Lenders And Special Servicers Avoiding Foreclosures, Managing Recovery

Securitizing commercial real estate financing into CMBS was a trend that hit a peak before the economic downturn of 2008.  Defaulting on financing that underlies instruments from which shares were sold to investors calls for the use of “special servicers” – management companies who, upon the event of a default of a given loan, represent the interests of those clients who own pieces of the troubled commercial mortgage-backed security.   These companies are, in much the same way as banks in similar situations, under great pressure to avoid foreclosures.  These specialists in dealing with defaulted mortgagel oans have been leading the way in creative methods to do just that.
The burst of creativity is timely.  A recent Wall Street Journal piece by Anton Troianofsky and Eliot Brown spells out that the workload for special services has jumped as the total of CMBS defaults have risen – around 16% over 2009 year-end numbers.

The firms, known as special servicers, are dealing with an influx of souring loans backed by commercial-mortgage-backed securities, or CMBS: a total of $90.9 billion as of the end of September, compared with $73.8 billion at the end of last year, according to credit-rating firm Fitch Ratings. But the pace at which those loans have been resolved has picked up at an even faster rate, with $27.9 billion recovered by special servicers from bad loans in the third quarter, compared with $8.9 billion in the first quarter, according to Fitch.
Many of those bad loans are simply getting modified and extended, pushing the borrower’s day of reckoning to a day into the future when, both sides hope, the market will improve to a point at which the property owner can refinance. But in other cases, servicers are trying more unusual methods to dispose of properties through sales or other means as they work through a volume of distressed loans that is testing the legal apparatus built up by Wall Street’s boom-time securitization binge.

Read the entire article here.  Looking for definitions of special servicer or CMBS?  Check out C-Loans databank.

Posted by: Wayne Grohl
http://blog.commercialsource.com/

Commercial RE Markets Stabilizing, Picking Up Slightly In 2011: NAR Chief Economist

Lawrence Yun, Chief Economist for the National Association of REALTORS® sees a stabilizing commercial real estate sector for 2011, affecting retail, office and multi-family.

 

“The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out,” he said.  “The outlook for the office and industrial markets has moderated with modestly declining vacancy rates expected as 2011 progresses, while the retail sector should hold fairly steady.  Still, high vacancy rates imply falling rents.”

 

Yun anticipates a rise in household formation from an improving economy, which will increase demand for housing, both ownership and rental.  “Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011,” he added.

“Apartment rents could rise by 1 to 2 percent in 2011, after having fallen in 2009 and no growth in 2010,” Yun said.  “This rent rise therefore could start to force up broader consumer prices as well.”

 

Improving Commercial Vacancy Rates

 

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 400 local market experts, shows vacancy rates are slowly improving, but  rents continue to be soft with elevated levels of subleasing space on the market. The SIOR index, measuring the impact of 10 variables, rose 1.6 percentage points to 42.6 in the third quarter, but remains well below a level of 100 that represents a balanced marketplace.  This is the fourth straight quarterly improvement following almost three years of decline. The last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007; the index now matches where it was at the beginning of 2009.   Fifty-nine percent of respondents expect improvements in the office and industrial sectors in the current quarter.

Commercial real estate development continues at stagnant levels with little investment activity, but is beginning to pick up in many parts of the country.

 

Office Markets

NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets.  Historic data were provided by CBRE Econometric Advisors. Office vacancy rates are on the decline.  In the office sector, where a large volume of sublease space remains on the market, are forecast to decline from 16.7 percent in the current quarter to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year. The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies around 9 percent.  All other monitored markets have double-digit vacancy rates.

 

Annual office rent is expected to decline 1.8 percent this year, and then slip another 1.6 percent in 2011.  In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 3.7 million square feet this year and then a positive 16.4 million in 2011.

 

Industrial Markets

Industrial vacancy rates are projected to decline from 13.9 percent currently to 13.2 percent in the closing quarter of 2011. At present, the areas with the lowest industrial vacancy rates are Los Angeles, Salt Lake City and Kansas City, with vacancies in the 8 to 10 percent range. Annual industrial rent is likely to fall 4.0 percent this year, and decline another 3.4 percent in 2011.  Net absorption of industrial space in 58 markets tracked should be a negative 25.1 million square feet this year and a positive 134.0 million in 2011.

 

Retail Markets

Retail vacancy rates are expected to change little, declining from 13.1 percent in the fourth quarter of this year to 13.0 percent in the fourth quarter of 2011.

 

Markets with the lowest retail vacancy rates currently include San Francisco; Orange County, Calif.; and Honolulu, with vacancies in the 7 to 8 percent range.

Average retail rent is seen to drop 3.4 percent in 2010 but largely stabilize next year, slipping 0.3 percent in 2011.  Net absorption of retail space in 53 tracked markets is projected to be a negative 0.5 million square feet this year and then a positive 5.0 million in 2011.

 

Multifamily Markets

The apartment rental market – multifamily housing – is expected to get a boost from growth in household formation.  Multifamily vacancy rates are forecast to decline from 6.4 percent in the current quarter to 5.8 percent in the fourth quarter of 2011. Areas with the lowest multifamily vacancy rates presently are San Jose, Calif.; Miami; Boston; and Portland, Ore., with vacancies in a range around 4 percent. Average apartment rent is likely to rise 0.2 percent this year and another 1.4 percent in 2011.  Multifamily net absorption should be 85,200 units in 59 tracked metro areas this year, and another 147,000 in 2011.

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