Articles
FDIC Adopts Guidance on Prudent Commercial Real Estate Loan Workouts
FOR IMMEDIATE RELEASE
Media Contact: Andrew Gray, 202-898-7192
October 30, 2009
The Federal Deposit Insurance Corporation (FDIC), in coordination with the other member Agencies of the Federal Financial Institutions Examination Council (FFIEC), adopted a policy statement today supporting prudent commercial real estate (CRE) loan workouts. This policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined.
This policy statement provides guidance to examiners, and financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. It also recognizes that during these difficult economic circumstances, continued credit availability to businesses, especially small businesses, is challenging, even where borrower performance has been acceptable. This policy statement reflects the appropriate balance of prudent credit practices and meeting legitimate credit needs.
The FFIEC Agencies recognize that prudent loan workouts are often in the best interest of both financial institutions and borrowers, particularly during difficult economic conditions. This policy statement details risk-management practices for loan workouts that support prudent and pragmatic credit and business decisionmaking within the framework of financial accuracy, transparency, and timely loss recognition. Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers' financial conditions will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications.
The policy statement includes examples of CRE loan workouts. The examples, provided for illustrative purposes only, reflect examiners' analytical processes for credit classifications and assessments of institutions' accounting and reporting treatments for restructured loans. The policy statement reiterates existing guidance that examiners are expected to take a balanced approach in assessing institutions' risk-management practices for loan workout activities.
The member Agencies of the FFIEC include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the FFIEC State Liaison Committee. The FDIC currently chairs the FFIEC.
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Commercial Property Deal Drought Worst in 18 Years
Bloomberg.com, By David M. Levitt
September 11, 2009
Commercial-property sales in the U.S. this year are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s.
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Cox Castle Nicholson
31st Annual Marshall Bennett Conference
Park Hyatt Hotel, Chicago, IL
June 22-23, 2009
Comments of Attendees as reported by:
Mathew A. Wyman of Cox, Castle & Nicholson, LLP
31st Annual Marshall Bennett Conference: Roundtable I
31st Annual Marshall Bennett Conference: Roundtable II
Commercial Real Estate Outlook: Q2 2009
Between a Rock and a Hard Place
Deutsche Bank, Richard Parkus, Head of CMBS Research, (212) 250-6724
July 21, 2009
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The Future Refinancing Crisis in Commercial Real Estate
Deutsche Bank, Research Team
Richard Parkus, Research Analyst
(+1) 212 250-6724
Jing An, CFA Research Analyst
(+1 ) 212 250-5893
Estimates of the Magnitude of Refinancing Risk, Equity Deficiency and Losses from Maturity Defaults
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New Statute Enacted
HB2486 which creates the Commercial Mortgage Broker License was enacted by the legislature and signed by Governor Brewer on July 10, 2009
House Bill 2486
Health Insurance; purchase outside state
S/E Commercial Mortgage Broker License
Cover Memo to Governor HB 2486
Critical Commercial Broker Deregulation Measure Becomes Law
News Release - Arizona Commercial Mortgage Lenders Association, July 14, 2009
The Law of First Impressions
A Practical Guide to Mortgage Applicants
Increased Importance of Borrower Financial Statements
For Commercial Real Estate Financing
Robert T. Gibney, Robert T. Gibney & Associates
June 2009
The current downturn in the commercial real estate market has led to sweeping changes in the underwriting, regulatory oversight, and potential legal liability related to personal financial statements and real estate schedules prepared by mortgage applicants. Practical information and guidance is provided to mortgage applicants for the preparation of complete and accurate personal financial statements and real estate schedules - borrower liquidity, global cash flow, and net worth, along with a review of borrower representations and warranties and FinCEN mortgage fraud enforcement.
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Wachovia Economics Group - Special Commentary -
Commercial Real Estate Quarterly: First Quarter 2009
Wachovia Economics Group
May 12, 2009
Since the financial markets seized up in August 2007. Commercial mortgage-backed securities (CMBS) spreads began to widen almost immediately and blew out to record levels after the crisis intensified. The onset of the financial crisis marked the end of the era of cheap and abundant credit for commercial real estate. Years of easy credit and low interest rates had fed a boom, which helped pull commercial property prices sharply higher. With billions of dollars of commercial real estate loans coming due and lenders more interested in preserving capital than putting it at risk, values have come under extreme pressure and construction activity is winding down.
Various measures of commercial property values show prices topping out in the second quarter of 2007 and are currently down a cumulative 25 percent. We expect further price declines over the next 18 months, as sales of distressed properties increase. Shopping centers are particularly vulnerable at this time because many retailers have shut stores and ramped down store openings. The largest drops will continue to be in areas where housing weakened the most, including Florida, California, Arizona, Nevada and Atlanta. Many of these markets had also seen considerable development in recent years and have some of the highest ratios of square feet of retail space per resident.
