After reading a message Regina posted about nfsti's training and education I quickly went to their website www.nfsti.com to check it out. I wondered how they were any different than the other companies and how they're website compared to others. I'd browsed through it when I noticed their instructors and coaches are actual AM's and people in the industry who are experienced and up to date on the times. I was impressed to see the amount of advise and resources they offer. It's nice to see they're not like a lot of these other companies that are obviously a get rich quick scheme. I became a member over a month ago and love it. They offer REO courses you really should check out.Last week there was a conference call talking about they're 3 different levels of marketing and how nfsti and REOMasters Network are teaming up to provide some positive and productive marketing resources, tools and support for both AM's and REO Agents (both seasoned and new). I heard Jesse ask some great questions about their marketing plan along with a bunch of other agents looking for advice on how to get in with AM's - the good and bad, which helped to answer alot of questions I've had as an agent breaking into the REO industry. Their marketing strategy makes sense for both sides of the industry, REO Agents as well as AM's which is awesome. My opinion - it encourages us all to work together more as a team instead of people maintaining the gimme gimme attitudes. I'm hoping to be able to sign up for the Executive level and go through the REO 2-day courses. It is costly for someone like me who is breaking into the REO's but it's definetly worth it and will pay off throughout my business. As soon as I can invest in it I will. I'm looking forward to working my business as it grows while teaming up with great companies like REOPRO, nfsti and REOMasters.Check it out and let me know what you all think!
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I am often asked how to set up an REO team. Of course there are many ways to do so and some are better than others. Ultimately you have to do what works best for you and your clients. Here is how we've structured it:1. Person or team to access damage, handle lock outs, visual inspection, opens property for utilities, take pictures, check occupancy status, handles cash for keys and installs lockbox; usually has a CWP.2. BPO agent or team depending on how many listings you are getting.3. REO agent or team coordinator who inputs listings, takes in all the offers, follows up and closes transaction.4. Billing person or team to pay all vendors and make sure expenses are submitted to asset manager.5. Dedicated asset manager liaison to negotiate and handle all matters directly with the asset manager.6. Dedicated receptionist to field all incoming calls and give out to agents per broker/team leader instructions7. Agent or agents to sit open houses and field incoming buyers calls; they pay a referral on the calls only.8. Commission disbursing person or team.Besides that there are the usual dedicated repair contractors, loan officers, home inspectors, escrow officers and home warranty representative. Be careful when your starting your team that you hire ethical agents that are not going to try to take away your buyers or REO accounts. Make sure you have a detailed written contract that stipulates every member's duties.
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Isanti Rocks! Last night there was a chance for anyone interested in learning more about the options offerred by the City of Isanti for homebuyers who would like to help clear the foreclosed properties sitting empty in the city proper. Only six of us showed up, two contractors, a lender and a buying couple (my new clients!) The city has been granted over 500K to use as downpayment assistance in the form of 0 interest loans, which are forgiven after set terms (5 years, 10 adn 15 depending on how much the 'loan" is). There are two programs, which can be used together. $12,500 in Incentive based Downpayment assistance, for anyone purchasing a home that has been vacant 90 days. $15000 for needs based downpayment assistance based on a 29% front end ratio. There is also a rehab loan for up to $30,000! They are still looking into the possibility of using the Greater Mn Housing fund $10,000- $12,000 loan in conjunction.Greater Mn. Housing Fund is for purchase of a foreclosed, OR SHORT SALE property. Must be in an incorporated city, have city sewer and water. Must complete homebuyer course, must be able to qualify for a mortgage, and must have an inspection. Income guidelines for Chisago and Isanti:Family size 1. 47,100 2 53,800 3. 60,500 4. 67,200 5. 72,600And, for first time homebuyers, this does not affect the $8000.00 tax credit!I have two buyers going out today..the money needs to be used or lost!
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Not sure about the rest of the pros on REOPRO, but as someone who does BPOS, I just got quadruple the requests for them today, in a big, big way. Some requests from folks, I barely get any from. All exterior BPOs... and I live in a rural area.Not sure what you guys will make of it, but to me, it looks like the Summer Flood.
