Archive for November, 2009
Denver-based real estate investment company Northstar Commercial Partners (NCP) announced it purchased a six-story, 204,000 square foot office in Aurora, Colo., outside Denver.
Cherry Creek Place II was built in 1981 and sits on more than 340,000 square feet of land located near a public transportation station and Interstate 225. The building includes a 4,300 square foot data center and a 1,600 square foot fitness center. The property has only two “quality” tenants, AT&T (T: 29.16 -0.98%) and Dex Media, the phone book production division of parent company Qwest Communications (Q: 0.00 N/A).
Northstar Commercial Partners indicated in a press statement currently in negotiations with new tenants to fill the building.
“The timeless architecture and efficient design combined with the wide-open office spaces made Cherry Creek Place II an ideal acquisition target,” said Northstar founder and president R. Brian Watson. “With the purchase of this property at 12% of its replacement cost value, Northstar is excited to place this vacant, distressed asset back into productivity for the Aurora Community.”
According to the Denver Business Journal, Northstar paid $4.76m for the property. Northstar did not return a request for comment before this story was published.
Write to Austin Kilgore.
Despite research from Barclays Capital that indicates the Deed-for-Lease Program (D4L) launched earlier in November by mortgage giant Fannie Mae (FNM: 0.00 N/A) will “see limited use,” as it targets the same debt-to-income (DTI) ratio as a HAMP modification, independent rating agency DBRS expects a different outcome.
DBRS said in market commentary the D4L plan — an effort to minimize family displacement, neighborhood blight and house price decline — is likely to gain enough support to be applied to the non-conforming mortgage market.
Through the program, Fannie allows qualifying borrowers that complete a deed-in-lieu of foreclosure to remain in the property on a lease up to 12 months. the occupants of the property in a D4L transaction must be able to pay market rent within 31% of gross monthly income in cases where the mortgage loan is a first lien secured by a one- to four-unit property that serves as a primary residence.
The borrower must have paid a minimum of three payments since origination or modification, must not be 12 or more months past due, and must not be involved in active bankruptcy proceedings.
D4L can also apply to investment properties where the borrower cooperates in providing tenant information relevant to the transaction, DBRS said.
In either borrower- or investor-owned scenarios, the tenants under the D4L lease must maintain and upkeep the property in good condition, and must agree to marketing of the property for eventual sale, according to DBRS. This presents another benefit over foreclosure situations, as the tenants must maintain property as a requirement of their lease, whereas the property sits vacant in foreclosure and real estate owned (REO) and is expensive to upkeep.
Some non-conforming servicers already use a rent-to-own program in which a potential buyer rents an REO property, DBRS said. The renter locks the option to buy by paying 5 to 10% of the property's purchase price into a reserve account. The difference between the actual market rent and the renter's monthly payment also goes into the reserve account, which may later be used as the down payment on the REO.
The volume of properties in the foreclosure pipeline is swelling, but as lenders' efforts to prevent foreclosure pick up — artificially boosting the share of short sales, according to Barclays Capital — the time line to REO status is growing. As a result, DBRS said servicers are having to find alternative ways to dispose of the homes.
DBRS expects to see servicers in the non-conforming residential mortgage market begin to follow the D4L program.
"DBRS believes that, with current REO timelines averaging one to two years and the maintenance costs on these properties mounting (due to winterization, mowing the lawn, preventing vandalism, etc.), programs that allow the house to be occupied by someone who cares about how it is being maintained will likely increase the property value when it is ultimately sold," DBRS said. "In addition, renting REO properties will help borrowers who are unable to get a mortgage in the current credit environment as well as offset future losses for security holders."
Write to Diana Golobay.
Large office and hotel defaults led the delinquency rate among commercial mortgage-backed securities (CMBS) up another 28 bps in October, according to the latest index results from Fitch Ratings.
The overall late-pay rate among US CMBS is now 3.86%, according to Fitch's delinquency index of 1,910 Fitch-rated CMBS loans totaling $17.8bn.
The office sector saw a 19.4% additional delinquencies this month, as the hotel sector followed with 16.5% more delinquencies.
"Though longer leases on office properties have historically mitigated sharp changes in performance, continued job losses are expected to increase pressure on the office sector," said managing director and US CMBS group head, Susan Merrick. "With the looming possibility of leases expiring on space under-utilized by companies that have downsized, office performance may not reach a trough for a few years."
