Seattle and Portland in Emerging Trends in Real Estate 2010 Report

Seattle was ranked No. 8 and Portland No. 16 on a list of the top U.S. markets for commercial real estate investment in the recently released Emerging Trends in Real Estate 2010.

Though being classified as one of the top 10 investment markets in the country is good news for Seattle, the city had been ranked No. 1 in the 2009 report. The challenging office market, including the closure of Washington Mutual, played a significant role in Seattle dropping seven places. The report sites multifamily, however, as a bright spot for the city; though vacancy has risen and rents are down slightly, this property type remains fairly stable. You can find an article by The Seattle Times on the report here.

Portland's ranking at No. 16 is good news for a smaller metro area, and the report says, "Portland plays second fiddle to Seattle, growth controls keep the market in reasonable supply-demand balance and help foster a 24-hour, urban environment." The Oregonian's coverage can be found here.

The extensive report, prepared by The Urban Land Institute and PricewaterhouseCoopers, represents the survey responses of more than 900 industry experts in a variety of sectors. It predicts that 2010 will be a tough year for the commercial property market around the nation.

NBS Financial's Wood Arranges $6M for Renton Commerce Center

NBS Financial Services Executive Vice President Mike Wood has arranged $6 million in financing for Renton Commerce Center, a 114,307 sf flex/industrial building in Renton, Washington, southeast of Seattle. Woodmen of the World was the lender.

Renton Commerce Center was built in 2002 and is fully leased. Tenants include Occupational Health Service, Valley Medical Hospital and CompuVest Corp.

“The conservative loan request, strength of the borrower and Class A quality of the building all contributed to having strong interest from numerous lenders, which allowed us to provide the borrower the most competitive terms available in the market,” Wood said.

Woodmen of the World offered the most attractive overall terms, and the loan funded 46 days from signed application to funding.

NBS Financial Arranges $10.2M in Forward Rate Lock Financing for Apartments in Davis, CA

NBS Financial Services Executive Vice President Ken Griggs and Associate Finance Officer Paddy Ryan have secured $10.2 million in financing for the Saratoga West Apartments, a 98-unit complex in Davis, California. Fannie Mae was the lender.

Griggs and Ryan were able to lock in an attractive 5.83% rate in advance, which was very attractive to the borrower because it removed the risk of fluctuating interest rates in an uncertain economic environment.

“We were able to lock in the rate ten months early, which gave the borrower some peace of mind,” Griggs said.

The loan is interest-only for two years, which was another benefit for the borrower, Griggs said.

The Saratoga West Apartments are close to the University of California – Davis campus, and virtually all of the residents are students, which can make some lenders nervous, Griggs said. Even so, they were still able to achieve a 75% loan-to-value ratio.

NBS Financial has offices in Portland, Oregon, and Seattle, Washington, and arranges financing for properties throughout the country.

NBS Financial President Hering Honored With Award from Portland Business Alliance

J. Clayton Hering, President of Norris, Beggs & Simpson Companies, was honored with the 2009 William S. Naito Outstanding Service Award at the Portland Business Alliance’s Leadership Evening at the Portland Art Museum on Nov. 4.

The award recognizes exceptional leadership and service to the business community, and has been awarded to a member of the PBA since 1985. In the 1990s, it was renamed to honor the late Bill Naito, whose work exemplified the values the Alliance recognizes – community service, philanthropy and leadership. Past recipients include Fred Stickel, publisher of The Oregonian, the late Bob Gerding, cofounder of Gerding/Edlen Development Company, and Peggy Fowler, CEO of Portland General Electric.

Hering is active in a number of community organizations, and is a strong proponent of the arts. He is on the Portland Business Alliance Board of Directors, and is the Vice Chair of the Oregon Symphony Board of Directors. He is on the OHSU Foundation Board of Trustees, and has been involved with Young Audiences of Oregon/SW Washington and many other organizations.

Hering, a graduate of Dartmouth College, served in the United States Marine Corps for three years, including service in Vietnam where he attained the rank of Captain. He joined Norris, Beggs & Simpson Companies in 1972, was promoted to partner and regional manager in 1976 and became president in 1989. He oversees the company’s finance division, capital asset group and office and retail brokerage operations.

Henderson Joins NBS Financial as Finance Officer

Jeff Henderson has joined NBS Financial Services as a Finance Officer. He will work in the Seattle office and originate loans for commercial properties around the Pacific Northwest.

Henderson has a wealth of experience in real estate along the West Coast. Most recently, Henderson owned his own company, which acquired and repositioned residential projects, and served as a consultant for numerous commercial real estate organizations working on commercial development and asset management projects. From 2002 to 2005 he served as Acquisitions Analyst and Assistant Due Diligence Manager at Harsch Investment Properties, where he developed cash flow projects on over $1 billion worth of commercial property, including retail, office and industrial.

