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Archive for the ‘loss share’ Category

TechDex (apps|provider|hardware|var)

Central Business District

ELC Technologies – 1771 NW Pettygrove | 4,400 RSF

Enable TV – Century Tower | 1201 SW 12th Ave | 4,235 RSF

CompanionLink – Paulson Building | 811 SW Naito Pkwy | 1,853 RSF expansion

The Good – Raleigh Square | 1603-1625 NW 14th | 3,250 RSF

Vancouver

PCB Universe – Crestwood Biz Ctr | 11818 NE Mill Plain Blvd | 2,112 RSF

HealthDex (hospital/provider|managed care|equipment)

Central Business District

Education Solutions – River Forum I | 4380 SW Macadam | 2,211 RSF

Westside

Western Psychological & Counseling Svs – Cornell West | 1500 NW Bethany | 4,281 RSF

Eastside

Mt. Scott Surgery Center – Mt. Scott Prof. Ctr II | 9300 SE 91st | 7,574 RSF

GeneralBizDex (consulting|finance|insurance|legal|other)

Westside

VergePointe LLP – Kruse Woods I | 5283 Meadows Rd | 5,546 RSF renewal

Pacific Legacy Mortgage – One Embassy | 9020 SW Washington Sq Rd | 6,937 RSF

Knipe Realty NW – Bridgeport Crossing | 7420 SW Bridgeport Rd | 5,063 RSF

Northwest Mortgage – One Willow Creek | 16100 NW Cornell Rd | 3,643 RSF renewal

J.J. Henri – Lake Oswego Exec Park | 5755 SW Jean Rd | 3,497 RSF

Resource Financial Planning – Fairway Center | 9115 SW Oleson Rd | 2,492 RSF renewal

Ohanesian & Associates – 9011 SW Beaverton Hillsdale Hwy | 1,364 RSF

Central Business District

NBS Real Estate Capital – Bank of America Financial Ctr | 121 SW Morrison | 4,552 RSF renewal

Legacy Group Lending – Bank of America Financial Ctr | 121 SW Morrison | 4,824 RSF

NonProfDex (charitable|education|trade assoc)

Central Business District

Portland Community College – Dayton Building | 838 SW First Ave | 2,077 RSF

DesignDex (A/E|apparel|graphic d)

Westside

ATC Group Services – 7070 SW Fir Loop | 2,644 RSF

Evergreen Engineering – One Technology Ctr | 7431 NE Evergreen Pkwy | 17,020 RSF renewal

Thorson Pacific – Lincoln Center | 10300 SW Greenburg Rd | 1,873 RSF

SustainDex (environmental|sustainable|clean/bio tech)

Eastside

LabFX – I-84 Corp Center | 1062 NW Corporate Drive | 1,495 RSF

FunDex

Westside

Lake Oswego Soccer Club – Lake Oswego Exec Park | 5775 SW Jean Rd | 2,125 RSF

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GeneralBizDex (consulting|finance|insurance|legal|other)

 Central Business District

Gordon & Rees – Bank of America | 121 SW Morrison St | 6,350 SF

Immigrant Law Group – Oregon Trail Bldg | 333 SW Fifth Ave | 3,282 SF

Westside

Boise Cascade Bldg Materials – Three Centerpointe Drive | 2,627 SF

Generator Group – 17933 NW Evegreen Parkway | 3,253 SF

DesignDex (A/E|apparel|graphic d)

Central Business District

HNTB – Columbia Square | 111 SW Columbia St | 3,607 SF

NonProfDex (charitable|education|trade assoc)

Central Business District

Portland Youth Philharmonic – Cascade Building | 520 SW Sixth Ave | 2,822 SF

Westside

Better Business Bureau of WA, AK, OR  – 4004 Kruse Way Place | 2,578 SF

SALES

Buyer: RSVP Investments LLC

Seller: RH Fund I

Address: Fieldstone Office Park, 11109-14 NE 14th Street, Vancouver, WA

Size: 12,000 SF

Type: Office Building

Price: $1,825,000

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The losses on troubled CMBS loans has escalated by 33% over the past year, with recovery around 43 cents on the dollar.  Many analysts expect losses to continue an upward climb this year, or in other words declining property values mean increasing loss severities.

The average loss severity rate for CMBS loans resolved in 2009 was 57% compared to a rate of 43% in 2008. The cumulative historical average is 37.2%.  Analysts with Fitch Ratings expect the loss severities to remain above the cumulative average through 2011.

Assets liquidated today will be those unlikely to see a cash flow improvement as a result of an extension or modification. Concurrently, special servicers are continuing to see a high volume of underperforming loans further slowing the process for resolution (think high stakes divorce proceedings). With a continual stream of excess inventory and a declining frequency of modifications, there appears to be no relief in sight.

In a booming market, a collateral liquidation could recover fully the interest shortfalls and possibly even the total outstanding balance. But in today’s environment, where commercial real estate values are well below the 2007 peak, it will take much longer to return to the value at the time the loan was secured.

