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%