Henderson was the Chairman of the Urban Land Institute’s Young Leaders Group of Oregon/SW Washington from 2007 to 2008, and was a board member and program chair in previous years. He graduated summa cum laude with a BS in business administration with an emphasis in finance from Oregon State University.

Third Quarter Reports for Portland Market Released

NBS Financial has released its Third Quarter 2009 quarterly reports for office, industrial, retail and multifamily commercial real estate, as well as its economic report.

Office vacancy in Central City rose slightly from the previous quarter to 11.12%, with -272,692 sf absorbed. Two Class B buildings in Northwest were major contributors to this rise in vacancy and negative absorption. Vacancy in the suburban office markets rose about a percentage point to 20.59%, and Vancouver office vacancy rose to 18.42%.

Industrial vacancy increased to 14.94%, with -531,805 sf absorbed. One positive sign for the industrial market this quarter was Daimler Trucks North America’s decision to keep its Swan Island plant open. The plant had previously been scheduled to close in June 2010.

Vacancy in the retail market rose to 8.0%, with 365,818 sf newly available. The closure of all Joe’s Sports & Outdoors stores helped contribute to the increased vacancy, but Dick’s Sporting Goods leased a few previous Joe’s locations in the metro area.

Multifamily vacancy decreased slightly to 4.64%, which can partly be attributed to more tenants being active during the summer months; some landlords offered rent concessions and other incentives to attract tenants. Multifamily rental rates rose slightly.

A PDF of all of the reports can be found here.

October Market Watch: Commercial Real Estate Loans and Economic Recovery

In recent weeks, many media outlets have reported that the worst is over and the US economy has bottomed out. Unemployment rates are still rising, currently at 9.7%, but at a declining rate. The S&P rose by 15% in the second quarter and by an estimated 12% in the third quarter. The Dow is inching toward 10,000 again after bottoming out near 6,500 in early March. Household net-worth has grown 3.9% from the first quarter 2009, the first such increase in 24 months. These are all good signs that the worst may be over on a national economic scale, but how does this translate to the commercial real estate market and commercial real estate loans?

Commercial real estate, especially in Seattle, will lag the trend. Many industry professionals see the next 18 months as the bottom for commercial real estate. Properties are just beginning to feel the effects of the unemployment increase. The market is offering leasing concessions as leases roll while companies decide how to improve their bottom line. Many of the outstanding loans that were originated 5-10 years ago are performing now, but will be stressed when they need to be refinanced in the next 24-48 months. Lenders will continue to tighten underwriting as property values decrease due to cap rate inflation and lower rents. LTV ratios for new loans are significantly less than in recent years, and market fundamentals are causing a decrease in NOI at most properties. These factors are stressing lenders’ real estate portfolios. There will be an estimated $1.4 trillion of loan maturities from CMBS, Life Insurance Companies, and banks over the next 5 years, the same amount maturing over the last 15 years.

Today’s commercial real estate loan will be more conservative; it will have a higher underwritten cap rate, increased underwritten vacancy, “market rent” adjustments, and a lower loan-to-value. Most investors are still sitting on capital, waiting to invest. Despite all this, for quality, well-performing assets, there is money ready, willing and available. Expectations are that there will be increasingly more capital available in 2010 as lenders compete to earn yield on cash. Rates are still near all-time record lows and owners are encouraged to lock in an attractive interest rate for a long term to avoid having to go out to the market in the next 12-48 months.

Issues Affecting Commercial Mortgage Rates:
· Falling treasury rates and compressing spreads provide attractive interest rates to borrowers seeking conservative commercial loans
· CMBS delinquency nearing 6.5%, more than 6 times the amount 12 months ago
· Unemployment, increasing vacancies, and declining rental rates impacting property net operating income.

NBS Financial's Wally Harding Authors Column on RE Business Online

NBS Financial's Wally Harding, a Senior Vice President with more than 40 years of experience in the commercial mortgage banking business, writes about the commercial real estate finance market in a column on RE Business Online. Harding speculates on whether we've reached bottom, and what we can expect in the months to come.

NBS Financial's Wood Secures $1.6M for Woodinville Industrial Building

NBS Financial's Mike Wood has arranged $1.6 million in financing for Underwood Gartland 12, a 38,878 sf warehouse/distribution building in Woodinville, Washington. Earlier this summer, Wood provided $2.6 million in financing for Underwood Gartland 216, a building in the same development.

Symetra Life Insurance Company was the lender. This loan was a refinance of a maturing loan, and had a 62 percent loan-to-value ratio. Underwood Gartland 12 is a fully leased single-tenant building that was built in 1999.