A study conducted by CoStar Group showed that among liquidated loans, 91% of properties had at least one reappraisal done and 87.5% of those experienced a reappraisal value lower than at the time of securitization, triggering appraisal reductions for those assets with loan amounts more than 90% of the new appraisal value.

During the First Quarter of 2010 there have been $270 million in losses through liquidation. Among the $17.7 billion in loans added to special servicing this year thus far, 7% saw appraisal reductions. This means the rate of loss severity is sure to worsen.

Certain property types are expected to yield higher loss severities than others.  Here’s the breakdown for 2009:

  • Retail – 48.2%
  • Industrial – 48.8%
  • Office – 56.9%
  • Multifamily – 58%

 

source: CoStar

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Leasing activity is on the rise. Companies are modestly hiring, driving up transaction activity as tenants slowly start the process of renewing leases, searching for good deals and making other occupancy decisions postponed during the last 2+ years.  This isn’t to say we are through all the pain (debt is looming), but certainly businesses are at least coming out from under the bed and facing a new day.

It is likely office vacancy rates have peaked nationally, meaning Portland probably has six more months of climbing vacancy in most submarkets. The downtown (Central Business District or CBD) submarket would be the exception. Thanks to some big moves by the GSA and other companies moving in downtown as emerging industries like green tech gain momentum, the CBD is starting to tighten on office space, particularly for larger tenants.

Office rents are expected to begin rising in most U.S. markets by the middle of next year.  But again, the Portland CBD may hit that pace sooner. The suburban markets will lag.  Across the country, Landlords are not likely to see significant growth in net operating income for years to come, think 2015.  Nominal rents adjusted for inflation have decreased every quarter since early 2008. They are now down 20% from a decade ago, from over $24/SF to $19/SF nationwide.  On a 5,000 SF lease that’s a difference of almost $2,100/month.

First quarter 2009 was the worst three-month period for leasing in a decade. Many tenants delayed decisions to sign a new lease or renew as the market continued to add vacancy and drop rates.  However, first quarter 2010 is shaping up to be one of the strongest leasing quarters in five years. All of this good news doesn’t necessarily translate into positive absorption just yet, as 50% of the top 20 markets showed negative absorption.

All of this is good news considering the dismal performance of 2008 and 2009. But there are still big challenges ahead that will likely cause a recovery stall or value drop in the commercial real estate market.

source: CoStar

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Ok, so it’s no Ferrari-like speeds for the commercial real estate market recovery, but the first signs of some promising momentum comes on the distressed properties track.

For the past 2+ years distressed property offerings have sat pretty much untouched while buyers tried to determine the best time to re-enter the market (ie. when values hit bottom and stabilized).  It looks like 2010 is it.  In the First Quarter,184 transactions closed compared to 102 in the First Quarter of 2009, a nearly 45% increase year over.  2010’s number is more in line with transaction volume during the first quarters of 2008 (187) and 2007 (189). A good indicator that buyers with cash have decided the timing is right to pursue deals.

While the activity level among distressed properties is a good sign, it must be noted that  assets in good standing are not moving without considerable discounts. Take, for instance, the recent sale of One Main Place in Portland. This Class A office tower had 97% occupancy and a strong tenant roster. It was purchased in 2006 for $69 million and recently sold for $59 million. 

OFFICE AND INDUSTRIAL PRICES – CLOSING THE GAP

Distressed office prices have been trending down from their 2007 peak.  But lately the price gap has narrowed with top prices declining and bottom prices slightly increasing. Since late Third Quarter 2009, distressed office properties have sold for anywhere from $70 to $140/SF.  During the same time period, nondistressed office properties sold for between $110 and $200/SF.

Three years ago, distressed industrial properties were trading anywhere from $20 to $80/SF.  In late 2008 and early 2009 there was a brief rally in industrial prices, but today the price bottom is back around $20/SF.  The top of the price scale is around $40/SF, narrowing the gap between high and low by $40/SF.  Nondistressed flex and industrial properties have been selling for between $40 and $85/SF.

THE ACTIVE BUYER POOL TENDS TO BE LOCAL/REGIONAL

The mix of buyers of distressed office properties during the recession years breaks down as follows:

  • Regional developer/owners – 26%
  • National developer/owners –  17% 
  • Individuals – 14%
  • Corporations – 14%14% 
  • Investment managers – 11%

Over the last six months, investment managers have decreased their share to less than 5%, while banks and government entities have increased their share of purchases. No doubt a portion of the  government increase comes from assumption of numerous corporations with considerable real estate holdings.

The mix of buyers of distressed flex and industrial properties since 2007 breaks down as follows:

  • Regional developer/owners- 23%
  • Corporations – 20%
  • National developer/owners – 16%
  • Investment managers – 11%
  • Individuals – 11%

Over the last six months, corporations have become the most active buyers accounting for 3 out of every 10 purchases. Regional developer/owners follow closely at 28% while investment managers’ share has fallen to 8%. Individuals now account for less than 4%.

source: CoStar

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The commercial real estate market has not bottomed out yet. Most private commercial real estate investors believe it will be 2012 before things start an upward turn (and mind you not a sharp incline then). Based on a poll conducted by Lee & Associates Investment Services Group, 82% of investors believe that prices for commercial real estate had not started to stabilize and nearly half of them feel it will be at least 18 months before some form of traction takes hold in the market. 23% felt the market would turn around in under a year (optimists).

