Fed Prepares for Commercial Market Bailout
Real estate experts agree that the best hope for avoiding a commercial real estate crisis similar to the residential one is another bailout from the federal government.
Last week, Federal Reserve Chair Ben Bernanke suggested at least $1 trillion in credit would be forthcoming in order to avoid a “looming crisis.”
Analysts say that while delinquencies are few, office vacancy rates are nearing record levels. This leaves banks holding $1.72 trillion in outstanding commercial loans and many of them are on buildings that are nearly empty. In 2009, $300 billion of these loans are due to be refinanced by commercial banks, but the banks are reluctant to refinance because the properties are dropping in value.
Since both insurance companies and pension funds are heavily invested in commercial real estate, they, too, are at risk.
“The need is urgent,” says Kenneth Rosen, a professor of real estate at the University of California in Berkeley. “It is important to get this done before we have another problem.”
Source: Christian Science Monitor, Ron Scherer (03/09/2009)
Is Now the Best Time to Invest in Apartments?
Industry experts say consider investing in a duplex, triplex or small apartment building.
“Smaller units are typically older … and during a downturn people prefer lower-quality properties with fewer amenities,” says Hessam Nadji, managing director of research at real estate brokerage Marcus & Millichap.
Nadji also pointed out that young people are the most likely tenants in these older units and that segment of the population is growing. The baby boom peaked in the 1950s and those boomers’ children, born in the 1980s, are just going out on their own. While they have one of the highest unemployment rates now – 12 percent – they will likely be the first hired when the economy improves, says Reis Research Director Victor Calanog.
Reis identifies San Diego and Sacramento as areas expecting strong growth, as well as San Antonio, Texas, and Fairfield County, Conn., a suburb of New York City.
Nadji urged investors to buy now while prices are down. “There is a good chance that if an investor waits for a recovery to materialize, they’ll see prices go up again,” Nadji says.
Source: Investor’s Business Daily, Amy Reeves (02/26/2009)
How the Stimulus Can Help Your Business
Time will tell if the newly passed economic stimulus package and the components related to the real estate industry will have a positive impact on the housing market in the country, says Wendy Forsythe, vice president of broker services at the Better Homes and Gardens Real Estate franchise network.
She believes that real estate professionals across the U.S. can affect the ultimate outcome of this government initiative. Forsythe offers three ways that real estate salespeople can take advantage of the housing stimulus plan.
1. Become an expert on every element of the plan as it relates to the housing market in general and my market specifically. Have information on your Web site. Blog about it. Become the go to person for the local media. (Learn about the impact of the stimulus package at REALTOR.org)
2. Personally pick up the telephone and call all past clients, perspective clients, friends, family, and acquaintances.Make it a mission to talk to every single person you know about the housing stimulus package and its effects on each and every one of them. Consider it your responsibility as a real estate professional to educate them on the elements, how they could potentially use some of the incentives to their advantage and generally answer any questions they have.
3. Reach out to people you don’t know by offering free information seminars in your market. Consider partnering up with a related professional in your market to host these, but you should be front and center meeting people and educating them on the housing stimulus package and your local market area.
Source: bhrealestateblog.com, Wendy Forsythe (02/23/2009)
Is a Stimulus for Housing Next?
Sources say the Obama administration’s housing plan, to be unveiled Feb. 18, will allow bankruptcy judges to modify mortgages and will use Fannie Mae and Freddie Mac to refinance borrowers who owe more than their homes are worth but are current on their payments.
It also will reduce loan payments for struggling home owners through lower interest rates or longer loan terms, with the government possibly giving lenders a subsidy of $800 to $1,000 per loan to minimize losses.
Home owners could be forced to ultimately repay the difference between their original and reduced payments–a provision meant to keep borrowers from defaulting for the purpose of qualifying for assistance, and the administration also wants Fannie Mae and Freddie Mac to adopt national loan modification standards.
Source: The Wall Street Journal, Deborah Solomon (02/18/09)
Expect to Hear More on Housing Assistance Plan
The Obama administration is considering plans to subsidize mortgage payments for owners facing financial troubles and allow underwater homeowners to refinance. Plans are likely to be announced Wednesday.
The refinancing proposal is expected to include a test that troubled homeowners could use to prove eligibility before their mortgage becomes delinquent.
The administration also is expected to endorse a cram-down plan that will allow judges to modify mortgages during bankruptcy procedures. And it will push for legislation that will remove obstacles that prevent mortgage servers from modifying troubled loans.
Mortgage giants Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc. have halted foreclosures until Obama announces details on these plans.