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Deciding to work with a BPO and/or REO company should be a two-way interviewing process. Brokers and agents eagerly try to get into the business by randomly completing the online or hard copy application process then several weeks or months after completing a BPO, act like a disgruntle employee by complaining to others because he/she/they did not get paid. Well, how much research did you do?You should never leave your business and services to chance and hope. Neither will pay your expenses nor will it guarantee that you will be paid. So what do you do during the initial process while researching and signing up for BPOs and REOs?1. Review the company history (website, financial data, etc) and read what others are writing on various forums.2. Randomly send out inquiries to ten or fifteen brokers and agents (in and out of state). If a broker or agent "outside" of your area/state freely gives the thumbs down, the company may not be a benefit.3. Check with the Better Business Bureau where the company is located.4. Run a $19.99 D & B check. http://www.dnb.com/us/5. Inquire with some of the title companies or closing attorneys in your area. What do they have to say?6. If you have noticed that some of the big firms or a top agent no longer service a particular company, chances are the asset management company is a slow payer and/owes big bucks.7. Talk to some of the property preservation companies in the area, are they being paid in an appropriate amount of time, 14 - 60 days or 60 - 365+ days?8. Review the company's service agreement thoroughly. What are there terms, what is the process for accepting BPOs, how do you submit BPOs, are there any documented instructions, are the BPOs also guaranteed listings (if listings are what you are seeking), what is the rating system, etc?9. How are the BPO and REO process handled? Is it managed through a user-friendly system such as RESnet, IAS, REOTrans, Wells Fargo, or Citi Residential? Let's hope that they are not on the fax or email system whereas it is assumed that your fax or email is received before the deadline and not afterwards.10. Know the phone, fax, and email for Accounts Payable. Get a name if possible.11. Cost - review the cost. If you are going to pay big bucks to join, you should be getting a huge return on your investment. Yes, it does take money to make money but you don't go broke in the process. If you are paying by the zip code, be selective with the zip codes. Don't select areas where there is a high mixture of residential and commercial properties unless you service both.12. Customer service - if you call customer service, is the person on the other end receptive, confused, rude, or hanging out in the twilight zone and need to walk toward the light?13. Read the reviews of your peers. Are the compliments and/or complaints legitimate?Take your time when researching BPO and REO companies. Don't assume that working BPOs and REOs is a piece of cake. All of the agents I work with are hard at work at midnight and back online before the sun comes up most days. It's called dedication. Reaching that level of success did not come overnight. There were a lot of bumps, bruises, missed school events, late dinner, and delayed vacations that paid the price. I'm sure many of the veterans have other questions that should be ask. These are a few I have been faced with over the past five years when I research companies and make general inquiries before wasting my time with the application process on behalf of brokers and agent.ARE YOU REALLY READY TO WORK IN THIS INDUSTRY?Food for Thought!Carolyn Dobbs, www.reobookkeeper.comJoin the BPO and REO Solutions Group!
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Reimbursement management is very important when working with REOs. It builds a relationship with the REO bank and a committed relationship with your vendors. Too often, brokers and agents will put the invoices in a pile or box and pray for the reimbursement fairy to come along and make it disappear through automatic submission.HELLO! That is not how it works!Working with REOs is a very serious job and should not be taken lightly. Each REO bank has its own policy. You cannot deviate from the guidelines and assume that you or your vendor will be reimbursed. You cannot build a team of providers when you ignore invoices and expect the vendors to idly sit in the background and wait months for payments for jobs completed on properties that are under contract or have been closed.Managing Reimbursement Tips1. Set aside one hour daily to assemble your vendor invoices or hire an assistant to work part time.2. Use an online program for invoice submissions (Drop box or MS Workspace Live).3. Do not use your general email address to receive invoices. Setup a separate email address and make sure it is the only email address used by the vendors. Setup a rule within your web mail program so all emails will be sent to a specific folder and not mixed with other general emails.4. Require each vendor to submit all invoices within two calendar days.5. Require all vendors to include the invoice number and full property address on each invoice as well as the service date next to EACH line item. All invoices should be itemized.6. Require before and after photos for all jobs including initial lawn cuts, de-trash (interior & exterior), securing, repairs, replacement of appliances, etc.7. Processed all invoices upon receipts. Input all accounts payable into the bookkeeping system daily.8. Setup a master account with each utility company.9. Save time with paperwork by paying your