The commercial real estate market is changing deeply.

Find out how the property is going to be assessed and how the short sale process could happen in this case.

There is an interesting interaction between the court, the appraiser, the bank and all the parties involved.

Roberto Mazzoni

Is there a stigma on commercial real estate bankruptcies? is a post from: Real Estate Investing Benchmark

Commercial short sales are much more complex than residential short sales.

First of all you are dealing with a very different type of bank, usually a local bank, who has very tight control on the loan it services and who also undergoes a tremendous quantity of scrutiny from the government.

These banks need to maintain certain performances and certain capital reserves and non performing loans are a definite threat to their survival. So the first thing they will do is trying to control the property before the foreclosure is through. A much more aggressive process.

Roberto Mazzoni

Lot of moving parts in a short sale is a post from: Real Estate Investing Benchmark

Learn how a commercial short sale can work.

Your need to become creative in dealing with this new market in real estate.

eventually in boils down to “who do we have to deal with” from the bank viewpoint, and from the owner viewpoint it is a matter of making informed business decisions before it is too late.

Roberto Mazzoni

Commercial short sales and bankruptcies is a post from: Real Estate Investing Benchmark

The new Noteflo site for buying and selling loans.

There are six reason that could make your loan application fail with a regular bank:

1.The house won’t appraise for the price you are willing to pay. Some times banks will even reduce the value given in the appraisal, just to be on the safe side. The transaction will therefore fail either because the seller is not willing or able to lower the selling price or because the buyer is not able to come up with a bigger down-payment to offset the reduced appraisal.

2.You have a poor credit score. It is basically impossible to get any type of loan if you have a FICO score that is below 620, although the average of the credit score that is required today for conventional loans is often 700 or higher.

3. Too many debts already. You need to have enough money coming in every month to pay for the loan and any other debts you might have already. If you buy a new car just before applying for a loan you might be in trouble.

4.You have no stable job. It is usually required that you show at least 2 years of consecutive employment or two year of tax returns if you are self employed. Beware: if your tax return shows no profit or little profit, it is probably not going to work.

5.Too little down-payment. More and more US banks require that you come up with 20 to 30% down-payment when you buy a new house, unless you are getting an FHA loan which allows for a lower down payment but it is very strict with the appraisal and the inspection of the house. You need to have a roof that can live for at least another 5 years and a good furnace or air conditioning system, just to mention two of the main factors.

6.Deceitful information. If you try to cheat during the application process you will be thrown out.

This is creating a serious problem on the market and new solutions are coming up. One that is worth mentioning is the site Noteflo.com that proclaims itself to be “The Private Loan Marketplace”. It is a site that brings together lenders, buyers and investors. It has just been launched and there is only partial coverage of the various markets, but the idea is quite neat and it can fill a very definite demand from the market.

Roberto Mazzoni

NoteFlo against the credit crunch is a post from: Real Estate Investing Benchmark

AFIRE (afire.org) has its headquarters in Washington DC, very close to the source of all political and legislative decision in the United States and has the first and foremost purpose of deliver timely and precise information on any new law or tax regulation that could affect international investors so that they stay abreast of the change and can be competitive with domestic investors.

The United States offer the most stable and secure real estate market for international investors.

Every year, AFIRE conducts a survey among its members to establish which international real estate market offers the most stability and security and which has the highest appreciation potential. The latest survey published at the beginning of 2010 shows that the United States still offer the most stable and secure investment environment.

The closest competitive nation is Germany that ranks about half and then we have Canada, France, Australia and the UK.

The Unites States real estate market offer the highest appreciation potential world wide according to AFIRE members..

The United States also offer the best appreciation potential even when compared to growing economies like China and Brasil or to established economies like the UK, Germany and Canada.

The perception of potential appreciation in the US has been increasing steadily in the last four years.

Considering the historically low prices of real estate, the United States have been increasing their perceived appreciation potential constantly in the last four years and today most of properties can be bought well below their replacement value, which means they are undervalued due to the presence of a high number of foreclosures, but have the potential of going back to their correct values once banks will have depleted their reserves of repossessed properties.

Who comes today to the United States can find investment properties that produce a net income that can be more than double of what could be obtained in Europe for a comparable investment or can find a quality vacation home well below market value and in very nice locations.

Roberto Mazzoni

The best profit potential for international investors is a post from: Real Estate Investing Benchmark

Learn the secrets of commercial loan modification.

Vacancies have increased 40 basis points (0.4%) in May 2010 which is the greatest increase in history and the overall decrease for the first half of 2010 is 200 points (namely 2%). There are 3.5 trillion dollars worth of loans that are outstanding and that are about to come due in the next 12 to 14 months due to the illiquidity in the credit market. Before granting any loan or renewing a loan, banks are watching very closely two parameters that are important in commercial real-estate: debt-to-income ratio (the amount of money coming in as compared to the debt payments to be made) and debt-service coverage ratio (the amount of cash flow available to meet interest and principal payments).

So even if it is a performing asset, the banks decide not to move forward with the financing and leave the commercial property in what is called “strategic default” or “technical default”.

The “Congressional Oversight Panel” estimates 1.4 trillions in commercial loans that are going to reach their terms in the very near future. The largest losses are scheduled to begin in 2011 and it’s going to be in the range of 200 to 300 billion dollars.

The Board of Governors of the Federal Reserve issued a policy statement advising financial institutions to extend and restructure loans whenever possible, but who gets to decide whether a loan is going to be extended or not. Find out in this thorough video explanation.

