Capital Markets Update: Is the Worst Ever Yet?

The current recession is one of the worst in the past
40 years but don’t count out the U.S. economy. With a
modicum of political leadership and stable economic
policy we will get through this stronger than ever.

CLICK HERE TO READ THE FULL ARICLE FROM NAI GLOBAL

President Clinton and PACENOW Coalition Announce National PACE Bond Program at Clinton Global Initiative

NEW YORK, Sept. 24 /PRNewswire/ --
President Clinton today announced his commitment to a national PACE finance program as part of the Clinton Global Initiative. Property Assessed Clean Energy, known as "PACE" finance, is an innovative municipal finance program that has the potential to fund the energy retrofit of America's homes and buildings. The PACENOW coalition, established this year to promote these programs, also announced its Clinton Global commitment to launch PACE finance on a national scale, starting with securing the support for accelerated PACE program adoption by 50 mayors and 50 municipalities.


"PACE bonds can provide enormous amounts of much needed low cost capital to retrofit America's towns and cities all while creating local jobs," said Jeffrey Tannenbaum, founder of PACENOW.org. He added, "PACE finance has strong bipartisan support as it provides large benefits to property owners, existing mortgage lenders, municipalities, and our nation without burdening our nation's taxpayers."


"PACE is an idea whose time has come," said Clinton Global member Jack D. Hidary of the Hidary Foundation. "PACE will enable owners of homes and commercial buildings to increase the value of those properties and reduce their utility bills at the same time, benefiting both the borrowers and lenders. President Obama has called on us to increase investment in clean energy and PACE is a key component to achieving this goal."


PACENOW is pleased to announce a number of early support announcements. Mayor Jerry Sanders (R) of San Diego today stated, "We are delighted to be one of our nation's first counties to support PACE. . .and we urge the rest of our nation, on a bipartisan basis, to join us." The Boulder County Board of Commissioners commented, "Boulder County has a very successful PACE program. . .and we encourage our nation's Governors and Mayors to embrace PACE. . .given the large potential benefits."


PACENOW implementation partners include: Bipartisan Policy Center; Center for American Progress; The Fir Tree Philanthropies; Jack D. Hidary Foundation; Johnson Controls Inc.; Jones Lang LaSalle; Living Cities; Natural Resources Defense Council; PACENOW.org; and Renewable Funding LLC.


PACENOW additional partners include the following leading companies, foundations, and governmental organizations: Alliance to Save Energy; City of Annapolis, MD; Apollo Alliance; Association of Bay Area Governments; City of Berkeley, CA; County of Boulder, CO; California Energy Commission; Climate Communities; County of Montgomery, MD; National Association of Real Estate Investment Trusts (NAREIT); Polyiso Insulation Manufacturers Association; Real Estate Roundtable; Renewable and Appropriate Energy Laboratory; Serrafix Corp; Solar Electric Industries Association; City of Sonoma, CA; Stewards for Affordable Housing for the Future; and the Vermont Energy Investment Corp.


About PACENOW:


PACENOW.org is the advocacy and educational non-governmental organization for PACE finance. For more information about PACE finance, please visit www.PACENOW.org.


About The Fir Tree Philanthropies:


The Fir Tree Philanthropies ("FTP") primary objective is to accelerate America's energy independence and promote sustainable capitalism through innovations in public policy, finance and entrepreneurship.


About The Jack D. Hidary Foundation:


The Jack D. Hidary Foundation was initiated in 2001 and its primary aim is to catalyze scalable, self-sustaining programs in clean energy and economic development.


PACE FACT SHEET


History: The PACE finance industry began in California in 2008 when state enabling legislation was passed allowing for municipalities to create financing districts that could provide low cost retrofit capital to homeowners and building owners secured by senior tax liens on their property. PACE has the potential for large growth due to recently passed similar enabling legislation in more than a dozen states. Current PACE enabled states are: CA, CO, IL, LA, MD, NV, NM, OH, OK, OR, TX, VT, VA, WI.


Property Assessed Clean Energy ("PACE") Finance Defined: A PACE bond or lien is a debt instrument where the proceeds are lent to commercial and residential property owners to finance energy retrofits (efficiency measures and small renewable energy systems) and who then repay their loans over 15-20 years via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds can be used to retrofit both commercial and residential properties.