invoices once a week and using checks with vouchers. The voucher will list all invoices for the vendor with the property, amounts, invoice number, and description.10. Use QuickBooks Pro to manage your reimbursements and setup each property as a project/job under the client account (reo bank).11. Update your vendor and client contact information upon notification.12. Keep digital copies of all W-9 for easy submissions.13. If the bank uses a word, pdf, or excel reimbursement form, pre-type the vendor information or create a macro that will fill out each form or the form main headers.14. Convert forms to fillable PDF documents.15. Record receivables immediately so you’re A/R aging is up-to-date and accurate.16. Follow-up on all A/Rs weekly and submit monthly statements to the REO bank.17. If the invoices must be mailed, use priority mail, Fedex, or UPS with signature confirmation. Know which invoices were mailed in the batch.18. Retain copies of all invoices submitted with the submission dates.19. Get involved if your reimbursement specialist is having problems getting a response from the reo bank.Build a process to ensure that everyone is paid and happy!The REO Bookkeeper
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FIVE STAR EAST COAST EDUCATIONAL CONFERENCEI had the good fortune to attend the Five Star Conference in my own backyard, Miami, FL from May 27-30th.My only expectations going in were to learn some things from both the classes and from networking with collegues from across the country.The conference blew me away! The courses were taught by professionals in their fields including: Mary Abarca, VP of REO at PMH Financial, Loetta Arrington SVP at Field Asset Services (FAS), Maro McKay, VP and contract manager for multiple non-government REO clients (Asset Manager) at First Preston, the list goes on.There wer only about 400 agent attendees over the four days, so I had the opportunity to meet and share ideas and information with many incredible people. A few were just getting into the REO market, with the majority being seasoned REO agents in their areas.The energy level and exchange of ideas was electric and I could not wait to get there each morning and did not want to leave at the end of the day. I went home vibrating with excitement and teeming with new ideas.Prior to attending the Five Star REO event I had not planned on going to Five Star's Conference in Texas this September, now I cannot wait. I am sure the conference will be wonderful, but I am most excited to get there two days prior to take two more Five Star Courses and have that intimate exchange of ideas and information that is not always easy to get during the frenzy of a conference setting.The best thing I learned was that First Preston will soon be offering approved short sales and will need a lot more REO agents nationally (Embarrassingly I had not even applied prior!). The best thing I was able to share due to my close work with our city and country government is about the NSP funds and how we can help our community by assisting them in accessing these funds that must be used to acquire REO properties to help stabalize our neighborhoods.HAPPY HOME SELLING!Ellen Bithell, CRS (soon to be a five star designee)RE/MAX EXECUTIVE REALTYSELLING SOUTH FLORIDA
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Once again misinformation hitting the media! What this article doesn't say is that inventory in California has decreased primarily due to lack of new foreclosures coming on the market. Like most REO brokers in California I have watched my inventory shrink month after month as moratoriums from various institutions have worked themselves through fruition. In addition the banks have been holding back inventory trying to change the Mark to Market valuation system. A quick look at the mls will tell you there is just nothing to sell at this point. Watch the reported inventory numbers for August. It should be off the charts.Michael HowardXcel Reowww.xcelreo.comwww.xcelinvestments.comMay 29, 2009With almost a 50% increase in year-over-year sales, the inventory of unsold existing single-family homes for sale in California has been cut in half, from a 9.8 months' supply in April 2008 to 4.6 months' supply this April, the state's Realtors reported. However, while sales were up 49.2% to a seasonally adjusted rate of 540,360 — the eighth straight month above the 500,000 level — the median price of houses sold in the month declined by more than a third, largely because the majority of sales were at the low-end of the market. "Inventory levels for homes in the under $500,000 segment shrank to nearly three months in April, compared with almost 10 months a year ago, while unsold inventory in the more than $1 million segment rose to approximately 17 months, compared with roughly 10 months in April 2008," says California Association of Realtors President James Liptak. "The dramatic difference in inventory exemplifies how the low end of the market is attracting more first-time buyers and investors, creating a shortage of distressed properties for sale." The median price of existing homes sold in the month was $256,700, a 36.5 percent decrease from the revised $404,470 a year ago. But it was 1.4% greater than March's $253,040 median price. CAR's figures are based on data collected from more than 90 local Realtor associations statewide.
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">Agents,How much have you utilized this program? Many clients are not aware of this Government insured loan. I invite you to watch this video that contains valuable information to help you educate your clients.
