2) Residential Real Estate: Business is brisk overall, meaning there are people actively seeking property. Low inventory continues to exacerbate the business, countering the sticky high interest rates. Market leaders and current data continue to point to strong price support and mild appreciation to be expected.
3) Commercial Real Estate: Challenging is my best take. Transaction volumes last year were off 50 %. This after 2021 and 2022 were up 20 % after the CoVid scare. Thus after this 3-year stretch the real numbers are off a whopping 30 %. Even that might be a bit mis-leading as there were some very large trades with international money coming in.
Even the Industrial sector has cooled a bit – either from economic slow-down or due to the response to the amount of product coming online over the past couple of years.
Office sector provides an interesting note: Manhattan has dropped to the 3rd spot, from forever 1st for deals. Los Angeles and Dallas picking up the top 2.
4) Federal Reserve: Coming off recent inflation reports – Friday’s PPI up on the core rate, and last Tuesday’s hot CPI) – will likely prevent any change in Fed policy for a few months. It is clear more time is needed to work through recent Fed rate increases. Plus the Fed clearing off about 100 B off their balance sheet – each month – will keep financing costs tight.
Overall, the labor market continues to be strong, with the economy doing quite well. But there are a few notable cracks in the foundation – increasing credit balances; upticks in credit card and auto loan defaults. For me, solutions begin by serious cuts in deficit spending.
An interesting note is in California the non-farms payroll is half a million more that pre-CoVid.
SPECIAL NOTE: Foreclosure Assistance
For some commercial Investors time is needed to work through the financial distress – triggered by CoVid – and the impact of rising lending costs upon company balance sheets and cash-flow statements.
The numbers are there, about 16 % of the office loans (just one sector of the commercial marketplace) will mature this year. About 150 B worth, add to that the same amount scheduled for both 2025 and 2026.
As a result, tough choices are being made to stay the course. For some, that time is now! In light of this, we are actively working with commercial property owners and lenders. Why? To help negotiate needed modifications to maintain any current underlying loans.
The goal: Keep the property in the hands of the investor and thereby avoid issues surrounding default. Even more, this is a benefit to the banks, as well.
The challenges we address and renegotiate for our clients:
Commercial loan coming due,
Valuations dropping below guidelines,
Income no longer supports the current loan and operating expenses,
Payments are behind
If this can be helpful to you or someone you know,
please call today. Each day matters.
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: 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.
Economic News Helpful for Commercial Investing
and, the same statement applies for our Residential work!
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.
General Commercial Market:
Commercial: As mentioned, “deal” volume is down dramatically. As the marketplace continues working through a post Co-Vid recovery cycle –along with the overall market cycle. Trying to harmonize these two different cycles makes sound predictions more difficult.
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 conversation becomes key, with the goal to: 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.
Apartment Sector: Apartment numbers continue to show stability. This with the large number of units coming to market in 2023, plus those expected to be delivered in 2024. Combined, this will help keeps rental growth quite subdued. Outcome: Low single digit rental increases. Current exception appears to be in Silicon Valley.
Jobs, jobs and jobs: We continue to see low numbers from the weekly unemployment claims. The question: When will all the news about corporate lay-offs show up in the weekly numbers. NOTE: When you review the layoff reports, each week, they add up to possibly tens of thousands of planned layoffs. Not hundreds of thousands. Be watchful.
Those with “continuing claims” has risen to near new highs at 1.9 M receiving benefits. Note: once not working, such numbers indicate it is harder to find a new job.
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 know how!
An area we regularly gets the most calls are for out-of-state properties. For us, the loan amounts seem quite small – sub 1 M loan amount – and have their own bucket of challenges. The difficulty: Smaller loan amounts within smaller populated areas, too often causes main stream banks and lending platforms, to leave them alone. Not us. We dig deep and often find solutions for our clients unique projects, regardless. Who do you know scratching their head with worry over a small, out-of-area project? Call today! We can help.
Consider as well, from business-purpose loans – with light documentation – to re-development building projects for housing and 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. Thus it’s important to check loan parameters and due dates. 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.
Enjoy your family and friends this season. With all the financial talk, the most important part is who we have around us. Be well and be safe!