Current Multifamily Trends

By | Commercial Real Estate, Multifamily housing, Property Management

The multifamily market is as strong as ever driven in part by this article’s current multifamily trends. While disruption is occurring in many industries, multifamily properties are seeing the benefits of it. New technologies are only helping property owners and tenants alike occupy and enjoy a place to call home. Here are seven trends that should be considered with both existing as well as new properties being designed.

Walkable and urban setting.

Most new construction activity is in or near urban centers. Renting is the only affordable way to be close to an urban center in many cities. They want everything within 20 minutes. Many properties provide access to locations that are not otherwise available; such as employment, shopping, cultural centers, entertainment, sporting events, etc. Another aspect of walkability is proximity to public transportation. The result is a greater sense of community that a couple large demographic segments are seeking.

Largest tenant segments: millennials and empty nesters.

Today’s demographics have these two large segments; millennials, and empty nesters, on the demand side of the multifamily market. So it is important to address their needs, concerns, and desires in a property. Both are looking for smaller space. These two segments are where you will find Generation Y enjoying the company of their parents as well as their friend’s parents. Combine these two segments and you have what is called a multi-generational apartment.

Tenants seeking affordable luxury: smaller units with more elaborate unit amenities.

One of the unique aspects of this current market is the desire for small luxury space that is affordable. So, to get that, developers are creating “micro” units that are 250-350 square feet and rent them for $900 a month. It works for millennials because they don’t spend a lot of time at home. It works for empty nesters to a degree because they are downsizing. The key is the location according to the new Urban Land Institute report ‘The Macro View of Micro Units.” Amenities in the units might include, high-end flooring, tall ceilings, in-home washer and dryer, marble bathrooms, stainless steel appliances in micro kitchens, private balcony or terrace, and spacious walk-in closets.

Tenants are looking for more.

While traditional cable and satellite utilities are on the decline, it’s hard not to continue offering them. However, a fast internet access is vital and becoming a larger source of highly selective media, entertainment, and sports. Another desire is to have greater control over HVAC and lighting controls by using technology to allow better control for both tenants and property owners. Having green features speaks to tenants who value energy conservation which is also an added benefit, but it’s a subject of a future report.

Package delivery management.

With greater use of the internet to purchase most anything, it becomes more important to deal with all the incoming packages ordered by tenants. Some tenants may just have their stuff delivered at work or another location. But being able to safely have packages delivered at the property provides tenants with peace of mind. So offering package lockers with emails that are sent out when parcels are delivered is a value add in many locations. Millennials, in particular, value this amenity when searching for a property. See my article on this here.

Get ready for this list of amenities.

Most amenities involve some sort of common area, and most of these also involve some sort of social aspect or have a common area for working. Multifamily tenants today are looking for common space that can act as an ad hoc living space with both indoor and outdoor living. Many amenities involve a service. Millennials and surprisingly enough empty nesters both are devoted to pets and their mobile devices. So technology is another aspect of this. These are some of the amenities being found in new properties: car-sharing service, bike storage and repair, child-care service, concierge service, cooking classes, dry cleaning/laundry service, Free WiFi, pet grooming, personal shopper, rock-climbing wall, rooftop terrace, spa/massage center, tech/business center, extra storage space, and yoga/aerobics/wellness classes. Notice all the “service” amenities?

Short-term leases.

When thinking about these current multifamily trends, it is hard not to think of Airbnb! There might be some high-profit margin units with a strategy like this. The key will be a location to local attractions to draw these short-term tenants in. A large consideration for these tenants is that the unit needs to be furnished. One of the drawbacks to this is the sense of community, mentioned above, would be lost. In thinking about these short-term leases, it might be good to keep the number of these units to a minimum or you will upset the longer staying resident tenants. Finally, there has been some discussion of allowing tenants to sub-lease out their longer-term lease in this fashion, but this is a legal topic worthy of its own report.

Hopefully, you can find ways to capitalize on these current multifamily trends and add value your property and greater satisfaction for your tenants. Let us know if you are seeing other trends that are happening in your area.

Appraisals, The Lesser Of Appraised Value or Purchase Price

By | Commercial mortgages, Commercial Real Estate

Regarding appraisals, what does the “lessor of appraised value or purchase price” mean? The regulatory guidance refers to this a little differently as “lessor of the actual acquisition cost or the estimate of value.” This article will help you understand what lenders are talking about and why they see this as an important distinction. Banks are required by FDIC Part 365 Real Estate Lending Standards and the Federal Interagency Appraisal and Evaluation Guidelines to evaluate any real estate collateral following certain standards of evaluation. So, what are banks looking for in appraisal estimations verses purchase price? More importantly, why it can be a deal killer? What can you do about it when the lender doesn’t see enough value in your commercial property?