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From the newsletter I received from The California Assocation of Realtors."C.A.R. Achieves Compromise in AB 957,Choice of Escrow BillC.A.R. achieved a compromise in AB 957, “Choice of Escrow Bill.” In multiple discussions with the author, C.A.R. worked with Assemblywoman Galgiani to come up with compromise language that will require fair treatment for real estate owned (REO) buyers in the choice of title and escrow providers.The new language now protects fair negotiation over settlement services, and has removed C.A.R.'s opposition.The new language will codify in California law the federal RESPA rules for selection of title insurance, and extend the same rules to protect buyers in the selection of escrow services. In a nutshell, the sellers will have to negotiate the selection of title and escrow. Under the new language, if an REO seller wants to try and direct choice of escrow, the seller will have to pay for the privilege.AB 957 will also impose new penalties on REO sellers that violate the law, and will empower state regulators to go after both RESPA and "steering" violations."Great news for buyers, but possibly bad news for REO sellers and escrow companies.
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Several banks here in Ga. have recently been taken over by the FDIC. Unfortunately, one was a previous client with whom I had good relations and had received listings. Guess it wasn't enough - anyway, since FDIC sells the assets not in foreclosure and the reo stays in their portfolio, I am having a devil of a time running down who has what now. Does anybody out there have good information on FDIC holdings? I could use at least a company name here or any thing you have. I'm in the middle Georgia region if that makes a difference.
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If there's one thing that most of us can agree upon is that as reo agents, we see the best and worst that our great nation has to offer. On any given day, we will be assigned a property whose occupants are in the middle of some of the most heart-wrenching circumstances one can imagine. On that same day, we can also see the worst that society has to offer with obvious loan fraud, property theft and worse. Later that afternoon, we might run into a large and very unhappy dog left behind IN the house....Sometimes the stories we are a part of are hysterical too-A charming ranch-style home in a quiet suburban neighborhood where the living and master bedroom have brand new LEOPARD-SKIN print carpeting or a property formerly occupied by a large male who forgot his Cher wig and evening gown collection.....I love this job because no matter what, everyday is different from the last.I love this job because I get to see ordinary people buy their first homes when only a couple of years ago, they were resigned to being excluded from the great American dream of owning a home.Without question, I have never worked harder but at least for now I have a job where I can earn a good living that doesn't require me to say something like "Welcome to Wal-Mart" or "Would like fries with that?"I've learned more about determining the present value of a property and could move just about anywhere and earn a living as a Realtor because my job has required me to know the fundamentals of marketing and selling a home in just about every neighborhood that there is.That is the best kind of job security.My favorite story so far is helping a family buy their first home in California after coming here from Mexico in 1994, and being able to live close enough to their oldest daughters college so they could also afford for her to attend.The husband is a cement worker and the wife is a housekeeper, neither of which are positions noted for their high incomes. Despite this, in todays market they were able to buy a 4bd/2ba home for 150K in an area that would have cost over 400K in 2006. Was my commission very much? No, it wasn't even close to what I make on some of the nicer homes I am assigned. It was however, my most rewarding sale.What about all of you? Or is everyone else so cynical that it's only about the money?
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If you are going to be using Craigslist, which I do like BTW, be very careful if your property is vacant. I had posted an earlier comment regarding people running a con game where they rent empty homes to unsuspecting consumers.It is very rampant on Craigslist...where I have heard any mention of foreclosure, REO, bank owned, etc...you could have a duplicate post "for rent" on the same property withing a short time. As an agent who uses Craigslist...I recommend running searches of your posts and addresses periodically to make sure you don't fall victim.http://blog.foreclosure.com/2009/02/foreclosure-rent-scam-uncovered-in-affluent-dallas-suburb/Read more…
Having completed Default School and earning the RDCPro designation, I thought I would share my experience with you all. On the topic of certifications, designations and education, I am of mixed mind. You may ask...Why? And the answer is simply because some of these programs are too much 'fluff,' just trying to suck a quick couple hundred dollars out of Realtors and thin on material. Some on the other hand are put together by honorable people, truly trying to offer value and improve their industry. You never really know for sure until you take the course(s).I am all for continuing your education throughout your career, but I am also leary of some programs and try to research them before jumping on board. Everything I could find about RDCPro and Default School pointed toward it being a good designation and the required courses being valuable, so I went for it.After completing it, I felt that the courses required for the RDCPro designation (taken through Default School and administered by RealEstateEducate.com) were both very legitimate courses. Almost everything in it was, in my opinion, quality material and meaningful. The designation requires the completion of 2 courses: REO Best Practices (formerly Learning the REO Ropes) and Advanced Evaluations.The REO Best Practices portion covered REO's from start to finish. Filled with information crucial to understanding the REO process and to keeping Asset Managers happy! The presentation was good and the information was legitimate, current and useful. I appreciated that there wasn't a bunch of what I would call 'filler' material in it.Advanced Evaluations was also done well. On this one I felt it did stretch the material a bit, but this is somewhat understandable in that it there is just less to doing BPO's than there it to REO's. While I personally got much more out of the Best Practices portion, the Advanced Evaluations portion did act as a good refresher.All in all, I think the RDCPro designation is wothwhile and definitely adds value. While it has not directly led to any additional REO listings, I think it will and even if it didn't I still would be glad I completed it. Expanding your knowledge and learning new things about your profession will never be a bad thing.I can't speak on any of the other REO designations, but I would say that I give the RDCPro a thumbs up for providing good, useful and current training.Best of luck and let me know your thoughts on any other training/designations you know about or have completed.