Roberto Mazzoni

Commercial loan modifications to counter a 43% decline in value is a post from: Real Estate Investing Benchmark

Loan to value in commercial real estate loans has changed dramatically.

This would all be fine if the lending application were started today and if the market were stable or growing. Yet in the majority of the scenarios, with very few exceptions like Texas, the value of commercial properties is going down and many of the loans that will become due or will have to be renewed by the end of this year and next year have been given four or five years ago, when the market was booming and when banks were more comfortable in working with a 70% loan to value ratio.

And the 65% is not actually even related to the cost of reproduction of the building (how much would it cost to build it again), yet it is based on the “as is” value calculated today that might be quite far from the original value calculated 5 years ago. Some experts in loan evaluation say it might well turn out to be 60% or 55% of the real loan to value ratio once you factor in a series of elements that banks are now considering in reducing the actual value of the property.

This video gives you the varied opinions of commercial real estate experts based on what is going on today in the market.

Roberto Mazzoni

Loan to value decreases in the commercial real estate world is a post from: Real Estate Investing Benchmark

Restructuring commercial loans often now requires that the bank fails in the first place.

The majority of the commercial real estate developers are in dire straights, trying to hang on with their nails, to restructure their debt on anything they built from 2005 and 2007, but many local banks won’t even talk to them. So how does the relationship play in this case? Many banks know very well that the minute they begin a short sale or loan restructuring process, which means discounting the amount owed and negotiating new terms, their own balance sheet will start to suffer greatly and they will see a domino effect of a number of their commercial borrowers doing the same. They don’t want to foreclose because they can’t take the capital hit.
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Therefore they sit tight, insisting that developers and owners in general continue paying a loan that they can’t pay and hoping the problem will go away without actively tackling it. When this happens, the best thing that the developer or the owner of commercial real estate can hope for is that their bank goes under. Once the bank fails, it goes to the FDIC (Federal Deposit Insurance Corporation) and then the FDIC reduces the value of the asset and brokers it off to another bank which will be in the position now to negotiate.

Listen from an expert in the field about some real life stories that are happening right now.

Roberto Mazzoni

Commercial loans: enter the relationship world is a post from: Real Estate Investing Benchmark

Insurance companies can provide alternatives to commercial foreclosures.

Now they are offering loans at rates as low as 5.5% but the loan to value percentage is much tighter, namely they are willing to fund only 65% of the value of the property, while the borrower needs to come up with the remaining 35%, pretty much in line with what is currently being done by many banks.
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But they become a solution for those trying to avoid foreclosure and willing to put some cash to restructure the loan, which means using the insurance companies as a vehicle to bring the bank to terms and getting a discount on the current loan and then move it to the insurance companies putting in some cash to make it balance again.

A typical real life example given is a property originally worth 12 million where the owner now has to bring 5 millions to the table in order to avoid foreclosure and start with a new loan which could be transferred to an insurance company with the bank forfeiting 3 millions on the outstanding balance and the owner adding 2 millions of his own cash to secure a new long term loan that will allow him to weather the storm.

Listen to the video by Del GoForth that gives you a totally new view at how insurance companies can play a key role in the resolution of the upcoming commercial real estate foreclosure tsunami.

Roberto Mazzoni

Saving from commercial foreclosure through insurance companies is a post from: Real Estate Investing Benchmark

The commercial building market is coming to a stop.

Additionally, the now reduced values of the commercial properties bring about a very high loan to value ratio when the time comes for refinancing, making it impossible to renew the current loan, but requiring the owner (borrower) to come up with a substantial amount of cash just to keep the financing in place for a property that is already under water.

Today when you go to a bank to get a commercial loan you cannot use “performing income” any more as a basis for your financing. As the properties are less and less performing and therefore you need to reduce your evaluation. Sales of commercial properties have decreased of over 80% and the recent reduction in unemployment in some areas is mainly due to temporary jobs.

The health of commercial real estate depends mostly on the overall condition of the economy and it will likely stay weak for the foreseeable future. Some estimates say that by the end of 2012 we might see a slow change, but that is still a matter of opinion since many changes could come about in the economy by that time. The effects will be felt anyway up to the end of 2020, which is ten years from now. There are definitely factors that could help stimulate a faster recovery, but that is scenario that we are looking at right now.

The economic growth has returned slightly, there is a 3% increase in the first quarter of 2010 of the USA GDP (Gross Domestic Product – a measure of an economy that adds the total market value of all finals goods and services produced in a country in any given year at the current prices).

Yet that is tempered by unemployment which is increasing the vacancy rates constantly, and such increase has been slowed down so far by long term leases held by major corporations, granted back in 2005, 2006 or 2007 for class A properties (the highest quality) but when those will start to fall out, the rate of space available will increase dramatically, particularly in class A properties, and the lower classes (B and C) will fall right behind in succession.

The commercial loans that will go in default are estimated between 1.4 and 2 trillion dollars. There is an estimate of about 40% of current loans that are upside down, but Deutsche Bank has estimated that over 75% of the existing commercial loans will be difficult to roll over (renew). So the key opportunity is for investors to start a buying campaign on these properties that are ready to go in default, but the challenge is to establish a correct value for those properties, knowing that the market is still on a slide and that economic conditions are still unstable.

Roberto Mazzoni

Commercial real estate: just short of dead stop is a post from: Real Estate Investing Benchmark