“While the single tenant nature of the deal made some lenders uncomfortable, several lenders quoted the deal because of the existing equity in the property, strength of the borrowers and Class A nature of the improvements,” Wood said. “Symetra ultimately had the most competitive overall loan program.”

NBS Financial was Symetra’s top correspondent nationwide in 2008.

NBS Financial Arranges $15.1M in Refinancing For Wieden + Kennedy Headquarters Building

NBS Financial Services Executive Vice President Ken Griggs and Associate Finance Officer Paddy Ryan have secured $15.1 million in refinancing for the Wieden + Kennedy Headquarters Building in Portland’s Pearl District.

John Hancock Life Insurance Company, out of Boston, is the lender. NBS Financial is John Hancock’s oldest correspondent in the United States. John Hancock’s ability to structure the loan to meet the individual needs of the borrower was key to winning the business, Griggs said.

The strength of the tenant was integral to this transaction, according to Griggs, as lenders are careful to lend on single-tenant deals. Wieden + Kennedy is a creative advertising agency known worldwide for its work with major clients like Coca Cola, Nike and ESPN. It has six offices in addition to the Portland office, including in London and Tokyo.

The quality of the building and its location, at 224 NW 13th Ave. in the Pearl, also had major appeal. The Wieden + Kennedy Headquarters Building was built in the early 1900s to store dry goods and was later used as a cold storage warehouse. Wieden + Kennedy was seeking a new and larger space in the 1990s, and commissioned Gerding Edlen Development and Allied Works Architecture’s Brad Cloepfil for a more than $35 million renovation of the five-story building.

The renovation was finished in 2000, and has garnered awards and national attention for its design and energy efficiency. Wieden + Kennedy occupies the majority of the building’s 160,000 sf of office space. The building also includes about 30,000 sf ofground floor retail space, with tenants like popular restaurant Bluehour, retailer Design Within Reach, and urgent care clinic ZoomCare.

September Market Watch: National Economy and Commercial Real Estate Loans

As the summer comes to a close and the recent stock market rally subsides, borrowers are left wondering what the future will bring for commercial real estate loans. At the end of August there were several treasury issuances that were well received by the market as more than $16 billion of new notes issued were digested easily. In late August, Fed Chairman Ben Bernanke said that “prospects for a return to economic growth in the near term appear good."

The end of summer brought a jump in existing home sales, improvement in consumer sentiment, and increased consumer spending, in part due to the successful cash for clunkers program. Even with the issuance of new treasuries, the 10-year treasury rate fell for the month of August with help from the positive economic news. The 10-year treasury was down almost 50 basis points for the month. A combination of lower treasury rates and contracting lender spreads means attractive interest rates on quality, performing commercial real estate debt.

As the economic news improves, we are seeing lenders becoming more active in the commercial real estate lending market. A few months ago, it seemed that there were very few players in the market, mainly life insurance companies with very conservative loans or banks lending to repeat borrowers in an effort to control deposits. Several life insurance companies and banks that have been inactive over the past year are beginning to come back into the market.

While still underwriting conservative cap rates and trending performance, lenders are becoming more competitive to win quality deals. A typical commercial real estate loan in today’s market is less than a 70% loan to value, greater than a 1.25x debt service coverage ratio and has an interest rate from 6.0% to 7.50% based on term, loan to value, asset type, and location.

August 2009 Treasury Highlights:
August 10-year treasury high: 3.85% on August 9
August 10-year treasury low: 3.39% on August 31

Issues Affecting Commercial Mortgage Rates:
· 10-year treasury declined almost 40 basis points during the month
· $16 billion of new treasury supply released in the last two weeks of August was well received by the market and treasury rates actually moved lower
· Federal Reserve continuing Treasury repurchase program to help stabilize the price as the new issuances continue

August Market Watch: Update on Seattle CRE

Second quarter 2009 market reports show that Seattle’s commercial real estate market is not immune to the struggling economy, but compared to the rest of the country, we are performing quite well. Here’s an update on the apartment, industrial, office and retail property types in the Seattle/Puget Sound region:

Apartment: Seattle's strongest property type has seen an increase in vacancy rates with only a small rent decrease, although many owners have begun to offer leasing concessions. The vacancy rate increased to 6.6% from 4.8% last fall, but strong submarkets like Capitol Hill and U-District remain at well under 5%. The average rental rate in the region was $988, down less than 1% from six months ago. The average rental concession was $733 (on a 12-month lease) with about half of the buildings offering a concession.

