Article that I Just found in SCT Newswire Home

This article has some really great reading points.

Act now, distressed owners told

Owners of distressed retail properties will need to do some fancy footwork to stay afloat in the coming year as many of their loans come due, speakers said at ICSC's Florida Conference in Orlando, Fla., today. Without enough cash flow to maintain mortgage payments, these owners will need to try and re-negotiate loan terms with lenders and rethink CAM and other operating costs to help troubled tenants keep up with their rent payments.

More than $1 trillion worth of U.S. commercial properties will undergo foreclosure in the coming year as owners default on their loans, predicted Stanley Tate, president of North Miami, Fla.–based Tate Enterprises and an advisor to the Federal Reserve. "It's just beginning to start. Those who are heavily leveraged are going to have a very difficult time," Tate said. He pointed out that the FDIC has hired 500 new regulators to help shut down 85 banks within the next 30 days. As more and more subprime borrowers default on loans, "there are very serious problems in the banking industry," he said.

Not all of that foreclosed commercial property will be retail, but Tate expects a significant portion to be small open-air centers tenanted by mom-and-pop shops. Such tenants have been hit hard by inflation and are having trouble keeping up with rent payments, he said. And landlords can no longer count on securing new debt to stay afloat. "In the past few years, every deal was bailed out by more easy money," said John Kozyak, a commercial bankruptcy lawyer with the Coral Gables, Fla.–based firm of Kozyak, Tropin, Throckmorton. "Now, with a lot of loans coming due next year, the easy money has run out."

Troubled owners should not put off trying to renegotiate loans until the last minute, Kozyak said. "The main thing is to get to your lender early and with accurate information," he said. "Lenders are demanding more information in the current economy and they're not tolerating the sneaking around that's been going on in the past 18 months."

To avoid write-offs, lenders are willing to be flexible and work with distressed borrowers, particularly insurance companies and publicly traded lenders who might be more willing to play ball as their quarter is drawing to its close, said Raul Valdez-Fauli, president and CEO of Coral Gables, Fla.–based CNL Bank. "Banks are dusting off forebearance agreements, which include the extension of amortization periods and even reduction of mortgage payments for several months if a borrower can prove that an impending increase in cash flow is on the horizon,"Valdez-Fauli said.

Landlords should do their part to help troubled tenants make rent and keep cash flow up, said Craig Sher, executive chairman of St. Petersburg, Fla.–based The Sembler Co. "Developers will have to reduce CAM expenses penny by penny, and try to save money on insurance. We've attacked every appraiser," he said. "Save tenants money on the expense side so they can afford to pay rent."

Tate recommended that landlords approach troubled mom-and-pop tenants now to renegotiate rents and lease terms. "An occupied store is better than an unoccupied one," he said. "Even if it is at half the rent."

If you are thinking of buying or selling your commercial investment property, please give me a call to discuss how I can assist you in achieving your goals.

Not that bad

Here is an article I just read Commercial Property News:

CBRE’s Torto Sees CRE Correction, No Catastrophe
Aug 4, 2008By: Paul Rosta, Senior Associate EditorMore pain is in store for the U.S. commercial real estate market and the for the rest of the year, but reports of a meltdown are greatly exaggerated. That is the conclusion of CB Richard Ellis Inc.’s global chief economist, Raymond Torto (pictured), in a mid-year report. Difficulties in areas ranging from the job market to CMBS that will take time to resolve. Still, the economy should avoid the severity of the doldrums a generation ago, Torto argued. “We feel the headlines do not accurately reflect U.S. or global real estate fundamentals,” the report states. A generation ago, 12 months of job losses more severe than this year’s pounded the economy, followed by another 9 months of flat growth. Job losses will continue nationwide for the next three to six months; however, the slump in the employment market will not reach the scale of the early 1990s crisis. Indeed, considering the adjustments experienced by the housing, auto, and airline industry, “it is surprising that the job losses to date have not been greater,” the report states.The short-term outlook for commercial real estate is comparable to the job market’s: a relatively shallow, if extended weakening. Commercial real estate is already reflecting the softening of the economy. Second-quarter vacancy rates are up 50 to 100 basis points year-over-year nationwide. In the industrial sector, for example, vacancy for the markets tracked by Torto Wheaton Research, an affiliate of CB Richard Ellis Inc., rose from 9.3 percent to 10.3 percent since the second quarter of 2007. Office vacancy is at 13.2 percent, up from 12.5 percent a year ago. For the rest of the year, vacancy will continue to rise and absorption will dip into the negative across property types. Another indication of the downturn’s shallow nature is economic rent, which Torto defines as a measure of the change in a property’s gross income. That metric is expected to dip only 1.2 percent during the current downturn, a much lower drop than either the 6.1 percent falloff registered in the 1990s or the 23.4 percent slide tallied in 2001. Meanwhile, strong cash flows are keeping a lid on CMBS delinquency rates, which are less than one-half of one-percent for all property types.

CRE is a long term strategy. If your strategy for a 5-10 year hold on your CRE was your initial game plan when you purchased it, just focus on keeping it leased and managed well. If you are towards the end of your hold period and you are thinking about selling, now is the time! Depending on the 2008 election, capital gains rates are sure to change. This can make it more difficult for selling your property at your target rate of return. It might stretch your holding period beyond your expectations.

I welcome your comments and thoughts. If you need anything, please do not hesitate to contact me!