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.