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While it might be hard to see how the commercial market could move so quickly from a total standstill to having too much action and capital, that is just what many experts are predicting could happen during the “long healing process” in the commercial industry[1]. That’s right: now that things are starting to look better with transaction volumes heading up and great deals being done right and left by careful investors who have waited for just this time to move into the market, analysts believe that copycats could start moving in over the next few years and gumming up the system with “too abundant” capital.

But is that really such a bad thing? The commercial real estate market relies on investor confidence just as other real estate markets do. And renewed confidence in t he market is currently causing the commercial mortgage-backed securities (CMBS) market to double in value while lenders and investing firms are acting quickly to get involved in all related arenas. “The best bargains come in a bad market,” say analysts, pointing out that soon that bad market could start to change its face and become a good one with investors still struggling to get in.

It seems that what this really means is that if you want to get in on the ground floor of the growing commercial real estate industry once more, then the time to act is now. According to the National Real Estate Investor, the commercial real estate sector is in the “early stage of the next real estate up cycle [and]…will attract significantly more investor interest and new capital in 2011”[2]. Of course, you should always analyze your specific deals for yourself before you jump in head over heels, but does this sound like bad news to you or do you think this means that it is time to invest?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Let us know what you think about today’s market conditions in the commercial sector below.

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[1] http://www.nuwireinvestor.com/articles/in-real-estate-and-investment-best-bargains-come-in-bad-56991.aspx

[2] http://nreionline.com/news/real_estate_bets_2011_0307/

On Thursday of last week, lenders involved in negotiations with the Obama administration to reach a settlement that would hopefully end the robo-signer controversy and begin to restore faith in the lending industry received the administration’s proposal for resolving the robo-signer fiasco. Rumors have swirled about the contents of this proposal, with critics claiming that the lenders are going to have to pay too much to people who were wrongfully foreclosed and lenders insisting that mandatory principal reductions would ultimately just lead to fraud and closed banks. However, pretty much everyone expected that there would be some solid number for a monetary penalty that banks would have to pay for their misconduct. Oddly enough, there is nothing like that in this initial document[1].

This may be a response to allegations – apparently reasonably accurate – by the comptroller of the currency, John Walsh, that most of the foreclosures conducted by banks were legal – even if not adequately documented or verified – and that only “a small number of foreclosure sales should not have proceeded” of the myriad processes now in question due to the robo-signer fiasco. However, the decision to make the settlement proposal largely a “code of conduct” for banks moving forward has many people, including a “Capitol Hill staffer” who spoke to the Huffington Post on condition of anonymity, suspicious that “the settlement was conceived as a benefit for financial markets, giving investors and banks certainty about their total liability from wrongful foreclosure rather than thousands of individual court cases”[2]. If this is the case, then you would think that lenders would be pleased to have ultimately gotten a settlement in hand.

However, lenders complain that the fees and regulations in their proposed code of conduct are nothing more than a “naked shakedown.” Futhermore, they believe that some proposed mandatory principal reduction regulations do nothing more than open them up to fraud and, and lenders like Ally Financial admitted that “any of these potential actions could have a material adverse impact on us”[3]. It seems reasonable that lenders should pay for this vast moral and professional oversight, but unless we are ready to operate without the lending industry as we currently know it, then maybe the penalties cannot be as severe as many might consider “fair.” Do you think that this settlement does enough for the injured parties? Too much? How should the country’s lending industry be handled going forward?

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Let us know what you think of the administration’s proposed settlement with the banks below.

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[1] http://www.dsnews.com/articles/banks-receive-proposal-that-could-make-write-downs-mandatory-2011-03-04

[2] http://www.huffingtonpost.com/2011/03/04/lawmakers-demand-big-mone_n_831693.html

[3] http://empowerednews.net/foreclosure-investigation-result-draws-closer-as-attorneys-general-draft-settlement/186364/

Banks that restructured commercial real estate loans to make them appear more attractive are now facing an SEC investigation[1]. Lenders around the country have been using “creative” methods to try and keep their commercial loan portfolios from turning toxic, but now the SEC is questioning “extend and pretend” and other debt restructuring strategies which may involve modifying the terms of existing commercial loans or breaking a commercial loan into pieces. These practices are legal, but the SEC fears that they may be being abused in order to reduce requirements on the volumes of reserves a bank has to set aside.

According to a report by Trepp, LLC, a data firm specializing in commercial data, non-performing commercial real estate loans make up 72 percent of the $320 million in non-performing loans reported by banks in February[2]. They are also being credited with the failure of 12 banks last month. In comparison, residential real estate loans comprised 20 percent of the non-performing loans in February. It should be noted that the Mortgage Bankers Association (MBA) reports that commercial and multifamily loans did have the lowest delinquencies “across the board” in 2010.

Do you think this is a bad sign for commercial real estate in 2011? What do you make of this in light of the positive press coverage and appearance of a slow but steady rebound in the commercial industry?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Let us know what you think below.

