First Quarter 2010 Office Market Report: Central City Vacancy Stable, While Suburban Rises a Percentage Point

Central City office vacancy remained stable this quarter at 11.99% (see vacancy comparison chart at right), with 54,312 sf absorbed. Some significant sales and leases occurred, especially in the Central Business District. The General Services Administration (GSA) signed four leases totaling more than 250,000 sf at First & Main, which delivered this quarter, and Alpha Broadcasting leased more than 25,000 sf at Pacwest Center. In one of the largest sales in recent months, KBS REIT II purchased One Main Place for $57 million, or about $180 per sf. American Pacific International Capital Inc. also purchased the office portion of the KOIN Center, reportedly for between $53 million and $60 million. Vacancy in Northwest fell more than a percentage point to 15.69%, as two tenants leased space at Machine Works, including the GSA in 19,431 sf.

Suburban office vacancy rose about a percentage point to 21.93%, with negative 142,240 sf absorbed. The Barbur Boulevard, Beaverton-Hillsdale/Sylvan and North/Northeast submarkets all saw vacancy rise at least two percentage points. Though vacancy in the Kruse Way submarket stayed relatively stable, this area saw some movement, including M & T Bank relocating from Kruse Woods I to about 20,000 sf in 4949 Meadows. A few submarkets had positive absorption, such as I-5 South, where vacancy decreased slightly and Pinnacle Mortgage Bankers leased 16,000 sf at Durham Office Center. Though a number of suburban buildings are totally empty, one will soon be fully occupied. The Oregon Institute of Technology is planning to purchase the 131,000 sf former headquarters of InFocus in Wilsonville, and consolidate its four Portland-area locations there. InFocus moved out of the building last fall to a smaller office in Tigard.

Vancouver vacancy fell nearly half a percentage point to 18.10%, with 42,644 sf absorbed. Vacancy in Class C space fell five percentage points to 14.57%, as 29,000 sf was leased up at the Former Red Lion Headquarters. Class A and B space also saw some significant absorption; Doug Williams and Associates and Richard James and Associates both signed leases at the Thurston 500 Building, totaling 12,583 sf.

April 2010 Market Watch: Maturing Commercial Mortgages

Some recent press has focused on the challenges of maturing commercial real estate mortgages in today’s market. About $1.5 trillion in commercial and multifamily mortgages held by lenders is currently outstanding. With deterioration in underwriting fundamentals, many loans will be difficult to refinance as they mature.

Based on a recent Mortgage Banker’s Association survey, $183.9 billion of the $1.45 trillion of outstanding commercial and multifamily mortgages will mature in 2010. GSEs (Fannie, Freddie, FHA, Ginnie Mae) will see 2% of their outstanding mortgages mature, life insurance companies will see 7% of their outstanding balance come due this year and CMBS will see 12% of their balances mature. It is important for owners and investors to know how their lender will look at loans as they mature.

Since GSEs operate as both portfolio lenders and security issuers, they have considerable discretion in dealing with maturing loans in their portfolio. For loans they have securitized, GSEs are restricted in what they can do and in some cases have to buy back a loan in order to work through maturity-related issues.

Because CMBS mortgages are held in a trust, servicers have limits on how they can deal with maturities. Servicers have some ability in extending or modifying fixed-rate mortgages, and less flexibility for floating-rate mortgages. A servicer’s job is to maximize net recovery on a present value basis. When loans are flagged as troubled, a master servicer will be assigned who generally has more flexibility in providing forbearance, extension or modification.

As portfolio lenders, life insurance companies have considerable flexibility in how they deal with maturing mortgages. Financial institutions and life insurance companies have to take reserve against loans that require extensions or loans that are classified as non-performing.

NBS Celebrates 78th Anniversary Today

Today marks Norris, Beggs & Simpson's 78th anniversary. Here's a brief look at NBS' history.

NBS was founded in 1932 in Portland, Oregon, by A.D. Norris and George Beggs, and later joined by David B. Simpson. The company had a small office in the Wilcox Building, which still stands today at the corner of SW 6th Avenue and Washington Street in downtown Portland.

With the country mired in depression, few areas of the economy were left unscathed. Though the real estate industry suffered, Norris, Beggs & Simpson quickly became profitable by specializing in property management and acquiring many prominent families of the Pacific Northwest as clients.

New England Mutual Life Insurance Company of Boston played a key role in the early growth of Norris, Beggs & Simpson, by enlisting the company to manage a series of foreclosed properties in Portland and appointing the company as its mortgage loan correspondent in the area. Commercial and industrial brokerage services were also added to expand the company’s reach, and an emphasis was placed on involvement with major financial institutions.

NBS expanded into a full-service commercial real estate operation, and opened its Vancouver office in 1985 and Bellevue (now Seattle) office in 1988.

NBS Financial, one of four companies under the Norris, Beggs & Simpson Companies umbrella, joined Strategic Alliance Mortgage (SAM), a 20-member firm of privately held mortgage banking and commercial real estate investment companies located strategically throughout the United States, in 1997.

In 2009, the company arranged $175 million in financing for transactions ranging in size from $650,000 to $23,840,000, and our servicing portfolio is $1.7 billion strong.

NBS Financial's Wood Secures $3.75M for Park at Auburn Apartments

NBS Financial Services Executive Vice President Mike Wood has secured $3.75 million in refinancing for the Park at Auburn Apartments, an 83-unit apartment complex in Auburn, Washington, that was built in 1981.

The funds are from Fannie Mae through NBS Financial’s correspondent relationship with Walker & Dunlop, one of the largest non-bank commercial real estate lenders in the country. This relationship allows NBS Financial access to Fannie Mae and Freddie Mac financing, which is the most competitive financing for multifamily properties in the market today, according to Wood.

Wood said that the refinance allowed the borrower to pay off two existing loans on the property that had above market interest rates, lock in a ten-year term at an interest rate below 6 percent, and pull out significant excess proceeds, which will allow the borrower to purchase other multifamily properties.

NBS Financial's Harding Arranges $4.05M for Beaverton Apartment Complex

NBS Financial Services Vice President Todd B. Harding has arranged $4.05 million in acquisition financing through Fannie Mae for the Hallwood Apartments in Beaverton.

The 76-unit Hallwood Apartments were built in 1986, and are garden-style, two-story wood-frame apartments. The financing provided more than 75 percent of acquisition costs for the local borrower on a non-recourse basis. NBS Financial has arranged two other Fannie Mae transactions for this borrower in the past two years.

NBS Financial has arranged financing for a number of apartment complexes in the last two months, and Harding attributes this to multifamily being the preferred product type in the market. Fannie Mae and Freddie Mac provide the best loan amounts and interest rates for multifamily properties, he said. The Hallwood Apartments loan, for instance, accounted for nearly 80 percent of acquisition costs, while life companies generally provide closer to 60 or 70 percent of acquisition.

NBS Financial President Hering Receives CAR Award

Clayton Hering, President of NBS Financial Services, was named Co-Humanitarian of the Year by the Commercial Association of Realtors (CAR) Oregon/SW Washington at its awards dinner last night at the Governor Hotel in Portland. Dietra Stivahtis of Fidelity National Title Company was the other honoree.

Hering is active in a number of charitable organizations, including the Oregon Symphony. He is currently the Board of Directors Vice Chair and has been involved with the Oregon Symphony for more than twenty years. He's also active in groups like Business for Culture and the Arts and Young Audiences of Oregon/SW Washington.

CAR offers education, provides government advocacy and creates opportunities for commercial real estate professionals to connect and grow their business.