How it works: The key innovations of PACE finance involve materially lengthening the repayment period for energy retrofit loans and structuring the loan repayments as annual property tax surcharges. These innovations result in large benefits to property owners (positive cash flow in the first year on energy retrofits),

municipalities (no fiscal burden yet large job creation), existing mortgage holders (borrower cash flow improves and the property value increases), and to PACE bond holders/investors (virtually no risk on investment because the PACE lien is senior in right to mortgage debt). Specific benefits are as follows:


Property owners benefit from large cash savings as efficiency savings exceed the annual financing cost: Instead of large required upfront payments by property owners for energy retrofits, the capital is lent to property owners and repaid over 15-20 years via an annual property tax surcharge. This long term repayment mechanism results in annual energy savings that greatly exceed the annual property tax cost, making PACE finance highly attractive to home and building owners.


States/Municipalities create jobs and have no added credit risk: States and municipalities benefit from immediate job creation and the fact that PACE finance creates no credit or fiscal burden as the entire liability resides directly with those property owners who opt in to receiving PACE loans.



Appeal to existing mortgage holders: PACE finance improves the cash flow of property owners (annual energy savings > annual tax surcharge cost) and increases the property's overall value all of which increase the creditworthiness of the existing mortgage.


PACE bond holders/investors benefit from a highly secure investment: PACE bonds have strong appeal to investors given that they are secured by long term tax liens that are senior in right to mortgage debt.



SOURCE PACENOW

Source :http://au.sys-con.com/node/1120901

New IRS Rules May Help Stave Off CMBS Defaults and Foreclosures

New IRS Rules May Help Stave Off CMBS Defaults and Foreclosures
Tax Changes Should Give Many Borrowers More Flexibility in Working With Lenders, But Those Already Drowning In Debt May Be Out of Luck

The Internal Revenue Service last week issued eagerly awaited new guidelines that allow certain commercial mortgage borrowers to modify and restructure their securitized loans without triggering massive tax penalties. The new rules allow servicers to intervene before it's too late and the borrower is facing loan default and foreclosure.

Previously, property owners holding performing loans who were up to date on paying their mortgage -- but still needed to refinance in the face of declining rents and rising vacancies -- couldn't initiate loan restructuring or modification talks with lenders. Only those owners entering default or imminent threat of default could negotiate with servicers. Under the new rules in Revenue Procedure 2009-45 issued by the IRS and the Treasury last week, special servicers can at any time reduce the interest rate or extend the term of securitized loans held in real estate mortgage investment conduits (REMICs) and investment trusts. That flexibility allows borrowers with at-risk or distressed assets and onerous loan terms to ask for help earlier in the game. Download the IRS's Revenue Procedure 2009-45 (PDF)

REMICs are special-purpose investment vehicles used to pool mortgage loans and mortgage-backed securities. Securities or debt financings structured as REMIC trusts can be accounted for as a sale of assets and removed from an originating lender's balance sheet, exempting the trust from federal taxes. Under the old rules, modifying commercial loans after they were placed in a REMIC pool triggered a 100% tax penalty and potential loss of tax-exempt status. Fearing the worst, servicers would either not return borrowers' phone calls or advise them to call back after entering default.

The move drew applause from many in the industry, including Real Estate Roundtable President and CEO Jeffrey D. DeBoer, who lobbied Congress over the summer for the changes. DeBoer said that the IRS has taken "a very positive step toward easing today’s crushing liquidity crisis in commercial real estate."

"Amidst a massive wave of maturing commercial real estate debt, and still virtually no credit available for refinancing, borrowers need to be able to talk with their loan servicers about restructurings in a timely manner, before the point of default," DeBoer said.



Govt: Trying To Unfreeze Credit Markets

The new REMIC rules are the latest moves in a larger federal effort to cope with a wave of commercial real estate mortgage defaults and foreclosures that analysts predict will cause additional bank failures and could hamper the economic recovery. According to Fed data, CMBS loans make up more than 25%, or $900 billion, of the $3.5 trillion in commercial real estate debt outstanding.

Moody's reported that the average delinquency rate in CMBS conduit and fusion loans was 3.23% in August, up more than 300 basis points from July 2007's 0.5%, and is likely to continue rising in coming months.