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[1] http://www.zacks.com/research/get_news.php?id=062l7984

[2] http://www.dsnews.com/articles/home-loans-now-less-of-toxic-threat-than-commercial-real-estate-2011-03-03

While many tax lien investors buy tax liens in order to eventually gain control of the property through the foreclosure process, there are others who just want the lien redeemed so that they can collect the fees and interest on it. If you are a member of the latter group, then it is likely very important to you to invest in tax liens that have a high likelihood of being redeemed. While you never have a guarantee that a tax lien will be redeemed, two types of properties do have extremely high probabilities that this will happen.

Owner-occupied homes are a good bet if you want your tax lien redeemed. This is because the owner of the property is actually living in the property. His or her life is linked to that piece of land and the buildings on it. As a result, the owner has a highly vested and emotional interest in redeeming that lien if at all possible so that they can remain in their home. Of course, sometimes in today’s economy owners do lose their properties to tax liens and tax foreclosures because they simply cannot pay the bills. You can hedge your bets further by taking a good look at the property before you bid. If it appears to be neglected with a lot of maintenance issues then you may have a distressed homeowner situation on your hands if you invest in that tax lien.

Mortgaged properties will nearly always be redeemed as well. A mortgage lender will not want to lose the money that they lent on the home and their option to foreclose simply because the property taxes are not paid. Most mortgage lenders will opt to pay the taxes themselves to keep their lien at the “front of the line.” Of course, again, today’s economy has made this slightly less of a certainty. If a home is deeply underwater or located in an area where the lender has no hope of ever recouping their losses on the house via foreclosure and sale of that house, then they may opt not to redeem the lien.

While there are always uncertainties in tax lien investing – and any type of investing for that matter – you can hedge your bets by doing your research on properties ahead of time and making sure that the situation that the property is in matches a scenario that is likely to give you your desired outcome.

Yesterday, the San Francisco Board of Supervisors unanimously approved a plan to auction off properties of city tax evaders[1]. However, they’re going to be nice about it. Last May the city notified 117 private property owners that if their local taxes were not paid, their properties would be sold at auction[2]. The city plans to do so – with minimum bids starting at the amount of delinquent taxes and other fees owed – but anything in excess will be turned over to the delinquent former property owner. City officials expect the sale to bring in $1.1 million. Property owners can pay off the debts up until the day of the auction.

More and more cities that have previously avoided tax auctions and tax foreclosures are now holding these events in order to bolster their budgets. Are you as a tax lien or tax deed investor benefiting from this change?

Thank you for reading REJournalOnline!

Let us know how you feel about the increased volume of tax lien and tax deeds auctions and what it has done for your business.

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[1] http://www.nbcbayarea.com/the-scene/real-estate/SF-Plans-to-Auction-Off-Tax-Evaders-Homes-117247548.html

[2] http://sf.curbed.com/archives/2011/03/02/we_need_the_money.php

We’ve all heard of photo shop. You upload a picture, then you add a background, make your smile a little brighter, remove that jerk of a date you were with that evening and shave off about ten pounds. All of a sudden, last weekend was the best weekend ever!

Well, now some sellers and their agents are taking the photo shop approach to staging homes for sale, upgrading existing appliances and even putting in new countertops, window treatments and flooring. This is called virtual staging, and some agents are actually using computer programming to make the virtual tour feel real, leading some buyers to question exactly what they are getting when they arrive on-site to something very different than what they experienced on their virtual “tour.”

One staging group has established a happy medium in this regard, placing digitally enhanced, altered and professionally-designed images in electronic frames in each real room[1]. This is idea, they explain, for sellers on limited budgets who may not be able to afford professional home-staging on a large scale. This type of staging can help a buyer determine what the home will really look like once it is remodeled or renovated and can be critically important to selling a home quickly or at a good price.

Do you think that virtual staging is appropriate in any form?

Let us know what you think about this issue below.

Thank you for reading REJournalOnline!

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[1] http://www.latimes.com/classified/realestate/sns-home-professionals-boost-speed-sales,0,991412,full.story

We’ve all heard of squatters’ rights. In fact, at one point in our nation’s history, squatting on land was even encouraged. But now, they’re not just trying to take over properties; squatters want lenders to pay cold, hard cash. While this concept is not new and many landlords have opted to pay a small cash sum to tenants in exchange for a quit exit instead of undergoing a tedious eviction process, in southern California the squatters are asking for big bills, not small cash sums to help the move go more smoothly. For example, Gregory Russell, who is a convicted squatter, recently demanded $25,000 from Gateway Bank in exchange for moving out of a foreclosed Bel Air mansion and turning over the keys[1]. Gateway has a policy of paying squatters up to $5,000, but balked at $25,000.