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Arizona Multihousing Association
Board of Directors 1Q09 Market Update
Arizona Multihousing Association
May, 2099
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MULTIFAMILY
Wall Street Journal
April 8, 2009
The nation's apartment market deteriorated in the first quarter as rising unemployment dashed landlords' hopes that the housing downturn would create a soft landing by bringing former homeowners back as renters. The vacancy rate for the top 79 U.S. markets jumped to an average 7.2%, a full percentage point increase over the past two quarters and the highest level since the first quarter of 2004, according to statistics from Reis Inc., a New York real-estate-research firm. The jump in vacancies came even as landlords reduced rents. Asking rents, which exclude concessions and are often the starting point for rent negotiations, fell 0.6%, the largest fall since Reis began its count in 1999. Effective rents, or the rents that landlords actually collect, fell 1.1% in the first quarter to $984.
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COMMERCIAL
Wall Street Journal
April 8, 2009
Commercial landlords continue to lose retail tenants at an accelerating pace, indicating that the industry's troubles are worsening. The amount of occupied space in U.S. shopping centers and malls declined a net 8.7 million square feet in the first quarter of 2009, according to real-estate-research company Reis Inc. The amount of occupied space lost in that one quarter was more than the total amount of space retailers gave back to landlords in all of 2008 and any other year in recent history, according to Reis.
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Commercial Real Estate Outlook
"Commercial Real Estate at the Precipice"
Deutsche Bank – Richard Parkus
March 25, 2009
Key Themes as of Q1 2009
- CRE fundamentals dramatically weaker across most major property segments and markets
- Price declines of 35-45% (or more) expected, exceeding those of early 1990s
- Rent declines and vacancy rates may approach those of the early 1990s
- Current downturn is demand shock induced versus over-supply induced downturn of early 1990s
- Conduit collateral performance deteriorating at historically fast pace
- Total delinquency rate close to 2003 peak, and likely to exceed 3.5% by year-end
- May reach 6% by 2010 (peak delinquency rates in early 1990s were 6-7%)
- However, by far the greatest risk facing CMBS is maturity default/extension risk, not term default risk
- Large percentage of CMBS loans made in 2005-2008 will not qualify for refinancing without substantial equity injections due to:
- Much tighter underwriting standards
- Massive price declines
- Declining cash flow
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Commercial Tenants in Trouble
Consequences and Practical Workout Solutions
By Janet Jackim, Esq., Jackim Haines Law Group LLC
March 23, 2009
Diminishing customer traffic, sales, and telephone calls. Increasing labor costs. Closed storefronts and see-through buildings. In todays economy, landlords and tenants of commercial properties are facing similar challenges: declining revenues, increased operating costs, uncollectible receivables, the closing of a shopping centers anchor tenant, declining building services, the bankruptcy of a partner, customer or vendor, bad weather and lack of funding sources, to name a few. Read any business magazine or the local newspapers business section and youll quickly learn how the financing void and general economic lethargy have had staggering effects upon commercial lease transactions (office, industrial/warehouse, and retail properties).
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Monthly Financing Update
September 22, 2008
It is appropriate to assess the commercial real estate financing landscape as we begin the 4th quarter of 2008. Whether you are an existing or prospective client of Robert T. Gibney & Associates, I hope that this information is helpful as you develop strategies to acquire, manage, and dispose of your commercial real estate investments.
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Wading Through Deep Water:
Turmoil in the Economic and Capital Markets
September, 2008
PowerPoint presentation from Heitman Research.
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Capital Markets in Flux
Unprecedented Events During the Week of September 14, 2008
September 18, 2008
In a series of unprecedented events during the week of September 14, 2008, a number of private and public sector actions occurred that will have broad ranging and long-term implications for the capital markets.
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Heitman Research: U.S. Property Market Update
September, 2007
PowerPoint presentation from Heitman Research.
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Reduced Interest Rates
September 11, 2007
A combination of factors, including the recent bond rally and the emergence of portfolio lenders, has resulted in 5-year fixed rates of 6% for average quality multi-family properties. Commercial property financing is available at slightly higher interest rates (6.25% to 6.75%). Portfolio lenders have strengthened their strategic position in the current market, while many conduit/CMBS lenders have elected to cease issuing loan quotes or Letters of Interest. Those conduit/CMBS lenders that are issuing loan quotes have increased the spreads to compensate for challenging capital market conditions. A portfolio lender funds loans with its own capital and has the ability to hold loans on its balance sheet.
Appraised Value - Sales Price - Loan Amount
Commercial/Multi-Family real estate purchase contracts have customarily excluded any contingency provisions related to the appraised property value as it relates to the sales price. This practice differs from A.A.R., residential purchase contract language, which includes an appraised value contingency provision. According to the residential purchase contract, buyers have the right to cancel the contract in the event that the appraised value is less than the purchase contract. Commercial/Multi-Family real estate buyers waive all contingencies prior to the end of the financing contingency period, based on their receipt of a financing commitment from a reliable lender. The property appraisal is intended to meet the underwriting requirements of the lender, and is not intended for the use of the buyer or seller.
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