Another part of the government's emergency plan involves offering loans to investors to buy new and existing securities under the Term Asset-Backed Securities Loan Facility (TALF). The Federal Reserve Bank of New York reported that investors requested $1.4 billion in legacy CMBS loans last week, but no loans for new CMBS issuance.

The availability of cheap government loans in part fueled investor perceptions that troubled CMBS debt and other securities backed by real estate are undervalued. A number of investment firms, hedge funds and private-equity players have stepped forward with plans to launch initial public offerings for REITs buying distressed mortgage debt. Vulture appetite peaked in August when Starwood Property Trust, Inc., managed by investment star Barry Sternlicht, saw its IPO price jump 38%.

But analysts warned that the field was quickly getting too crowded and subsequent REIT IPOs haven't fared as well. This week, two major IPO pricings were delayed, and then slashed. The offerings by Colony Financial Inc. and Apollo Commercial Real Estate Finance, expected to raise a combined $900 million, priced at only about half that amount on Wednesday. Two other mortgage REITs, Foursquare Capital Corp. and Ladder Capital Realty Finance Inc., are scheduled to price within the next few days.

The IRS rule changes widen the definition of imminent default and extend the time frame that borrowers and servicers can negotiate loan modifications, said Eric Gunderson of Highland Advisor Partners, speaking at a client webcast by Marcus & Millichap on "Solutions for Maturing Loans and Underperforming Properties" last week.

"It's going to greatly increase the odds that the master [servicer] can transfer loans to the special servicer and modify the loans," Gunderson said.

Overleveraged Borrowers:

Too Far UnderwaterSome observers, however, argue that many distressed borrowers are too far gone to help. Property values continue to decline and analysts wonder if the REMIC changes are just another mechanism for lenders to postpone action on troubled loans. Banc of America Securities Merrill Lynch said in a commentary last week that the new guidelines won't help "loans that are deep underwater, and there are many of these."

Tino Korologos, distressed debt leader for Deloitte, argues that the changes are "potentially only a variation of the 'pretend and extend' position the industry has taken so far because values still have a long way to go."

"It doesn't address the problem of who will provide liquidity. It also could anger a lot of the senior investors, the AAA buyers, who will be the liquidity providers of CMBS 2.0 in the future," Korologos said.

Michael J. Rufkahr, an attorney in the Washington, D.C. office of Dechert LLP, wrote in a report to clients that "the rose from the IRS may have thorns."

The new regulations impose a requirement that the collateral value for a mortgage loan be retested. Thus, a modification that alters a substantial amount of the collateral or that changes the nature of the loan between recourse and nonrecourse can only go forward if the loan-to-value ratio holds up, Rufkahr wrote. All collateral supporting a loan, therefore, will have to be revalued and must remain sufficient to support the modified value of the loan.

By Randyl Drummer
CoStar Senior News Editor Mark Heschmeyer contributed to this report

Let the Bidding Begin

Let the Bidding Begin

As commercial property loans come up for refinancing, industry experts predict that auction activity will grow.
By Mariwyn Evans

As short-term commercial property loans come up for refinancing, experts predict that auction activity will grow.

As foreclosures swell and the credit crunch continues, auctions are returning to the forefront of commercial real estate. Even notable buildings such as Boston’s John Hancock tower have gone the auction route, giving heightened visibility to a selling method that’s been more commonly associated with residential real estate in recent years.

"Auctions will help put distressed properties back into the market faster and get things back to normal, just as they did in the Resolution Trust Corp. era that followed the savings-and-loan crisis," says David Gilmore, managing director of Sperry Van Ness Accelerated Marketing, an Atlanta-based venture that specializes in asset disposition through auctions.

Approximately $15.5 billion in commercial real estate was auctioned in 2008 and that figure is on the rise, according to Chris Longly, deputy executive director of the National Auctioneers Association in Overland Park, Kan.

Longly and other industry experts, including Rhett Winchell, president of the auction division for Kennedy Wilson Inc. in Los Angeles, expect to see a surge in commercial auctions over the next 12 months as more commercial property loans come up for refinancing. Commercial loans are mostly short term, and without ready financing even the most experienced commercial players can get into trouble.

The Right Method for the Right Time
The growing appeal of commercial auctions has much to do with their promise of a fast turnaround time. Rather than wait months or longer for an offer to roll in, the seller can set a specific date of sale.