Industrial: The strongest performing property type after apartments, overall Seattle area industrial vacancy was 7.0%, with overall average blended rental rates of $0.63 psf/month. The 7.0% vacancy rate represents a 90 basis point increase from the previous quarter. Flex buildings averaged 9.6% vacancy, while warehouse buildings were 6.7% vacant. The $0.63 psf/month rental rate represents a 0.7% increase from the previous quarter. Cap rates have increased about 150 basis points from a year ago. The strongest submarkets included the Southend (Auburn & Kent Valley) and close-in Seattle with vacancy rates under 5%.

Office: Office buildings have seen the most stress in 2009, resulting in an overall vacancy rate of 11.2%, according to CoStar. Class C office space has seen the smallest increase in vacancy rate while class A & B vacancy rates have increased between 150 and 200 basis points. The average rental rate was $27.03 psf/yr, a 3.3% decrease from the first quarter 2009. Cap rates have increased by about 90 basis points, averaging 7.46, although few sales have taken place in the last 12 months.

Retail: Retail vacancy has increased 50 basis points from first quarter to 6.1% and rental rates ended the quarter averaging $20.60 psf/year. Since second quarter 2008, retail vacancy has increased steadily from 4.5% to the current 6.1%. As the economy challenges retailers, we expect to see an increase in vacancy rates through 2010. The average rental rate is down over 4% since 1st quarter and over 9% in the last year. Cap rates have increased almost 150 basis points in the past year. Similar to office properties, transaction volume is significantly lower than the previous four quarters.

*Vacancy and rental rates taken from CoStar and the Dupree & Scott local market reports.

NBS Financial #7 on List of Top Commercial Lenders

NBS Financial Services placed #7 on the Portland Business Journal's list of the Top Commercial Lenders for the Portland metro area, ranked by dollar volume of commercial loans in 2008. NBS Financial's Portland office closed 37 loans worth a total of $242 million during 2008. The company moved up two spots after being ranked #9 on the previous year's list.

Second Quarter 2009 Reports for Portland Metro Area Show Recession's Impact

Second Quarter 2009 quarterly reports for office, industrial, retail and multifamily commercial real estate in Portland, Oregon, as well as the general economy, are up on our Web site.

While central city office vacancy remained stable from the previous quarter at 10.33%, with 47,803 sf absorbed, vacancy in the suburban markets increased nearly two percentage points to 19.06%, with -183,415 sf absorbed. Vancouver office vacancy also rose, to 17.71%.

Industrial vacancy rose to 13.87%, with -515,518 sf absorbed. Industrial sales have slowed considerably, but SEH purchased the Hewlett-Packard campus in Vancouver for $55 million in late June.

Vacancy in the retail market rose to 7.1%, and the negative absorption of 240,321 sf occurred in some larger spaces, such as Joe’s Sports & Outdoors vacating 55,120 sf at Gresham Town Fair. Construction has slowed, but work continues on the Cascade Station Target, expected to deliver this November.

Multifamily vacancy rose slightly to 5.03%, as the poor economy has caused renters to double up or move in with family. Rental rates remained flat, and landlords are increasingly using incentives to attract potential tenants.

The full reports can be found here.

NBS Financial’s Wood Arranges $2.6M for Woodinville Industrial Building

NBS Financial Services Executive Vice President Mike Wood has arranged $2.6 million in financing for Underwood Gartland 216, a 71,750 sf warehouse/distribution building in Woodinville, Washington.

Symetra Life Insurance Company was the lender, and Underwood Gartland 216 LLC the borrower. This loan was a refinance of a maturing loan, and had a 5-year term, 25-year amortization, and a 43% loan-to-value ratio. Underwood Gartland 216 was built in 1999.

In these challenging financial markets, lenders are looking to lend on the strongest and most stabilized projects. So the fact that Underwood Gartland 216 was only 65 percent leased at the time of the loan provided a bit of a challenge, but not an insurmountable one, said Wood, of NBS Financial’s Seattle office.

“The borrower had enough income and cash-flow to qualify for the loan, and the lender recognized the quality of the real estate,” Wood said.

NBS Financial was Symetra’s top correspondent nationwide in 2008.

July 2009 Market Watch

Economic Outlook:
The FOMC met at the end of June and had some interesting insight into the future of the US economy. According to the Department of Commerce, US real GDP will begin to stabilize in the second half of ‘09 after contracting about 6% in each of the two previous quarters. This is an indication that economic growth might begin in 2010. A few reasons for the positive outlook include a slowing of speculative investment in the oil and housing markets, improved credit flows expected to unlock pent-up demand, slowing of businesses liquidation of inventory and other self-correcting actions, and bold changes in global monetary and fiscal policy.