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Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama's anti-foreclosure program---which is a combination of mortgage modifications and refinancing---a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it's clear now that the program will fall well-short of its objective.In March, housing prices accelerated on the downside indicating bigger adjustments dead-ahead. Trend-lines are steeper now than ever before--nearly perpendicular. Housing prices are not falling, they're crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 MILLION MORE FORECLOSURES BETWEEN NOW AND 2011. It's a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There's nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting more hanky-panky at the banks. Where have the houses gone? Have they simply vanished?600,000 "DISAPPEARED HOMES?"For the rest of the story follow this link: http://activerain.com/blogsview/1045921/Housing-Bubble-Smackdown-Bigger-Crash-Ahead-Huge-Shadow-InventoryRead more…
Fifteen new foreclosed or short sale homes came on the market, about one in every six homes being listed in the Prescott Arizona Area MLS system, and one quarter of the closings were distressed sales in Prescott, Prescott Valley, Chino Valley, Dewey-Humboldt and the outlying areas of Yavapai County. This shows a marked decrease from last week’s numbers.The difference between what newly listed traditional homes and Prescott foreclosed/REO and short sale properties per square foot remains large at a 40% discount.News has been mixed last week with positive housing numbers coming out of California and the Phoenix area, but news of more foreclosures on the horizon as load modifications fail and banks are removing moratoriums on foreclosures. Watch this space for more info!The percentage of foreclosed/REO/short sale new listings on market increased from 17% to 18% this week. Last week 48% of the pending sales were REO or short sales, and this week they made up 33% of the deals going into escrow. The percentage of REO/short sales that closed last week went from 56% last week to 26% this week. REO/short sales sold about 92% faster than traditional resales.See the full report on our main web site.You can get this report sent to you via email. Sign up here.Read more…
If you have chased the elusive Bulk REO as I have than you are probably wondering how to get your hands on a real buyer, a real seller and a real tape. You probably also ran across your fair share of , NCNDs, MFAs, intermediaries, mandates, broker chains, "buyers", "sellers" and a fair share of tapes. One thing I have learned is to do a lot of due diligence and not to get too excited like I did at the beginning of my bulk REO journey. I am embarrased to say how much time has been "invested" in this endeavor and not yet have a successful transaction. However, am happy to say I have established new relationships, learned the real meaning of due diligence and have become somewhat of an REO expert. Guess it's a part of earning your stripes. The funny thing about life is that when you chase something too hard you end up driving it away. I no longer chase the elusive bulk REO deal but will wait patiently for it to fall on my lap.Please share any suggestions, comments, experiences or your own goose chases
Well, I've bloged about this several months ago. Pre-Approved Short Sales!! I closed my first one 2wks ago and from list to close total time was 40 days. Yes 40 days, I recieved a list price 96 hours after submitting my BPO, which was priced 10K below my BPO value. I got multiple offers within he first7 days on the market and the property sold for 5K more than list price (Closer to my BPO value). My local board rules require us market any short sale as such, which in the past and sometimes hinders offers beacuse all of us know that there is nothing short about a traditional shortsale.This did not increase the time on the Market, as we advertised it as a HomeTeleos Pre-Approved Short Sale. This program has officially launched and you may see it in a City or County near you. Its true when you see HomeTeloes Pre-Approved short sale, then really are short sales. www.hometeleos.com I'd love the hear from anyone else if they are doing anything similar or have heard of any similar programs launching. I think it will be a matter of time before others follow if they have not already done so.
