77 posts tagged “economy”

Federal Reserve Chairman Ben Bernanke addressed the Economic Club of New York earlier of this week and spoke about the current financial climate and its trajectory. In his speech, Bernanke expected to see a slow economic recovery as demand for commercial property is down but said that he did not agree with economists bracing for another slip into recession next year. An excerpt:

Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks' books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans. In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.

Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their creditworthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that--absent other adverse factors--a loan should not be classified as impaired based solely on a decline in collateral value.

For more news and information visit Blumberg Capital Partners.

The Federal Reserve has released its October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices looking at the changes in business and household loan supply and demand with a focus on three sets of special questions:  The first asked banks about the reasons for the decline in commercial and industrial (C&I) loans over the first eight months of 2009, the second asked banks about the status of commercial real estate (CRE) loans on their books that were scheduled to mature by September of this year, and the third asked banks about potential changes in credit card lending due to implementation of the Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act.

The results of the survey are based on responses from 57 domestic banks and 23 U.S. branches and agencies of foreign banks; participating banks received the survey on or after October 6, 2009, and their responses were due by October 20, 2009. Domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households. And excerpt:

A small net fraction of branches and agencies of foreign banks eased standards on C&I loans, whereas a significant net fraction continued to tighten standards on CRE loans. Demand for most major categories of loans at domestic banks reportedly continued to weaken, on balance, over the past three months. This weakening was somewhat less widespread than in the July survey for C&I loans, CRE loans, and nontraditional mortgages; approximately the same for consumer loans; and significantly more widespread for home equity lines of credit. However, banks reported stronger demand, on net, for prime residential real estate loans. Demand for C&I and CRE loans at foreign banks continued to weaken, on balance, but the weakening was somewhat less widespread than that in the July survey.

For more news and information visit Blumberg Capital Partners.

The Wall Street Journal published an article examining the current climate for office building owners who are looking to keep the tenants they have in the face of one of the worst commercial real estate markets in decades. It's noted that while businesses are struggling they're also delaying property decisions and, in some cases, forced to move to cheaper spaces. As leases expire, property owners have to invest -- through rent reductions, building improvements and incentives -- to retain those tenants. "While competitive market occupancies continue to erode, we may be seeing the first signs of what will, with no doubt, be a slow market recovery," said Bill Hankowsky, Liberty Property Trust's chief executive.

Boston Properties Inc. reported this week that new tenants are paying 17% less in gross rents than prior tenants in the same space. SL Green Realty Corp. saw their revenue decline 7% in the third quarter to $249.6 million after adding nearly an extra month of free rent as a tenant incentive; the company said the current average starting rents in Manhattan were $47.31 per square foot, down from $66.78 during the same period last year.

For more news and information visit Blumberg Capital Partners.

Mortgage applications slumped again last week marking the third decline in three weeks, despite the slight dip in rates moving from 5.07% two weeks ago to 5.04% last week, reports the Mortgage Bankers Association (MBA). The association also released its forecast for 2010, summarized in CPE, "the good news is that the recession is over; the bad news is that the country will continue to reel from the ramifications next year."

And according to the Outlook for the Industry report by The Council to Shape Change, the real estate finance industry will face dramatic changes in the economy over the next five to ten years: in capital markets, in borrowers, products and processes, and in technology. The Council, an independent group of 19 real estate finance industry leaders, was created by the Mortgage Bankers Association as a means of helping the Association and its members better identify and prepare for the changes that the $12 trillion real estate finance industry will likely face in the next five to ten years.

For more news and information visit Blumberg Capital Partners.

Capmark Financial Group, the commercial real estate finance company, filed a voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware on Sunday. In the filing, Capmark listed assets of $20.1 billion and debts of $21 billion. "The Capmark bankruptcy reinforces that, in the case of institutions with large concentrations in commercial real estate, current disruptions to the market have the potential to impact their viability," said Sam Chandan, president and chief economist of Real Estate Econometrics, a commercial real estate consulting firm in Manhattan. "It's not a turning point. The problems are only starting," Dennis Yeskey, a senior adviser at AlixPartners L.L.P., a business-advisory firm in New York, said in a Philadelphia Inquirer article today.