Lending Environment:
In late June, the Mortgage Bankers Association released its First Quarter report showing a dramatic drop in loan origination from ‘08 to ‘09. Overall, originations are down about 70% from First Quarter ‘08. There was a 96% decrease for CMBS originations, 80% for banks, 60% for life insurance companies, and 25% decrease for GSEs (Fannie & Freddie). Even with the large decrease in originations, life insurance companies and GSEs are still very active in today’s market.

Refinancing Challenges:
The first two quarters of ‘09 have also brought some new challenges to light for many borrowers. Many loans that were originated in the past five to ten years are underwater or showing sings of stress due to lower rental rates, increasing vacancies, and higher underwriting capitalization rates. Many borrowers are realizing that they will need to bring equity to the table when refinancing an aggressive loan that was made less than ten years ago. It is prudent now more than ever to think through financing options well in advance of a loan maturity. Many proactive owners are already refinancing debt that expires three to five years out as current interest rates are historically low and there is a general uncertainty about inflation and the future of interest rates.

Commercial RE Loans:
There are commercial real estate lenders active in today’s market. Life insurance companies typically have an allocation each year for commercial real estate loans that they need to make in order to match debt to the different insurance products they sell. Life insurance companies alone originated about $2.62 billion in commercial real estate mortgages in First Quarter ‘09. With the recent spike in treasuries over the past two months, we have seen commercial mortgage rates rise slightly but they are still at all-time lows. It is always best to discuss financing needs early and often, so you aren’t surprised when it's time to obtain financing for an acquisition or to refinance an existing loan.

June 2009 Treasury Highlights:
• June 10 Year Treasury High: 3.95% on June 10th
• June 10 Year Treasury Low: 3.48% on June 29th

Issues Affecting Commercial Mortgage Rates:
• Steepened yield signaling an economic recovery may begin toward the end of 2009 and into 2010
• US Treasury rates remain volatile as the issuance of treasuries by the US government is offset by the treasury repurchase program
• Federal Reserve voted to hold the Fed funds rate target at 0-0.25%

May 2009 Market Watch

The month of May continued a steady increase in the 10-year Treasury yield. Since January 1, we have seen an increase of over 150 basis points, closing the month of May at nearly 3.75%. The 10-year Treasury note climbed over 50 basis points in the month of May alone. We have seen lenders adjust their pricing slightly upward as a result of the increase in Treasury rates, but overall, interest rates are still at or near historic lows. For well located and performing commercial real estate, we have the ability to deliver extremely attractive financing options even in today’s challenging market conditions.

NBS Financial prides itself on our correspondent relationships with Life Insurance Company lenders and a select group of local and national bank relationships as well as our DUS (Fannie, Freddie, & HUD) relationships. We have the ability to finance the entire capital stack, from a 1st mortgage to a mezzanine loan. Our sources of money have both confidence in our market and our people to find the best investments for their money. Call one of our Loan Officers today to discuss your next commercial real estate transaction.

May 2009 Treasury Highlights:
• May 10 - Year Treasury High: 3.72% on May 27
• May 10 - Year Treasury Low: 3.09% on May 14

Issues Affecting Commercial Mortgage Rates:
• $145 Billion of US Treasuries auctioned in the last 2 weeks of May, forcing Treasury yields upward of 50 basis points for the month
• FMOC released meeting minutes stating some signs of stabilizing in the economy but "significant downside risks to the economic outlook"
• A steepened yield curve resulting from LIBOR falling and long-term Treasury rates increasing, many expect this should provide a stimulus to the economy
• Fed continues to purchase Treasuries to try and curb inflation that is expected to affect long-term rates as the economy rebounds

Guenther Arranges $4.755 Million for Bozeman Manufactured Housing Community

NBS Financial Services Finance Officer Erich Guenther has arranged a $4.755 million loan with a low interest rate and attractive terms for King Arthur Estates, a 210-pad manufactured housing community in Bozeman, Montana.

The deal was funded through Fannie Mae. Guenther, of the company’s Seattle office, negotiated a 10-year fixed interest rate at 5.6%, with 65% loan-to-value and 1.50 debt service. The borrower was also able to pull out some equity.

As the credit markets have deteriorated over the past months, Fannie Mae requires extensive pre-review and due diligence for all manufactured housing properties. Guenther was able to negotiate with Fannie Mae on several fronts, to meet and exceed the borrower’s expectations for the loan proceeds and pricing. The proceeds were used to pay off the expiring mortgage on King Arthur Estates, an existing mortgage on another property, as well as financing fees for the transaction.

TALF Update

The Term Asset-Backed Securities Loan Facility, or TALF, began in an effort to jump start the economy by increasing lending on many different types of assets. So far, the $1 trillion fund has been used to lend money to investors who buy consumer debt. Recently, the Fed announced that they will allow the use of TALF funds for the purchase of commercial real estate debt. "This program is critical to restoring the flow of credit to owners of commercial real estate and preventing a damaging chain of events in this market," Treasury Secretary Timothy Giethner recently stated.