Lenders and regulators have the same goal really in this lending concept. They are looking to reduce their credit risk in case of a loan default. If they lend more than the property is worth, they could suffer a larger loss when they foreclose and liquidate the property. So, they take the more conservative approach and use the lower value of the purchase price or appraised value.

Here’s an example to illustrate.

Let’s say you’ve placed a warehouse property under contract for $2,000,000 and the bank’s appraiser values it at $2,250,000, the bank can consider a loan amount of up to 60% of the $2,000,000 purchase price (because it’s the lesser value), or $1,200,000. The $1,200,000 equals only 53.5% of the appraised value. But since the Bank takes the lesser value of purchase price or appraised value, it uses the purchase price to calculate the maximum loan amount. By using the lesser value, the Bank is funding $150,000 less on the property. Why is this? Because if they had used appraised value you would be able to borrow $1,350,000 (60% of $2,250,000) instead of $1,200,000. This can be frustrating if the economics of the deal are sound, the economy is growing, commercial property values are increasing and you are confident that the market supports the appraised value. But the deal is still doable.

But what if the appraised value came in below the purchase price? Let’s say the appraisal valuation was $1,750,000. Ouch, that would mean the bank’s maximum loan amount would be only 1,050,000 (60% of $1,750.000). Or $150,000 less than if they had used the purchase price. So if you still want to buy the property the bank will be asking you to come up with an additional $150,000 at closing because they only lend 60% based on the lower of purchase price or appraised value. This can be frustrating because it will require more cash to close. The additional cash will reduce the cash on cash return as well. If the economics of the deal are sound, the economy is growing, commercial property values are increasing and you are confident that the market supports the appraised value that is a real disappointment. But, if you have the additional cash, the deal is still doable.

How to increase the appraisal’s estimate

There are a couple ways you can help the lender resolve a low appraisal estimate. The lender would really like to approve your loan. So work with them. Review the appraisal and look closely at the comparable properties (“comps”). Make sure the comps are fair and closely match your property. Look at the discount rate the appraiser used in calculating the discounted cash flows on your property. Review the comparable rents, locations, how old the buildings are. Point out any weaknesses in the appraisal report that lowers your commercial property’s value. You know your property better than anyone and know the strengths and weaknesses. Help the appraiser and lender understand your property better to help calculate a higher estimate of the property’s value.

So what if the deal isn’t doable with this lender? You paid for the appraisal and they are expensive! So, ask for it– its your right and take it to another lender. Lenders can accept appraisals ordered by another financial institution. So don’t let it stop you. The main requirement is that the appraisal was ordered in good faith by a lender, has the lender’s name on it– not your’s as the borrower.

Remember, when you are applying for a loan with a regulated financial institution, know that they will use the lower value. If you run into this problem, if you and lender cannot resolve the valuation with the appraisal, give us a call us. We have lenders who will lend based on the the higher of appraised value or purchase price.

We Don’t Walk Alone

By | People

On Saturday, September 10, I participated in a cycling race for 203 miles, from Logan, UT to Jackson Hole, WY. But it’s not just any 203 miles. The route goes over three mountain passes for a total elevation gain of over 8,000 feet of climbing. People come from all over the country to compete in it. This was my fifth year and was a milestone for a couple reasons. By finishing five times in the event, I’ve now qualified for the 1,000 mile club award.

The real story behind this year’s race for me is the test of character that happens. Yes, there is the training all year long to prepare; the thousands of miles of bike riding, Trizon Racing team training rides, strength training, proper diet, watching my weight, etc. Forget all of that! Forget the race strategy; forget that I showed up to the event right at my start time (7:03 am) and as my group was rolling across the start line (the race officials were kind to allow me to start with my group—I was only milliseconds behind, really.) Forget that it was a chilly 38 degrees in Logan when we started. And forget that I was the race leader for about 10 minutes climbing up the first mountain pass—that was a surprise. Yeah, forget all of that!

This year is a milestone for me because it also marks (next month) five years since my first wife passed away from colon cancer. Five years ago she was very ill, at home and on hospice support. It was my first year to race from Logan to Jackson aka LOTOJA, and I had made a goal to keep doing it—at least to earn the 1,000 mile award.