Jay Levine, president and chief executive officer of Capmark, said: "We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies. By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses."

For more news and information visit Blumberg Capital Partners.

U.S. Bank failures for 2009 have passed the 100 mark, with 106 counted banks having fallen by market's close on October 23, the largest number since 181 collapsed in 1992 during the savings-and-loan crisis. The pace of the failures has been slowed, however, with 24 seizures in July, 11 in September and 11 in October, as regulators are being selective and electing to immediately close those institutions that pose an immediate danger to customers or the immediate financial system, while other banks flagged for risk of failure are left operational and thus possibly able to prevent their own closure.

The Wall Street Journal has created an interactive Google map and corresponding data chart detailing each of the bank closures since 2008. The map is interactive, allowing you to adjust the time period represented and illustrates the size of the bank's assets at the time of failure with scaled circles.

For more news and information visit Blumberg Capital Partners.

Edward J. DeMarco, acting Director of the Federal Housing Finance Agency (FHFA), addressed the U.S. Senate Committee on Banking, Housing and Urban Affairs last week to address the future of the mortgage market. The FHFA is serving as conservator of Fannie Mae and Freddie Mac which tally combined losses of $165 billion from July 2007 through the first half of 2009, with $47 billion accounting for the first half of 2009. DeMarco said that their financial performance continues to be dominated by credit-related expenses and losses stemming principally from purchases and guarantees of mortgages originated in 2006 and 2007.

"These two companies have $5.3 trillion in mortgage exposure. Given the Enterprises' importance in the mortgage market, Enterprise activities to stabilize the housing and mortgage markets are closely linked to conserving assets," said DeMarco. "Over the long term, effective mortgage modifications, refinancings, short sales, and other loss mitigation activities assist homeowners and neighborhoods and will save the Enterprises billions of dollars."

Commercial Property Executive published an article about the Fannie and Freddie mortgage defaults. An excerpt:

What DeMarco said to the Senate Banking Committee was a little more formal than a Yogism: "We remain concerned and recognize the risk associated with increasing numbers of seriously delinquent loans."

He then backed up that concern with some statistics: the rate of seriously delinquent mortgages at Fannie and Freddie total 4.2 percent and 3.1 percent, respectively. What the government plans to do about Fannie and Freddie, now that they have been de facto government agencies for about a year, is still an open question, though reportedly it will be addressed in the Obama administration's proposed 2011 federal budget, which will be released in February.

For more news and information visit Blumberg Capital Partners.

The Federal Reserve releases its latest Beige Book, a running commentary on current economic conditions, based on information collected before August 31, 2009. The reports from the 12 Federal Reserve Districts indiate that the nation's economic activity continued to stabilize in July and August, but the data on commercial real estate suggest that the demand for space remained weak and that nonresidential construction-related activity continued to decline. The report summarized the Real Estate and Construction sector as follows:

Reports on commercial real estate markets indicated that demand for space remained weak and that construction continued to decline in all Districts. Atlanta, Philadelphia, Richmond, and San Francisco reported that vacancy rates increased, while rates held steady in the Boston and Kansas City Districts and were mixed in New York. Boston, Dallas, Kansas City, Philadelphia, and Richmond commented that the demand for space remained weak. Commercial rents declined according to Boston, Chicago, New York, Philadelphia, and Richmond. Rent concessions were reported in the Richmond and San Francisco markets, and Richmond noted that some landlords had postponed property improvements in an effort to conserve cash. Construction remained at very low levels, with modest improvements noted in public construction in the Chicago, Cleveland, and Minneapolis Districts.

For more news and information, visit Blumberg Capital Partners.