Despite the leap in delinquencies among office properties, the sector claimed the lowest overall delinquency rate in October: 2.29%, according to Fitch. Industrial properties followed at 3.09% delinquent, while retail claimed a close third at 3.55%. Multifamily properties, including apartments, were 6% delinquent in the month, while the hotel sector led all other property types at 6.81%.
Fitch indicated nine delinquent loans over $100m continue to drive the hotel sector's weak performance. Newly delinquent hotel loans included three related Red Roof Inn loans totaling $292.8m, which became 60 days delinquent in October after reverting to 30 days in September.
The largest newly delinquent loan in the overall index studied by Fitch is Riverton Apartments, a $225m loan on a 1,230-unit rent-stabilized multifamily housing project in Harlem, NY. The loan transferred to special servicing in August 2008 when the borrower failed to convert rent-stabilized units to deregulated units as quickly as projected, according to Fitch. Until now, the loan used debt service reserves to remain current, but slipped into delinquency in October.
Fitch's delinquency results come as the US securitization industry is looking for a pick-up in new CMBS activity with a potential wave of new issuance made possible by a federal lending program later this month.
Write to Diana Golobay.
The venture capital arm of the National Association of Realtors (NAR) invested in electronic signature services provider DocuSign.
The investment is more than just an infusion of cash for the Seattle-based DocuSign. Founder Tom Gonser told HousingWire NAR will use its relationship with the company to proliferate the use of electronic signature documents in real estate transactions, replacing the fax machine.
“We’re teaming up with NAR to set the standard and put some training and education in place, and work closely with the trade association to make sure we communicate best practices and how to use an electronic signing service instead of a fax,” Gonser said.
DocuSign is the latest investment opportunity for NAR’s Second Century Ventures (SCV), which also holds stakes in real estate technology providers ePropertyData, Move Inc., zipLogix and SentriLock in its portfolio. As part of the investment, NAR CEO and SCV president Dale Stinton now sits on DocuSign’s board of directors.
“Our capital investment and guidance will serve as a catalyst for this company to become the standard and meet the market demand for legally binding electronic signatures that help REALTORS close more deals at a faster rate, and offer the convenience and flexibility buyers require,” Stinton said in a release.
Electronic signatures have been a legal method for completing document transactions in the US since 2000. DocuSign has been in business since 2004, and since then, Gonser said customers and real estate professionals are becoming increasingly more comfortable with the process. NAR’s investment in the company further bolsters the company’ s legitimacy, he said.
DocuSign also added new features to its software. An application for mobile smart phones was recently released, allowing for electronic signatures away from a computer. A second new feature lets users who aren’t using DocuSign submit documents via fax, which are then digitized and incorporated into the document file. This is also an application that can be used to digitally upload tax forms, pay stubs and other paper documents needed to complete a transaction.
Write to Austin Kilgore.
The number of distressed borrowers in Florida with mortgages owned or serviced by CitiGroup (C: 30.87 +1.61%) that benefited from foreclosure prevention efforts outnumbered borrowers who were foreclosed on 16 to one during Q309, the bank announced.
That’s up from a ratio of six to one in Q308 for the portion of Citi’s $750bn portfolio of mortgages it owns or services located in Florida.
Nationwide, Citi said its provided loss mitigation service to 715,000 borrowers with mortgages totaling nearly $79bn. Citi has initiated trial modifications under the Making Home Affordable Modification Program (HAMP) for 40% of eligible borrowers as of October 31. Citi’s other loss mitigation efforts include modifications, extensions, forbearances, reinstatements, and an early outreach program.
“Citi is very focused on keeping distressed borrowers in their homes and is committed to driving solutions that help them do so,” said CitiMortgage president and CEO Sanjiv Das. “We are pleased with our progress to date, but there is more to be done. Recent improvements in documentation requirements and increased borrower awareness are resulting in greater success for trial modifications and other solutions.”
“Communication is essential to success, and we strongly encourage homeowners who find themselves in financial distress to call their mortgage company right away to get help as soon as possible. Your mortgage company is here to help, and remember that our counseling is free of charge,” Das added.
Write to Austin Kilgore.
A US Bankruptcy Court judge ruled late last week to grant the debtor access to names of certificate-holders of a $4.1bn commercial mortgage-backed security (CMBS) trust, according to weekly market commentary by Moody's Investors Service.