"That’s very valuable at a time when there’s no sense of urgency and buyers continue to sit on the sidelines," says Max Spann Jr., an auctioneer and commercial broker with Max Spann Real Estate in Clinton, N.J.

Most commercial auctions are held within four to 10 weeks after marketing begins. Sales often close in 30 days, though many sellers are extending that term to 45 or even 60 days to accommodate the tight financing climate, says Barbara Bonnette of Bonnette Auctions/United Country in Alexandria, La.

In markets where there are few sales—and hence, few comps—it’s difficult to set a price for a listed property. "The only strategy that a conventional broker has in a down market is to reduce the price and try to find a value," says Alan Kravets, president of national auction firm Sheldon Good & Co., based in Chicago. "A properly run auction, on the other hand, gets the property in front of buyers and lets the buyer, not the seller, set the price."

An auction also "validates the selling price," Spann says. "There’s nothing like a seeing a crowd of people bid on a property to overcome your fear that you’re paying too much."

Another big perk of the auction process is that the seller can dictate conditions of the sale up front, says Michael A. Fine, CCIM, executive vice president and partner with Sheldon Good. "With a conventional sale, you have to negotiate terms and price simultaneously, which can take months. With an auction, the seller controls the terms and conditions, and the bidding process determines the price based on those terms."

But that doesn’t mean auctions are completely immune to the problems plaguing conventional property sales. "We’re finding that some sellers can’t afford an absolute auction (see "Not All Auctions Are the Same," page 18) because they owe more than the property is worth. Others set reserves too high. There’s still a gap between the bid and ask," says John Seckerson, CCIM, of Colliers International in Portland.

Web Changes the Game
The Internet has made the auction process a lot easier today than it was during the downturn of the 1990s, especially on the marketing front, some practitioners say. "We promote our auctions on more than 700 Web sites and send a mass e-mail to our databases of prospects," says Bonnette, a 22-year auction veteran.

She also uses more traditional methods such as newspaper ads, brochure mailings, and phone calls. Because of the short marketing time, "it’s a full court press. You have to market very aggressively to make the auction successful," she says.

Online bidding, both in real time and through a timed auction (think eBay), can also greatly expand the swath of potential buyers for certain properties. But auctioneers have varying opinions on the value and appropriate application of the technique.

One proponent is Carl Montgomery at Comas Montgomery in Murfreesboro, Tenn. "Online auctions are extremely convenient for buyers, and allow us to expand a property’s exposure to out-of-state buyers," says Montgomery, who is one of the 37 members of MarketNet Alliance, a group of auctioneers who share an online bidding platform.

Bonnette adds that real-time online auctions tend to drive up the selling price, "although I haven’t found that many properties are being bought by the online bidders."

A new variation on the online auction model comes from AuctionPoint, a company based in Marina Del Ray, Calif., that created an auction tool specifically for commercial properties. The company sets up individual property auction Web sites and provides the platform for the online auction. Brokers handle their own marketing.

Still, not everyone is convinced that the Web is the best forum for auctions. "Online-only auctions don’t work as well for commercial property and don’t even maximize prices in most residential sales," Kravets says. "They don’t capture the electricity of a live auction." Video simulcasts can help capture some of that excitement, he notes.

Brokers Play a Bigger Role
Another big change from the auctions of two decades ago is the growing sense of cooperation between commercial brokers and auctioneers. "In the past, there was a fear of competition between brokers and auctioneers, but now companies are recognizing that by partnering, they both have a great opportunity to make a living in a challenging market," Longly says.

Colliers International is one company that’s acknowledging the growing demand for auctions by forming an alliance with the three-year-old auction arm of United Country Real Estate, based in Kansas City, Mo. "Commercial brokers bring an invaluable knowledge of their markets and buyers that’s critical to a successful auction," says Mike Jones, president of United Country Auction Services.

At United Country, the auction option is often built into the overall commercial sales framework. "Listings are marketed conventionally for perhaps 120 days, and if there are no offers we take them to auction," Bonnette says.

Another major commercial player, NAI Global, has had an alliance since 2001 with Higginbotham Auctioneers International Ltd. of Lakeland, Fla. If a property is being auctioned, the local broker "assumes the role of showing the property. Local brokers are also bringing buyers to the auction," says Higgenbotham General Manager John Haney.