Two objectives of the program are to create a market for originated but unsold CMBS and to thaw the market for new CMBS issuance. As many banks and financial institutions begin to sell pools of loans off their books, the TALF program allows banks to originate new debt, confident there will be a market to sell the loans after they originate it. The overlying principal is conservative lending. TALF funds can only be used to buy the AAA, or highest rated tranches of CMBS pools. Many CMBS loans originated in the last 24-48 months were underwritten too aggressively as Standard & Poors expects to cut the ratings of many pools that were securitized between 2005 and 2007, making them ineligible for TALF funds.

With an influx of capital returning to purchase commercial real estate debt, some large banks and financial institutions have begun originating loans that will attract TALF buyers. As time passes and liquidity in the CMBS market increases, look for more and more banks to start originating debt that can be pooled and sold as CMBS, greatly increasing liquidity in the marketplace. Although it will take time, this liquidity in the CMBS market will relieve pressure for many lenders with commercial real estate loans on their balance sheet.

NBS Financial's Portland Office on MBA List

NBS Financial Services' Portland office was ranked second on the Mortgage Bankers Association list of the top commercial real estate/multifamily finance firms in the Portland metro area, based on total origination for the year ending Dec. 31, 2008. The Portland office arranged 37 loans worth $242 million in 2008, with an average loan size of $6.5 million.

Market Watch: May 2009

Lending activity tightens in April; Seattle a bright spot for commercial real estate lending

As spring begins a fresh start for Mother Nature, we see the commercial real estate market continuing to deteriorate. Many lenders are tightening their underwriting standards and continuing the trend to lend conservatively, to proven borrowers, on well located and performing commercial real estate properties. Lenders are underwriting higher cap rates, or the ratio of net operating income to market value, cutting a property’s value and impacting loan amounts. Loan-to-value ratios today are commonly in the 60%-65% range, rather than the 75%-80% range of 24 months ago. Because many lenders have less money to lend than in previous periods, they are becoming more and more selective. Most deals that have any issues regarding vacancy, trending performance, or lease rollover are immediately getting kicked out. We continue to see loans that come due and refinancing is next to impossible due to perceived risks from the lender and an overleveraged existing loan.

The 10 year US Treasury, a benchmark for commercial real estate lending, climbed more than 45 basis points in April. As the government continues to increase the supply of treasuries in the market, we have seen this rate climb almost 90 basis points since the beginning of the year. Various sources report that the "target" for the 10 Year Treasury rate is about 3.0% to keep credit flowing through the economy. The Fed continues to purchase treasuries to keep rates low and combat inflation, but seems to be losing the battle given the recent rise in treasuries.

Though the capital markets have been challenging, we are still signing up and closing loans for well located and moderately leveraged deals all over the Northwest. Our correspondent Life Insurance Company lenders have money to lend and see the Pacific Northwest as one of the strongest markets in the country to invest in. Rates are still near historic lows for the right deal. Now is the time to talk with an NBS Finance Officer to secure financing for your apartment, office, retail, or industrial property.

April 2009 Treasury Highlights:
• April 10 Year Treasury High: 3.12% on April 30th
• April 10 Year Treasury Low: 2.66% on April 1st

1st Quarter ‘09 Local Market Vacancy by Property Type:
• Apartment: King Co. - 6.8%, Pierce Co. - 6.0%, Snohomish Co. - 6.8%
• Industrial: Seattle - 2.28%, So. King Co. - 4.21%, Snohomish Co. - 8.56%
• Retail: Seattle - 3.4%, Eastside - 4.9%, Southend - 6.1%
• Office: Seattle - 11.9%, Eastside - 14.1%

NBS Financial’s Wood Secures $2.725M for Fife Industrial Building

NBS Financial Services Executive Vice President Michael Wood has secured $2.725 million in financing for Fife Landing East – Building B in Fife, Washington.

The 84,740 sf building, in the Kent Valley industrial area in Pierce County, is fully occupied by a single tenant on a short-term lease, which can make it difficult to secure a loan, Wood said. But the overall stability of the industrial market, the quality of the building, and NBS Financial’s correspondent relationship with the lender, Symetra Life Insurance Company, made the loan possible.

“Even in these challenging financial markets, our correspondent life insurance company lenders still have capital available for deals like this, where you have institutional quality real estate, a strong real estate market and experienced sponsors with true equity in the property,” Wood said.

NBS Financial was Symetra’s top correspondent nationwide in 2008, and has a long-term working relationship with the company. Wood provided the original loan for Fife Landing East – Building B when it was built in 2001.