Clearly, the credit market continues to be the source of the problems. Until banks establish a quick pace on foreclosures and problem loan workouts no one has a clear picture of where values will land and the inventory of properties for sale is too small to establish pricing. The poll supports this stance as 62% of all assets purchased in the fourth quarter were made with lender financing. 26.4% of those surveyed said they purchased assets on an all-cash basis. When asked what they think will turn the market around – 55% believed available financing followed by better pricing would do the trick.

The biggest “attention-getter” response was that 72% of investors polled said sellers had become only slightly more realistic in their pricing.  According to Mark Larson, Vice Chairman of Lee-ISG, “The consensus seems to be that sellers would like to sell on last year’s pricing while buyers believe values are declining further.” According to Larson, it is unclear if the bottom has occurred since we are only just now starting to see lending institutions get back non-performing assets.

source: CoStar

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With banks still dropping like maple leaves in late October, I thought it might be interesting to take a look at the state of a few smaller institutions and how they are handling their troubles. This is just three current examples. Unfortunately, U.S. banking regulators predict the number of banks that will fail in 2010 to exceed the number of failures in 2009. On the positive side, it appears some banks are figuring out ways to resuscitate interest from investors and creditors to solve their possible insolvency.

1. Sterling Savings Bank

Headquartered in Spokane, Washington, Sterling has received numerous warnings from federal regulators and is now in active negotiations with private equity investors, creditors and regulators over how to best recapitalize.  Part of the plan incorporates the conversion of preferred stock to common stock. Addtionally, Sterling reports receiving several non-binding proposals from private equity firms ans has entered into a non-binding Letter of Intent (LOI) with one firm to provide addtional capital to Sterling. They have also secured the support of the U.S Department of the Treasury for their stock conversion plan.

The good news: hey, at least equity investors are talking to Sterling (unlike some of the banks I’ll mention later) and the U.S Treasury is on board with their plan.  This should bring the overall health of Sterling up enough for them to be under consideration for release from the hospital, so to speak.

The bad news: After releasing this latest information, Fitch downgraded Sterling Financial’s long-term issuer default rating to ‘C’ from ‘CCC’ and Sterling Savings Bank’s long-term and short-term IDRS to ‘C’. Talk about endless hurdles in a race.

2. Park Avenue Bank in New York

Located in our favorite city for financial misgivings, this New York City bank was closed and put into receivership with the FDIC. The FDIC has subsequently entered into a purchase and assumption agreement with Valley National Bank of Wayne, New Jersey to assume all deposits.  The real story on this institution’s demise is around the former President – Charles J. Antonucci, Sr. who was appointed President with the acquisition of Park Avenue bank by real estate entrepreneur David Lichtenstein of Lightstone Group.  Antonucci has been arrested and charged with self-dealing, bank bribery, embezzlement of bank funds and fraud with other charges under consideration.

The U.S. Attorney for the Southern District of  New York charged Antonucci with allegedly attempting to fraudulently obtain over $11 million worth of taxpayer rescue funds from TARP. This makes Mr. Antonucci the first defendant ever charged with attempting to defraud TARP – way to go!  He is also alleged to have used his bank in a scheme that involved swindling two pastors of a Florida congregation out of more than $100,000 that was to be used for a new church. I’m pretty sure he just secured his ride to an equally warm destination in the after life.

The good news: He was caught and, luckily, Valley National Bank agreed to assume assets totaling $520 million with $494 million in deposits.

The bad news: After using what is called a loss-share transaction with the FDIC, Valley National now has the dubious task of dealing with Park Avenue Bank’s troubled assets. $23.8 million in 90-day or more delinquent commercial real estate loans and $1.8 million in foreclosed nonresidential properties. Also, it looks like a co-conspirator may get off with a slap for turning on Antonucci.

3. Advanta Bank

This Draper, Utah headquartered bank has closed its doors forever. The bank was closed yesterday by the Utah Department of Financial Institutions after the FDIC was appointed receiver and unable to find another financial institution to take over the operations. The FDIC approved the payout of insured deposits with the bank and then pretty much said goodbye.

At the end of 2009, Advanta had roughly $1.6 billion in total assets and $1.5 billion in total deposits. It was one of the nation’s largest issuers of business MasterCard’s.

The good news: Those depositers smart enough to know the coverage limits should be okay.

The bad news: Jobs have been lossed, money has likely disappeared and there really is nothing left.

Since the start of the financial crisis, 195 banks, nearly all community banks, have failed. Projected failures for this year are expected to exceed the 145 that closed in 2009.  Remember that wave I mentioned in a post last Fall?

source: CoStar (Mark Heschmeyer)

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