Smaller brokers can partner with local or national auction companies to show properties or gather property information for the offering package, Spann notes.

Often, commercial brokers are reluctant to work with an auctioneer because they aren’t educated about the auction process or how the compensation works, Bonnette says. "Once they realize that they’ll get a commission split when they bring a listing or register a buyer for the auction, they become more receptive."

Brokers who aren’t affiliated with an auction company can always earn referrals fees for suggesting an auction as an alternative when a property is not selling, Fine adds.

Brokers tend to look more favorably on auctions when they learn how fast that payday comes, says Bill Sheridan, president of Sheridan Realty & Auction in Mason, Mich., and 2009 chairman of the NATIONAL ASSOCIATION OF REALTORS® Auction Forum. Auctions also provide a way for a broker to earn commission even after a listing has expired, he adds.

What the Future Holds
If you’re interested in teaming up with an auctioneer, or even becoming one, you’re probably wondering how demand for auctions will change after commercial markets have stabilized.

"Auctions have value in both good markets and slow ones," says Fine, who helped develop the NAR course "Introduction to Real Estate Auction," which can be taken online or in select locations (go to www.coursecalendar.com for more information).

There will always be owners who need to sell quickly because of divorce, personal financial problems, or a new business strategy, he says. Similarly, corporations and retailers will always find auctions a convenient way to sell off surplus properties and retail outparcels.

Today’s sellers, in general, are more interested in getting transactions closed fast—regardless of market conditions, Jones says. "The patience level in the market is not what it once was," he says.

Thanks to eBay, there’s also a wider familiarity with the auction process, Gilmore says. "Buyers and commercial brokers are more educated about auctions, so there’s less of a negative image," Winchell says.

The fact that the real estate market is becoming more global also will boost demand. Auctions are much more common in New Zealand, Australia, and South Africa than in the United States, so buyers and sellers who’ve worked in those areas will be more receptive, Sheridan says.

Looking ahead to when the commercial market has picked up steam and prices are appreciating again, auctions will be just as valuable for sellers as they are today, Fine says. That’s because appraisals and comps may lag market price in a rising market. But an auction will capture the immediate value, he explains.

Ultimately, says Stephen Karbelk, president of National Commercial Auctioneers in Tulsa, Okla., there’s a place for both auctions and conventional brokerage in every market—the choice depends on the client’s circumstances. "We’re here to solve the client’s problems and get the property sold," he says.


Is It Suitable for Auction?
Although any property could be auctioned, not every property is positioned to net the maximum return. Here are the key ingredients that experienced auctioneers say make a property best suited for this selling method:

A realistic seller who understands current market pricing and has a sense of urgency.

A seller with equity who can provide financing to buyers or make up any gaps between the mortgage owed and the sale price.

A qualified buyer who’s able to bring cash or secure financing rapidly.

A well-conceived offering memorandum that resolves any issues with the property before the sale.

A property that’s generating cash flow.


Not All Auctions Are the Same

There are many different types of auctions. Know the terms so that you can help determine which method would work best for your client.

Absolute auction. The property is sold to the highest bidder with no limiting conditions or amount

Auction with a published minimum bid or reserve price. The minimum bid sets a floor for bidding, but the seller still reserves the right to accept or decline the bid at any time before the completion of the auction. These days, many auctioneers encourage sellers to choose a low minimum—50 percent to 60 percent of the last asking price—to demonstrate to buyers that the property will be sold.

Unpublished reserve auction. The seller reserves the right to establish a reserve price, to accept or decline any and all bids, or to withdraw the property at any time prior to the auctioneer announcing the completion of the sale. Many auctioneers encourage sellers not to publish the reserve so that the seller has the option of taking a bid that is below the reserve.

Sealed-bid auction. Confidential bids are submitted, to be opened at a predetermined place and time. It’s not a true auction in that it does not allow for reaction from the competitive marketplace. Sealed bids allow the seller to choose a buyer on criteria other than price, such as ability to obtain financing.


Source: National Auctioneers Association (www.auctioneers.org)

City struggles to clean up commercial eyesores

Vacant stores, offices and commercial buildings can be found across the capital city, shuttered and abandoned for one reason or another.

