Tuesday, September 20, 2011

Coming down from the summit

I attended Bisnow's Second Annual Real Estate Summit at the InterContinental Hotel this morning. It was a packed house, with a lot of familiar faces and some great speakers, including Steve Fifield, Mike Reschke, Gerry Nudo and the keynote speaker, Neil Bluhm. (Hearing Bluhm speak is a big deal to many of the real estate cognoscenti, because he does not appear as frequently on the scene as a Sam Zell or a Donald Trump, even though he is also a billionaire and every bit as savvy.)

What did I learn that I can pass on to you, along with my thoughts? (I am intentionally not attributing comments to any speaker here.)

  •  Several panelists don't see any turnaround here in commercial real estate until at least 2013. 
  • Lenders are dying to replaced paid off capital with new loans. I'm not seeing as much of that.  But I am seeing life that didn't exist before either.  I guess lenders and borrowers have different perspectives too.
  • If a bank is asking for more money or capital, it is probably to increase the bank's rating of the loan so it can retain fewer reserves with respect to that loan.
  • If your lender isn't calling you every week to do deals.... (Really?)
  • Somewhat contradictorily, lenders are looking for construction loans to do, but then they don't really want any risk on the deal over $25 million, and they also do not want to be participants in someone else's loan unless goodies can be spread around.
  • This is a once in a lifetime opportunity to do low interest, ten year deals with insurance companies, and you should do everything you can to get your LTV to a point where you can do those deals.  Moreover, when you need to discuss something to the lender someone is actually there who can listen.
  • CMBS spreads are not changing any time soon.
  • Casino financing can be difficult because many lenders do not understand the difference between local/regional casinos and Las Vegas.  Local operations are finite in terms of licensing and people go there like they would to a sporting event, while Vegas is an event, with virtually unlimited licensing and travel costs. That is why Vegas was hurt so bad in this recession.
Don't miss this one next year! This is one of the best real estate sessions I have attended.

Thursday, September 8, 2011

Let's get new homes built -- not

So, now I read the Department of Labor is investigating several major home builders. Why?

A copy of one letter, dated Aug. 1 and reviewed by The Wall Street Journal, said the department was opening a probe under the Fair Labor Standards Act, which governs matters such as overtime pay and limits on using teen workers.
The letter instructed the home builder to immediately turn over the names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years. It asked the names of all contractors hired in the past year. The letter didn't allege any specific violations of law.
I guess we'll see how this plays out.  I try hard not to get into the political side of these things, so I will not do so here.  Whether I agree or disagree with this is immaterial, because I can honestly see both sides of the issue.  But I WILL say that this is not going to get any new homes built, though.  And that's not good.

Tuesday, September 6, 2011

Mortgage regulation - going from too hot to too cold and getting to just right

Let me relate to you a recent experience I just had. My wife and I just refinanced our home with a friendly local lender. We have a nice income, a very reasonable LTV and basically perfect credit. And being a doctor and a real estate lawyer, we know paperwork inside out. I, in particular, should.

And yet it took three months to close a simple refi. Why? Overregulation.

I understand that things were loosey-goosey a few years back. I said so. On some commercial deals I felt like we were in the Wild West. But now we have gone to the other extreme, where so many boxes had to be checked (at least half of which were not required even three years ago) that I got irate and almost killed the deal. (I will not even get into an absolutely idiotic title underwriting decision made by a certain large title company, but may do so in the future.)

And if I got angry and frustrated -- knowing more than 99% of the public about this process -- imagine the average person, with less than impeccable credit, LTVs or income. What a nightmare.

According to this story, at least six federal agencies have gotten further into the mortgage regulation act. The HUD-1, which was supposed to be made simpler, is now almost indecipherable, even for people in the industry.

So let's wake up. Regulation isn't bad per se. Too little of it is bad. But too much of it isn't good either because it stifles the economy.  Let's find a happy, rational middle ground that protects consumers without grinding markets to a halt.

Monday, September 5, 2011

Jumpstarting Jobs Through Commercial Real Estate

Keeping his laser-like focus on jobs, I'm glad that President Obama is giving a major speech on jobs Thursday before a joint session of Congress.

His latest proposal being leaked - infrastructure construction jobs through federal grants and payroll tax cut extensions - is even half right. But government can only do so much. Unless and until the private sector is moving again this economy is going nowhere.

So here is my suggestion: take half the money you were going to spend on government work and pledge it (and maybe not even spend it!) to the private sector. How?

It's simple. While there is some work going on, we need more real estate activity for small and mid-sized developers that are still in business. But many of them can't start new projects because no one will loan them the money.

So take half that money, and use it to guarantee, say, 90% of the amount of construction and mini-perm loans for new developments by small and mid sized buisnesses. Lenders could then lend with more confidence and the private sector can hire more workers. If the deals work out, we don't spend a dime. And if they don't, we still end up better off than we would with some ways we've been loaning money for; e.g., green jobs.

So how about it? Your job creation idea is sound. The administration's concept, if true, isn't a bad idea. But let's take it to the next level.