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I am a Realtor in North Idaho. Coeur d' Alene, ID to be exact. I have been in the business for 8 years. Two years ago I saw that the market was shifting downward. Our foreclosure rates were on the rise and I saw an opportunity in a field that I had always wanted to pursue. I had done three bank owned deals in my career. They were all with local mom and pop banks. How did I break into the REO's?Well for one, I refused to accept the mantra that it is a closed field. I followed FC notices in our paper and followed homes that interested me all the way through the sale. When no one bid at the auction, I googled XYZ bank REO department. I called and stayed on hold forever. I was always polite. When I got through to the right person, I would say "Hi I am an agent that works in the area that your bank just took a home back in. How would I go about getting on the list to be an approved Realtor to help sell this asset for you? Most times they would say "we are not interested". This actually rarely worked but I kept at it. One day I was walking in my neighborhood and I noticed a vacant house with dead grass (the REO calling card!) The neighbor was super helpful and told me she heard a bank out of TX owned it now. I googled this bank and got the right number to call them. I gave the lady my spill and she said "I was just about to assign that one; it is right in front of me. What is your fax number and I'll send you over the agreement!" I don’t know if cloud 9 would be high enough for how high I was floating!I may have been on cloud 9 but I was clueless too! I knew how to sell homes but the REO side was new to me. I never let my seller know how clueless I was. Anytime something came up that I was unsure about I got online and googled till I figured it out. I registered on the various sites to upload the offers and forms, again learning as I went. I paid invoices with no idea of how I was going to get paid back. I was able to get this little home sold for a good price and the asset manager was happy. Not a week later the same bank sent me two more REO listings!From there, I could see that I was on to a good thing and that this is something I needed to pursue all out. I began buying courses, googling, reading blogs, and just getting information anyway I could. One of my courses gave me a list of banks to register with. I built a resume and gathered the necessary forms. I spent one week registering with every single bank on the list. I paid for memberships to several REO platforms so asset managers could find me. I continued following foreclosures in the paper all the way through the sell. I continued calling those banks. My business grew and grew.To this day I continue doing all of the above. I never sit still or take my inventory for granted. I would say that I am one of the smaller fish in this huge pond of REO brokers. I currently have 12 REO's in some stage of the process. Just yesterday I closed two and one more is signing today. I have been able to build a list of investors that want these properties so I find myself doing both sides of about 25% of my properties. I consult with them throughout the remodel and then help them sell them if they are flip deals.I learned early on that you have to build systems to maintain the influx of properties. My scanner and Blackberry are my new best friends! People drive me crazy when they say "ohh, you are so lucky to have all these deals in a dead market." My broker once told me the harder you work the luckier you are. Now that I can believe. If you want to get started in REO's work at it, envision it, be determined, and stick to a plan. I believe this REO boom will be around for awhile. Grasp the opportunity and go for it!P.S. I am envisioning myself working with Bank of America and Wells Fargo! I'm not sure how that is going to come about but I know it will! Any tips?The Holy Grail in my business would be to get in with Bank of America or Wells Fargo. If anyone has any tips there, that would be great.