The Extended Stay Hotel (ESH) chain, which filed for bankruptcy in June, requested the securitization trust holding legal title to the $4.1bn of mortgages on 680 hotels provide the names to help ESH in developing its reorganization plan.
The bankruptcy judge said the procedural ruling aimed to let ESH determine which certificate holders are "in the driver's seat in the bus and who are the passengers," according to Moody's. The ruling to grant a "routine" discovery motion and allow ESH access to the list of names means individual certificateholders might appear in court to plead their cases.
Moody's noted it cautioned in June this scenario might lead to "free-for-all financing" as certificate-holders plead their own cases, bypassing the natural filtering process of the trustee and servicers. Because of the implications, Moody's said at the time any judge would be unlikely to pursue that option.
"However, times change, and so do views," said Daniel Rubock, a senior vice president at Moody's and author of the commentary.
Discovery rights remain broad, the judge noted in his ruling, and a procedural ruling does not necessitate a similar ruling on a more substantive motion regarding who may appear in court to argue individual economic interests.
"Judge [James] Peck may return to his initial skepticism and rule on later substantive motions the way all market participants, even the certificateholders now attempting opportunistically to bypass the trust structure, thought the rules would work when the ESH transaction went out the door," Rubock said. "Or me may not, and we may need to rethink how robust many structures are — from trusts to participants — under the extreme tests to come."
Write to Diana Golobay.
Home sales and prices in San Diego increased from September to October, according to a joint report by local real estate firms The Berkland Group and Fidelity Pacific Real Estate.
The overall average home price in October 2009 is 14% above the average price in March 2009, although prices are down 2% from October 2008.
October sales increased 3% from September, but were still down 6% from October 2008. The number of homes sold has steadily ranged between 2,800 and 3,200 for the past seven months, the report said. In October, 7,848 properties were on the market, and 2,881 sold, including 894 real estate owned (REO) sales and 704 short sales.
Pending sales are on a three-month-long decline, falling 4% in September and an additional 8% in October, although the report notes this could be due to seasonal market adjustments. Homes priced between $500,000 and $600,000 were the only segment to see increased pending activity.
San Diego housing inventory increased in October, but remains below August’s levels. The inventory of homes priced below $500,000 increased, while the number of homes priced above $700,000 decreased. The shift led to a 3% reduction in average listing price for the market. The inventory shift did not affect the housing supply in the area, however, and remains at a 2.4-month supply.
One segment of the market high in popularity now is properties listed below $400,000, the report said. With a scant 1.5-month supply, it’s a seller’s market and many listings are receiving multiple offers. On the opposite end of the spectrum, there is a double-digit months supply of homes priced at or above $1m. The high-end market makes up 27% of the region’s inventory, but only 4% of the homes sales.
“In order to get some rational relationship between supply and demand — in the 7-month region — the high end market needs to find an additional 160 buyers per month or reduce inventory by over 1,000 homes for sale,” the report said.
Write to Austin Kilgore.
Commercial bank WestLB will transfer a portfolio of assets worth €85bn (US$127.13bn) off its balance sheet and into a "bad bank" vehicle. In so doing, WestLB becomes the first German bank to pursue such a structure.
Richard Bassett, head of WestLB's corporate communications, confirmed to HousingWire the bank will unload a portfolio of "non-core" — but not necessarily non-performing — assets, although he could not give specifics of the assets.
With the divestment, WestLB will essentially split into a "core" bank that operates under a less risk-weighted balance sheet and a "non-core" unit consisting of the transferred portfolio.
It's the latest in a round of European banks that are unwinding non-core businesses — including Northern Rock's recent European Commission-approved restructuring into a "good" and "bad" bank.
A source familiar with WestLB's divestment plans tells HousingWire a portion of the assets being transferred off balance sheet probably have to do with a "once-flourishing" air transport finance business largely considered secondary to WestLB's core business.
Divestment of non-core assets seems to be what the European Union (EU) seems to favor, the source said, adding other German banks may soon be forced to follow WestLB's example.
Despite the possibility the bad bank scenario may help WestLB comply more quickly than anticipated with the EC's conditions for state aid, few other banks are likely to follow suit, according to weekly commentary by Moody's Investors Service.
The bad bank absorbs nearly 30% of WestLB's risk exposure, said Katharina Barten, vice president and senior analyst, and Carola Schuler, managing director at Moody's. The bad bank also keeps the non-core assets off WestLB's balance sheet and therefore grants some relief in terms of accounting. Any expected loss on the bad bank's exposures will be absorbed by WestLB's public sector owners, but not WestLB itself, Moody's indicated.
