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