This year training was going well. I had a close friend and neighbor, Matt, who was planning to race in the same group as me. We were training throughout the summer and he was as strong as ever. But then in July, he was diagnosed with, yes, colon cancer. He is one of the nicest guys you will meet. And he was also one of the healthiest I know. Everyone who knows him has been just shocked!

So another friend, Javier, that we both know, said he would take Matt’s spot in LOTOJA. Javier had this last minute cool idea to get a tee shirt printed that said, “I ride for Matt.” And a quote, “We are not placed on this earth to walk alone.” By Thomas S Monson. Javier wore that shirt over his cycling jersey in support for our friend. Javier’s family was also wearing the tee shirt as they supported Javier throughout the day.

Javier and his family made a sacrifice to race this year. He had planned a family vacation but instead decided to race in LOTOJA for Matt. This year, he was taking a sabbatical from LOTOJA and hadn’t trained as hard as he would have.

Rolling out of Logan…
As we rode out of Logan, Javier said, “read my shirt.” I had no idea he had that shirt—since it was a last minute thing. That brought on some emotions. We decided we were going to stick together and ride all 203 miles— together. It was going to be a fun day.

With that, Javier and I were both feeling strong. We were riding with the leaders in our group. While we ended up being dropped by some faster riders in our group we still had a fast pace and were not far behind. We came into the first feed zone in Montpelier, ID. We had just gone over the first mountain pass (called Strawberry pass at 7,424 ft) and covered 80 miles in just under 4 hours.

Javier is a strong rider, this was his 14th year racing LOTOJA. If you aren’t familiar with road cycling, there are categories for the competitive sport. The categories start with “Cat” 5 for more recreational riders, then you have competitive cyclists and finally “Cat” 1 riders for professionals. Javier is a Cat 3. I am a Cat 5.

We left Montpelier, feeling good, Javier had brought some extra food, so he asked me to pace him as we started toward the next mountain pass (Geneva pass at 6,923 ft.). We were doing great; we were passing others and working with some other riders as well.

When you are cycling you are always pushing the air in front of you. So there is some “wind” resistance. Drafting becomes a huge benefit because it can save 30-40% of effort. By working together with others you can have a faster pace. Riding over 200 miles, drafting is one of the keys to saving energy and maintaining endurance.

Two more mountain passes to go…
As we were half way up Geneva pass we watched the Cat 1,2,3 women’s team just fly by us which was about mile 95 at this point. We have some training friends who were in that group. They left Logan just after us at 7:09. So it tells you we were really moving along at a quick pace.

As we climbed over Geneva, Javier was about 40 yards ahead of me, so he slowed down as we crested the top so we could regroup and take the descent together. Descents are fast paced at 40+ mph on a tire patch the size of nickel. At this point we were still feeling good, two of the three mountain passes behind us! Only one more to go—Salt Creek at 7,630 feet, the course’s highest point.

We were moving along pretty good as we rode along the Salt Creek River that flows below Salt Creek pass. Along the river we were riding shoulder to shoulder, talking and enjoying the company and enjoying a much welcomed tail wind. Salt Creek pass isn’t that long, but it makes up for it in elevation and grade. This pass has an 11 mile grade of 7% plus. At this point, it was almost 1pm, about six hours since we started. The road faces west. So the noon sun was just beating down on us. We were cranking our way up this thing with our eyes focused on the top. The event organizers have a well-placed neutral feed zone there.

With about two miles to the top Javier mentioned he had developed some indigestion— that started out of Montpelier. It can happen on long events like this. Some call LOTOJA an eating contest. Cyclists burn over 5,000 calories over the 200 miles. With some short breaths, I told Javier, “let’s not kill it… we are still making great time… as long as we are going fast enough that my bike computer doesn’t pause, we are good!” Trying to use humor to ease the pain of the climb. A few minutes later we rolled up on top together. Third pass down!

All downhill from here…
Whew! The hard, slow grinding part is over! We descended off Salt Creek with several other fast cyclists. On this descent riders can reach speeds of over 50 mph. The course drops into Star Valley Wyoming. Our next feed zone is about 10 miles away in Afton, Wyoming. And we were still making good time when we arrived in Afton. We were on pace at this point to finish with a very respectable time of 10 hours and 15 minutes.