But the bad bank's scheme also comes with pay restrictions for senior managers, additional fees for the bad banks and close scrutiny of the business model, which combined pose a significant disincentive for most banks to use the scheme, Barten and Schuler said.
Write to Diana Golobay.
The UK real estate market is showing some improvement amid a recently extended moratorium on the nation’s land stamp tax, but some industry groups warn that without another extension on the moratorium, or even repeal of the stamp tax, those gains could be lost in 2010.
The land stamp duty is a tax imposed on UK mortgagees and varies depending on the purchase price of the home. In 2008, the minimum purchase price threshold for a 0% tax rate was temporarily raised from £125,000 (US$206,840) to £175,000. The tax rate for homes purchased for more than £500,000 was capped at a maximum 4%.
Last week, the Council of Mortgage Lenders (CML) said the tax holiday spurred a growth in first-time home buying. In addition, the CML said, gross lending in the buy-to-let mortgage market grew for the first time in two years during Q309. The number of outstanding buy-to-let loans grew to 1.2m, representing 11% of all mortgages at the end of Q309 and the value of outstanding buy-to-let mortgages increased 2.5% to £144.2bn.
These positive signs may be erased in 2010 if the stamp tax is not put off under another moratorium or eliminated altogether, according to UK housing industry groups.
Similar to the lobbying efforts to extend the first time homebuyer tax credit in the US, some UK housing industry groups are calling for repeal of the stamp tax. The 1808 Coalition — named for the year the stamp tax was created — consists of a number of industry groups, including the Association of Mortgage Intermediaries (AMI), Association of Residential Lettings Agents (ARLA), Building Societies Association (BSA), CML, Home Builders Federation (HBF), National Association of Estate Agents (NAEA) and the National Landlords Association (NLA).
“The Coalition believes that Stamp Duty is an anachronistic tax which, in its current form, is preventing a recovery in the housing sector – it limits market flexibility, creates regional inequality and its slab structure unfairly distorts the housing market. With the Pre Budget Report due soon, now is the time for the Government to take action,” said Peter Bolton-King, NAEA CEO said.
According to a NAEA survey, 91% of UK real estate agents believe the tax holiday should be extended and 86% said they believe the tax is unfair.
“Stamp duty land tax is a pernicious tax which has failed to keep pace with house price appreciation. It creates an unbalanced housing market and discourages investment in housing. Reform is needed now,” said NLA chairman David Salusbury.
Write to Austin Kilgore.
Short sales, an alternative to foreclosure that poses relatively less overall severity, are artificially boosted by mandatory and voluntary foreclosure prevention efforts that prevent mortgages from entering real estate owned (REO) status, according to a securitization research note by Barclays Capital (BarCap).
Short sales pose benefits to both borrowers and lenders where foreclosure is the alternative. A short sale tends to cost the lender less than foreclosure and it spares the borrower the negative credit score implications.
As federally-funded modifications made through the Home Affordable Modification Program (HAMP) grow in frequency and lenders are expected to hold off on foreclosure proceedings, the REO pipeline shrunk, according to BarCap researchers. The foreclosure prevention efforts have had the effect of "artificially" boosting short sales.
"The artificial constraints to foreclosure auctions have resulted in a reduction in REO stock," BarCap said. "As a result, the net volume of REO liquidations has also dropped. As short sales are not affected by moratoria, their rate held up and their overall share in distressed sales increased. It has now risen more than 10 points from the lows to about 35% of overall liquidations. It remains to be seen if this increase will sustain itself once the large number of loans sitting in foreclosure are finally released into REO."
BarCap researchers pointed to the difference in severity seem in foreclosure and short sale scenarios as one of the drivers behind servicers choosing short sales.
Servicers that pursue foreclosure on non-performing loans held within securitization have to make principal and interest advances until the loan's liquidation, BarCap said. If the asset declines in value during the liquidation timeline and it neighbors other REOs, the final selling price will likely come in far below the current broker price opinion (BPO), which leads to high severity.
Short sales, on the other hand, pose a shorter timeline during which fewer principal and interest advances are needed. The asset has less time to depreciate, and borrowers have a strong incentive to maintain the property in order to sell it, BarCap said. The idea is that a better-maintained house attracts stronger bids, reducing overall severity in comparison with the REO liquidation scenario.
Write to Diana Golobay.