Russell is the exception in that he has been convicted of misdemeanor trespass thanks to his squatting. Most squatters are not charged and prosecuted. Many squatters research lenders and properties extensively before moving in, finding out just how much they can ask for and what they can expect to get. Some lenders will actually negotiate with squatters for faster exit times and smoother transitions. They say that it can cost more than $100,000 and take over a year to go through a court process and eviction, even if the squatter had no right to be on the property in the first place.

Do you think that lenders should pay cash for keys? If they do, do they deserve this “bad behavior” from squatters?

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Let us know what you think of “Cash for Keys” below.

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[1] http://www.nbcsandiego.com/the-scene/real-estate/LEGAL-SD-Cash-For-Keys-115983169.html

Thanks to a planned $9.4 billion purchase by Blackstone Group LP, commercial buyers could be back in droves, say analysts[1]. While Blackstone takes over 588 of Australian Centro Properties Group’s U.S. malls[2], Ventas Inc., one of the nation’s leading health care real estate investment trusts (REIT) plans to buy out another healthcare REIT to the tune of $5.7 billion, making Ventas the largest U.S. owner of senior housing in the country. This is great news for U.S. commercial property, says managing director of Real Capital Analytics Dan Fasulo. “Both…deals are a great signal that liquidity has returned to the commercial real estate space,” he explained, adding that the two deals occurring in such a short period of time are likely to “have ripple effects on the entire industry.”

At this point in time, most analysts agree that a commercial double-dip is unlikely, though many housing experts do not feel able to say the same for the housing market. However, confidence in the market is, as always, still critical to recovery and growth. An increase in the volumes of deals and takeovers helps investor have confidence in the market, said Christopher Macke, a CoStar Group senior real estate strategist. When that confidence is combined with low interest rates, investors find it difficult to resist “the prospect of cheaper financing and higher returns.”

Are you feeling optimistic about commercial real estate? This could be the year that the experts have been waiting for. Let us know how you plan to make your move in 2011.

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Please leave comments and questions below.

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[1] http://www.bloomberg.com/news/2011-03-01/commercial-property-deals-may-double-in-u-s-as-blackstone-bets-on-rebound.html

[2] http://online.wsj.com/article/SB10001424052748703409904576174931824620662.html

Among the many things that Republican congressmen and women have thrown on the chopping block in their efforts to bring down the national budget and get a handle on the national debt is the Obama administration’s much-maligned Home Affordable Modification Program (HAMP). The program was intended to help “as many as three to four million financially struggling homeowners avoid foreclosure by modifying loans,”[1] but in reality the program has led to only 521,630 permanent loan modifications, with many of these “permanent” modifications lapsing back into default[2]. Despite all this, however, U.S. Treasury Secretary Timothy Geithner came out swinging today in HAMP’s defense, saying that ending the program would “cause a huge amount of damage” and “I would recommend against it”[3].

Geithner also recently warned against “scaling back the federal role [in the housing market] too far”[4]. He claimed that it would make housing more costly and leave taxpayers “on the hook” for losses while handcuffing policymakers, adding that “you would leave the [U.S. government] with a more limited set of tools to protect the economy and innocent victims in the face of the next severe recession,” he said.

It sounds like Geithner does not have any real plans to exit this down economy. He’s already planning for the next disaster. Do you think that this is a good way to approach the housing market in general and the role of the federal government in the housing market in particular?

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Let us know what you think of Secretary Geithner’s comments below.

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[1] https://www.hmpadmin.com/portal/programs/hamp.jsp

[2] http://www.politico.com/news/stories/0211/50130.html

[3] http://www.reuters.com/article/2011/03/01/usa-housing-geithner-hamp-idUSWEN874220110301

[4] http://www.washingtonpost.com/wp-dyn/content/article/2011/03/01/AR2011030103946.html

Thanks to the massive foreclosure slow-downs brought on by last fall’s robo-signing fiasco, the shadow inventory is still, well, lingering in the shadows and bringing down the housing market, reported Lawrence Yun, the National Association of Realtors (NAR)’s chief economist today[1]. Yun cited this pervasive shadow inventory as a major reason that the housing market has not yet recovered even though other aspects of the economy are stirring and showing signs of life. Yun addressed the commercial market’s relatively superior recovery by pointing out that a lack of construction in that sector has “essentially fixed the supply of available space… [meaning] vacancy rates could fall quickly from any increase in demand”[2]. Thanks to the shadow market in the residential sector, however, the glut of available space is so great that movement in this arena is likely to remain sluggish and demand is likely to remain low.

With the entire residential market still hanging on many factors like rulings dealing with robo-signer-plagued banks and legislation to handle how foreclosures must be processed in the future, it seems unlikely that the shadow market will come out of the shadows any time soon. Do you think that this will permanently change the face of residential real estate in this country?

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Let us know how you are dealing with the shadow market in your business in the comments below.

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[1] http://www.ibtimes.com/articles/117045/20110228/housing-shadow-inventory-real-estate.htm

[2] http://www.consumeraffairs.com/news04/2011/02/will-2011-be-the-year-of-the-real-estate-rebound.html