Griggs, Ryan Secure $1.8M for Salem Health & Rehab Center

NBS Financial Services' Ken Griggs and Paddy Ryan have secured $1.8 million in financing for the Evergreen Windsor Health & Rehabilitation Center in Salem, OR. The 20,720 sf senior living facility has 100 beds, is 20,720 sf and provides both short- and long-term care.

Griggs is an Executive Vice President and Ryan is an Associate Finance Officer in NBS Financial's Portland office. View their profiles here.

Hering, Jr. Garners $25M in Funding for Three Apartment Complexes

NBS Financial Services Executive Vice President Blake Hering, Jr. has secured $25 million in financing for three apartment communities in the Portland metropolitan area since the beginning of the year.

Lender State Farm Life Insurance Company provided $10.5 million for the 235-unit Squire’s Court Apartments in Clackamas, $10 million for the 240-unit Riverwood Heights Apartments in Tigard, and $4.5 million for the 124-unit Cedar Square Apartments in Cedar Hills.

State Farm is one of several active sources for NBS Financial Services.

“In a glacially slow-moving commercial debt market, this is a positive sign that some lenders have remained active and competitive for high quality assets with well-positioned ownership,” Hering, Jr. said.

Market Watch: April 2009

During late March, the supply of US Treasuries dramatically increased as $98 billion in five and seven year term notes were issued.

Shortly after the supply increase, the Fed began buying up treasuries in an attempt to control interest rates from skyrocketing. In recent days, approximately $15 billion has already been spent at treasury auctions for 3, 7, and 10 year notes. Showing some positive feedback, treasury rates trended downward toward the end of the month. In this historic low-rate environment, the Fed’s purchase of treasury notes is a key component to keeping inflation under control.

A toxic asset purchase plan was introduced in March to aid financial institutions with getting non-performing assets off their books to stave off future "mark to market" write-downs. According to the plan, the Treasury could spend up to $1 trillion removing these "toxic assets" from the company’s balance sheet. Government money would be coupled with private investment, sharing in the risk/reward as these loans mature. The market found comfort in the Fed’s plan as the Dow finished the month up almost 20% from recent lows.

In addition, there have been conversations regarding the modification of "mark to market" accounting rules. This could counteract the Fed’s asset purchase plan by making it more attractive for bankers to hold onto non-performing loans, however, it may also relieve financial institutions from taking future write-downs on their already heavily discounted portfolios.

Commercial mortgage rates have come in slightly for the month, thanks to sharp treasury declines, as US treasuries are used as a ‘benchmark’ for commercial mortgage pricing. Lenders continue to be conservative but are active in today’s market. We are currently closing 5, 7, & 10-year fixed-rate loans with correspondent life insurance company lenders as well as other sources including Fannie Mae & Freddie Mac.

March 2009 Treasury Highlights:
• March 10 Year Treasury High: 3.02% on March 1st
• March 10 Year Treasury Low: 2.54% on March 18th
• March 10 Year Treasury Month-End: 2.66%

Issues Affecting Commercial Mortgage Rates:
• Steep declines in US Treasury Rates even as Government increases supply
• Swap spreads holding steady after Treasury decline, keeping Interest Rates near all time lows
• Fannie Mae & Freddie Mac extremely competitive on Multi-Family financing with Rates for a 10 Year Fixed Rate Loan well under 6%
• Local banks feeling pressure as Fed’s issue "stress tests" on their real estate portfolios
• Stringent underwriting has Lenders trending rent and expense projections based on the economic outlook insuring against future portfolio defaults

NBS Releases First Quarter Reports for Portland Metropolitan Area

NBS has released First Quarter 2009 market reports. These reports cover the office, industrial, retail and multifamily product types, as well as a general overview of the economy. They can be found on our Web site here.

NBS Financial Secures $3.7M for Edmonds Apartments

Fairway Apartments - Edmonds, Washington

• $3,700,000 loan
• 38-unit apartment community
• Unique loan feature: No prepayment penalty
• 70% loan-to-value - 1.20 debt service coverage ratio
• Financed by Erich Guenther of NBS Financial's Seattle office

February News Recap

Andrew Patterson - Associate Finance Officer, Seattle

Economic News Recap:

After 3.6 million jobs lost since December 2007, Bloomberg reports that unemployment will likely increase to almost 8.5% in 2009, contracting to 7.9% in 2010 as the economy begins to rebound. Orders for durable goods also fell 5.2% in January as sales of new homes reached record lows. As the economic news is grim, there was an issuance of agency CMBS in the last few days of February. This issuance, one of few in recent months, signals government agencies trying to revive the CMBS market which could free up lending capacity for banks as unsold CMBS paper sits on their books. Although it’s only a start, the ability to sell CMBS paper will result in increased liquidity for lenders.