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CMBS Outlook Finds Conditions Are Bad and Getting Worse for Office, Retail and Hotel SectorsDeteriorating CMBS Loan Performance Indicates Worst May Not Be OverArticleBy Mark HeschmeyerApril 8, 2009Judging from the latest analysis coming out on the commercial mortgage-backed securities (CMBS) market, the worst may be yet to come for commercial real estate.Recent reports issued by Deutsche Bank, DBRS and Fitch Ratings find that commercial real estate fundamentals have dramatically weakened across most major property segments and markets, with some starting to reach the depressed levels of the last major recession in the early 1990s.And as conditions worsen, borrowers and workout specialist may have fewer and fewer options, the reports warn, which could further depress the industry.Richard Parkus, head of CMBS Research at Deutsche Bank, projected in his firm's commercial real estate outlook last month that property prices are expected to decline 35% to 45% (or more) overall during this recession. That would exceed the sale price declines seen in the early 1990s. Parkus added that declines in rental and vacancy rates may also approach levels of the early 1990s.CMBS collateral performance are currently deteriorating at a historically fast pace and Parkus predicted the total delinquency rate could likely to exceed 3.5% by year-end. That is one of the highest estimates that have been projected by CMBS analysts. Worse still, Parkus added, it could go as high as 6% by 2010. The peak delinquency rates in early 1990s were 6% to 7%.CRE at a PrecipiceBy far the greatest risk facing CMBS loans right now is maturity default/extension risk, not term default risk, Parkus of Deutsch Bank said.A large percentage of CMBS loans made in 2005-2008 may not qualify for refinancing without substantial equity injections due to much tighter underwriting standards, massive price declines and declining cash flow.Multifamily loan performance has been deteriorating at a dramatic pace, Parkus said, with Midwestern "rust-belt" states plus Florida, Georgia and Texas among the worst performing markets. Interestingly, California and Arizona, ground zero for residential mortgage problems, continue to experience very low multifamily delinquencies.Parkus also noted that the deterioration of office properties values are beginning to accelerate due to job cuts. "We expect office to be one of the hardest hit property segments," Parkus said.Parkus noted what happened with 1540 Broadway in New York. Macklowe Properties purchased the office building in Time Square two years ago from Equity Office Properties for $1,080 per square foot.Last month, CBRE Richard Ellis Investors purchased the building for $403 per square foot -- an almost 63% price decline in two years.Retail CMBS Loss Severities To ClimbMeanwhile, Fitch Ratings put out a particularly bleak outlook for retail loan performance, projecting that loss severities on retail loans are likely to trend upward for the next several years as defaults on retail loans increase.Exacerbated by declining consumer spending and the shrinking U.S. economy, retail vacancies will likely increase to new highs as bankruptcies, store closings and retail consolidation continues, the bond rating agency said.Consumer spending has declined 4.3% as of year-end 2008. That contrasts with the Internet-bubble reduced recession of 2002 and 2003 when consumer spending remained positive.Retail delinquencies account for $1.7 billion of the $6.2 billion total delinquencies in the Fitch Loan Delinquency Index. The Loan Delinquency Index across all property types is 1.28%; with 1.17% of all retail loans within the index currently delinquent. Fitch expects defaults in the retail sector to contribute a greater percentage of the index into 2010.Specifically, Fitch said it expects losses on retail loans may increase as much as 34% to 60% from the 5-year cumulative average of 44% for current defaults."Increased vacancies in the retail sector will lead to longer resolution times as it will take longer to re-tenant space which will ultimately result in higher losses," said Mary MacNeill, managing director of Fitch Ratings.Hotel CMBS Loan Performance Deteriorating RapidlyIn a report issued on hotel loans held in commercial mortgage-backed securities by DBRS, the bond rating agency noted that, in a declining economy, commercial real estate investors are seeking long-term leases, low tenant rollover, low expense ratios and the ability to pass along increasing operating expense to tenants. Unfortunately, hotel properties offer none of these features."News coming out of the hotel market is, quite simply, not good. Well, bad actually. No, make that terrifying," the bond rating agency said. "Predicting hotel performance over the next 12 to 18 months is like juggling chainsaws while riding a unicycle."Most informed market participants seem to be gathering consensus around a high single-digit percentage decrease for revenue per available room (RevPAR). Given the apparent inability for most individuals to grasp just how bad the economy is and how bad it will get, it would not be surprising to see decline in RevPAR by well more than 10% in 2009, DBRS said.Options NarrowingAs CMBS loan delinquencies climb, Parkus of Deutsch Bank said, the options available for borrowers will likely start to narrow.As CMBS special servicers are appraised out of their controlling class positions over the next two years, they may have less incentive to extend maturing loan, Parkus said. In addition, senior bondholders are becoming much more activist against extensions."We expect this conflict to intensify significantly over time, bringing the threat of legal action against special servicers that practice widespread extensions," Parkus said.Fitch Ratings also said special servicers may need to explore several different options to maximize recoveries. For example, with single-tenant retail, spaces can be marketed to non-traditional entertainment tenants. Conversely, they can also be subdivided in order to attract smaller tenants. Large vacant mall locations, such as those left vacant by Steve & Barry's or Macys, typically find more interest by subdividing the space or even selling the space back to the mall operator for redevelopment.Barring such options, special servicers could be more likely to foreclose on properties as borrowers become unable to fund operating shortfalls due to the loss of tenants, Fitch Ratings said.
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