Some have sat empty for years, while grass and weeds grow tall around the buildings. Paint falls off. Trash accumulates. Sometimes graffiti can be spotted on sides of buildings.

Online readers identified a number of deteriorating eyesores in Springfield — from the old Kmart on MacArthur Boulevard to the former Kovski Chiropractic Clinic at Fourth Street and South Grand Avenue.

With the economy forcing even more businesses across the country to close their doors, Springfield faces the question: What can be done to keep empty properties cleaned up?

City’s tools

The city can try to force property owners to clean up buildings by citing them for code violations.
The most commonly cited violations, according to John Sadowski, the city’s plans examiner and building department manager, include broken windows, deteriorating paint, gutters that are falling off and leaking roofs.

If two or more code violations are found at a vacant property, the city can require the building to be registered. Doing so requires a permit, which initially costs $100 per building.

The initial registration fee gives the owner six months to correct the violations, Sadowski said, before the fee increases to $250 for the next three months.

Since January, the city has issued 338 such permits for residential and commercial buildings. The city’s software couldn’t break down how many were commercial and how many residential, but Sadowski said “many, many more” residential properties have been issued permits than commercial.

Sadowski, who has been with the city for 13 years, said that, by the end of the year, he expects Springfield to have issued twice the number of registration permits as last year. In 2008, the city issued twice as many as 2007.

“That’s because we’re spending more time requiring owners to register for the building because of more and more complaints,” he said.

Inspectors

Code violations generally are reported by either passers-by who complain to the city or an inspector.

The building department, which handles commercial properties, has four building inspectors, Sadowski said. The city’s financial woes haven’t reduced the number of inspectors, he said.
Ernie Slottag, the city’s spokesman, said the city can’t enter a commercial building without the owners’ permission, although, occasionally, the city is notified about exterior building problems that can be safety hazards for sidewalks or streets.

In those cases, Slottag said, the city barricades the area to prevent injury to property and passers-by.

But getting a problem property fixed up can take a long time, he said.

“We respond quickly,” Sadowski said. “If we get a complaint, we’ll send an inspector the next day.”

The city then has to do research to find the owner and send a letter, he said.

“In most cases, that letter is ignored, and then we have to send the case to our legal department and have to bring the case to administrative court,” he said. “Only then are many building owners convinced they have to pay the registration fee.”


What you had to say

We asked readers on sj-r.com and on visitors to sj-r.com’s Facebook page for help identifying vacant buildings that appear to be deteriorating. Here are some of your submissions:

* The Warehouse, South First Street

* The former Kmart building, MacArthur Boulevard

* Former Damon’s restaurant, Parkway Pointe

* The old Esquire Theatre, MacArthur Boulevard and South Grand Avenue

* Former Kovski Chiropractic, Fourth Street and South Grand Avenue

By DEANA POOLE
THE STATE JOURNAL-REGISTER

Mortgage Fraud Keeping FBI Busy

Mortgage Fraud Keeping FBI Busy

The Federal Bureau of Investigation has more than 2,600 open cases of mortgage fraud, FBI Director Robert Mueller told Congress on Wednesday. Most of the cases involve losses of more than $1 million.

More than 300 special agents are assigned to mortgage fraud, which is up more than 200 percent from what it was three years ago, according to the FBI.

"The schemes have evolved with the changing economy, targeting vulnerable individuals, victimizing them even as they are about to lose their homes," Mueller said in prepared remarks to the Senate Judiciary Committee.

Source: Reuters News (09/16/2009)

Test your knowledge of the new HVCC guidelines

Since it took effect May 1, 2009, the Home Valuation Code of Conduct (HVCC) has generated significant commentary among real estate professionals, appraisers, and lenders—as well as plenty of uncertainty over exactly what the agreement does and does not allow. The HVCC is a set of guidelines to curb inaccurate appraisals developed by New York Attorney General Andrew Cuomo and the two secondary mortgage market companies Fannie Mae and Freddie Mac, with support from their regulator, the Federal Housing Finance Agency.

In general, the guidelines seek to ensure an arm's length relationship between the lender making a loan and the appraiser who assigns a value to the house. It also sets forth a process for addressing incidences in which appraisal misconduct is suspected. Test how much you know about the new appraisal guidelines.

CLICK HERE FOR THE QUIZ