Obama Administration’s Budget Released:

The budget President Obama released in the last few days of February discusses details of the economic policy that is being proposed to congress. The budget outlines plans for $750 billion in additional aid for the financial industry and an overhaul of the health-care system, tax policy and defense spending. With a government spending increase of 32% compared to the 2008 budget, Obama says, “While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity.”

Interest Rate Outlook:

Long term rates are steadily increasing as the volatility in the market continues. Ten year US Treasury rates are up almost 25 basis points in the past two weeks as the government has increased the supply of Treasuries to the market. As the Obama administration releases its budget, a substantially expanding national deficit will inevitably raise long term interest rates. Now is the time to review financing options on your commercial real estate property to position it properly in this challenging economy.

February 2009 Treasury Highlights:
• February 10 Year Treasury High: 3.02% on 2-28-2009
• February 10 Year Treasury Low: 2.65% on 2-17-2009

Issues Affecting Commercial Mortgage Rates:
• 10-Year Treasury increase of 35 basis points in February 2009
• Market turmoil prolongs lender’s hesitation to lend on commercial real estate
• Amid a credit crunch and a slowing economy, interest rates remain at near historic lows
• Life Insurance lenders have money to lend and are active in the market

Rates Still Low and Seattle a Bright Spot for Commercial RE Lending

Andrew Patterson - Associate Finance Officer, Seattle

The 10 Year US Treasury, a benchmark for commercial lending rates, is still at historically low rates even after a 50 basis point increase since late December. During a recent Federal Open Market Committee meeting, leaders voted to keep the federal funds target at "exceptionally low levels for some time," though many analysts fear inflationary pressure will result in long term rates trending up in 2009 and 2010. The expectation of an ever-expanding Treasury supply is also putting upward pressure on long term rates, despite the Fed’s best intentions. If you have a loan coming due in the next 18 months, it might be prudent to look at refinancing early.

According to a recent Marcus & Millichap report, Seattle is the #5 apartment investment market in the country. Despite the local housing market slowing and several major local companies announcing layoffs, the "Seattle apartment market will continue to attract investors." The report also predicted an "above-average rent growth forecast" of 2.7%. Renter demand is expected to increase due in part to multi-million square foot office leasing commitments in the Bellevue and South Lake Union submarkets from technology companies like Amazon and Microsoft.

Our Life Companies are actively quoting and closing commercial real estate loans in the Seattle area. Many of these lenders are focused on making loans in the first half of 2009 because of growing concern in the credit markets and the overall economy. At NBS Financial Services, we are continuing to close commercial real estate loans all over the greater Puget Sound area.

January 2009 Treasury Highlights:
• 10 Year Treasury 45 Day Low: 2.05% on 12-30-2008
• January 10 Year Treasury High: 2.85% on 1-31-2008
• January 10 Year Treasury Low: 2.20% on 1-14-2008

Issues Affecting Commercial Mortgage Rates:
• Life Companies have money and are active in the market
• Market flooded with US Treasuries causing benchmark rate to increase
• Cap Rates trending upward, in the Seattle area by 50 to 100 basis points
• Fannie Mae & Freddie Mac tightening underwriting criteria, raising rates on short term lending
• Future Treasury volatility predicted as we move through the financial crisis

Looking Ahead to 2009 . . .

Andrew Patterson - Associate Finance Officer, Seattle

2008 was a challenging year for the commercial real estate market, but NBS Financial Services overcame market conditions to secure more than $300 million in commercial real estate loans. NBS originated 75% of its loans with life insurance companies, with the remaining 25% coming from other sources.

Life companies still have money to lend and will be the dominant lenders in 2009. Commercial real estate is a solid investment for these companies that need to match debt with insurance policies, and each year they have new allocations for CRE investments. After years of doing business and developing relationships with so many of these companies, NBS Financial has access to billions of dollars of capital in 2009.

Some economic factors bode well for commercial lending in 2009. Treasury rates, a benchmark for commercial real estate loan pricing, are at historic lows, making the first and second quarters of 2009 attractive for commercial real estate financing. For qualified properties, 10-year fixed rate loans are currently about 6.0%, the lowest these rates have been in years.

2008 Treasury Highlights:
• 10 Year Treasury High (year): 4.27% on 6.16.2008
• 10 Year Treasury Low (year): 2.06% on 12.30.2008

Issues Affecting Commercial Mortgage Rates:
• 10 Year Treasury at historic lows
• Life Companies still have money and are active in the market
• Lenders trending towards lower loan to value and higher debt service coverage ratios as they under-write more conseratively
• Cap Rates trending upward
• Life Companies will be the dominant lending source for commercial real estate in 2009