Source: The Wall Street Journal, Deborah Solomon and Robin Sidel (02/14/2009)
Stimulus Advances With Tax Credit Changes
The $790 billion stimulus package hammered out by House and Senate conferees late yesterday increases the home buyer tax credit to $8,000, from $7,500, and drops the repayment feature for buyers who hold on to their property for at least three years.
The NATIONAL ASSOCIATION OF REALTORS ® has sought removal of the repayment requirement because it discourages buyers from taking advantage of the tax credit. The three-year minimum holding period is a safeguard against speculators’ use of the credit.
The legislation also extends the effective date of the credit to December 1 from June 30, and extends eligibility to borrowers who buy their home with the help of state or local financial assistance that comes from the proceeds of tax-exempt mortgage revenue bonds.
The credit remains open only to first-time buyers (those who haven’t owned in at least three years) and some income eligibility restrictions apply, but those are unchanged from the existing program.
Other provisions reportedly in the bill that could help housing markets and communities include:
- FHA and conforming loan limits. Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher. Additional increases in individual communities may also be available at the discretion of the secretary of the U.S. Department of Housing and Urban Development.
- Foreclosure mitigation and neighborhood stabilization. Funding for states and localities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized. Some news reports put the funding level at $2 billion.
- Rental assistance. Up to $1.5 billion to provide short-term rental assistance and other aid for families during the economic crisis.
- Transportation infrastructure. Up to $29 billion for highway construction projects, $8 billion for rail projects, and $5 billion to weatherize low-income homes.
- Rural housing development. Increased funding for the Rural Housing Service direct and guaranteed loan programs.
- Low-income housing grants. Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations
- Tax-exempt housing bonds. Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds
- Energy efficient housing. Grants for energy retrofits for federally assisted housing (Section 8), funding for energy efficiency and conservation block grants to states, and Increases in the residential tax credit through 2010 for certain energy efficient upgrades.
Source: NAR, AP, Washington Post, New York Times, Bloomberg, and Wall Street Journal.
Fannie Eases Its Investor Loan Rules
To speed recovery of the housing market, Fannie Mae in March will begin purchasing and guaranteeing mortgages for borrowers carrying loans on as many as nine other properties, up from the current limit of three.
However, the number of months of reserve payments that must be held by investors will rise to six in June from two currently.
“One of the things that leads the economy out of a housing crisis is when prices get cheap enough that investors start moving in and buying things,” says Joe Garrett of the Berkeley, Calif.-based consulting firm Garret, Watts & Co.
Source: American Banker, Harry Terris (02/10/09)
International Interest Grows in U.S. Lending
The Association of Foreign Investors in Real Estate (AFIRE) reports that foreign real estate lenders could grow lending by as much as 58 percent in the United States this year, with interest in cross-border property investing especially robust.
In a recent AFIRE member survey, the top five most attractive U.S. cities in terms of investment dollars were the District of Columbia, New York City, San Francisco, Los Angeles and Houston.
Meanwhile, 53 percent ranked the United States as the nation providing the most secure property investments.
Respondents also listed multifamily housing, office space, industrial properties, retail, and hotels as the top five preferred property types.
Source: National Mortgage News, Bonnie Sinnock (02/09/09)
How to Find Money to Invest in Real Estate
These days it’s particularly tough for someone involved in a small-business real-estate venture to find funding.
David Gass, founder of Business Credit Services of Las Vegas, offers these suggestions to real estate entrepreneurs in search of investors or loans.
- Put together financial documentation for your plan. Detail the time and money and “sweat equity” that you’ve already put in, the income potential, and the amount that you’re prepared to invest going forward,. Calculate a profit-and-loss statement that factors in costs for maintenance, repairs, property taxes, and advertising.
- Talk to local bankers first. They are the ones most likely to understand your business.
- Private investors and angel investor networks are another alternative. If you go this route, work with an attorney. “You need a solid structure in place with the right operating agreement to protect all parties,” Gass says.
Source: BusinessWeek.com, Karen E. Klein (02/02/2009)
Fannie and Freddie Ask for $45 Billion
Fannie Mae and Freddie Mac are expected to ask the Federal government for at least $45 billion in the next few weeks so they can continue to operate despite increasing losses.
Rising delinquencies and falling values of bonds cause the need for the cash infusion.
Freddie Mac is likely to be the hardest hit. It said late last week that it would probably have to seek $35 billion in capital from the Treasury.
Fannie Mae will probably need $10 billion, although it has been reported that it will ask for as much as $16 billion.
The losses underscore the need to break the downward spiral in the housing market, economists say.
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