We spend less than 2 minutes in these feed zones—Montpelier, Afton and Alpine. Our families meet us at these stops to check in with us; they’re our support crew. We stop to exchange water bottles, nutrition items and tell our support thanks for being there, that we love them, and then we’re off again. Only 34 miles to the town of Alpine, Wyoming. Less than an hour and half of riding away.

A few miles after Afton, Javier asks me, “is my rear tire going flat?” I looked down and I couldn’t see that it was that low. Road bike tires are thin and it can be hard to see that there has been a drop in tire pressure, especially when moving. So I said, “yeah, maybe a little.” But we kept going; we had a fast group that we were working with. We also had a head wind that wasn’t helping us, so working with a group helped us draft. We continued this for a while. But I noticed Javier was starting to struggle a bit.

We stopped about 10 miles south of Alpine, Wyoming when we found an official race support vehicle helping another rider with a flat tire. We borrowed their pump. When Javier put the pump on the tire, the tire gauge read, 30 psi. We race with 110-120 psi. He had been riding at a 23-26 mph pace on 30 psi in his rear tire for the last 25 miles! Unfortunately, he was spent!

The real suffering begins…
After we discovered just how bad Javier’s rear tire was, he was already starting to suffer and we both knew it. He started talking to me about our good pace and riding on. He was saying, “keep going, you’ll put in a good time,” “don’t worry about me,” and “don’t let me hold you back.” I softly reminded him, we had decided that we were finishing together. We had decided in Logan to ride the course together. And that is what I intended to do. I reminded him of the quote he had put on the shirt for Matt, “We are not placed on this earth to walk alone.” I said, “Javier, today my friend, we are going to live your shirt! I am sticking with you. I will work with you and you can draft behind me to the finish.”

Alpine is the last support feed zone where riders get support from their support crew. It is about 50 miles from the finish line. And sits on the edge of the Snake River that flows out of Jackson, Wyoming. We made our final stop. Checked Javier’s tire and rolled on out of Alpine. We were on pace to still put in a great time of 10 hours 30 minutes. We had lost only 15 minutes off our pace.

The last 50 miles of the course is the most beautiful by far! Just east of Alpine you enter a canyon that the Snake River carved out of the mountain range that is basically south and a part of the Grand Teton range. On the bike you can look over the edge of the road down to the Snake River. You can see people running the river and guys in fishing boats. The water is clear and you can see the bottom in the shallow spots.

The whistle…
We had only gone a few miles beyond Alpine when Javier gave me his whistle which meant slow the pace a bit. Remember, we had agreed to work together. He stopped! He said, “I almost fainted back there. I am feeling a little light headed and weak.” Both his family and mine had just passed us in their vehicles, ringing the cow bells. We were in the canyon and no cell phone signal. We had two other friends roll on by us. They asked if we were ok. We nodded yes and waved them on.

I said, “Javier, it’s an honor to ride with you. Just take some time, catch your breath and we’ll go when you’re ready.” He was talking about having to heave. I said “It might be good to get that out of your system. Do whatever works, cause I am riding with you.” He was more worried about the after taste if he did heave. I was grateful to have him take Matt’s spot and to have a friend to ride with, but I also wanted to help Javier. I’ve been in his condition before and know what it is like when you’re racing and you can’t perform like your friends because you’re having an off day. Sometimes, you do get dropped. It happens. Cycling is a competitive sport.

Putting in a great time is fun. It’s a challenge to see just how fast you can complete the LOTOJA course. But, today it was different. It was more about the endurance of character building than about physical endurance. It wasn’t about the competitive times. I had already done that. My best time was 10 hours and 4 minutes (10:04) Not too shabby, and a good time; fast but not real fast. I’m not getting younger. So it wasn’t like I was going to be any faster than that, not today anyway. The Cat 1 and other top competitors complete it in around 9 hours. The course record is around 8:45. But, today, the race wasn’t a race of physical or mental endurance, it was a race of friendship! Support for a friend, neighbor and the selfless acts of kindness to stand by one another and help them. It was the deeper meaning of what human relationships are about. It was about returning acts of kindness done to me.

Javier said, “dude, don’t wait for me, go on, you can still get in a good time around 10:30.” I told him, “nope we are going to live your shirt today! We are not placed on this earth to walk alone.” He took a minute or two, caught is breath and then climbed back on his bike and we were rolling again watching the river and a few other riders passing us.

Gummy bears and coke…
LOTOJA has one final neutral feed zone on the east side of the Snake River canyon. It is just outside a little town called Hoback Junction. Hoback is a place where two main roads in this region of Wyoming come together and feed into the town of Jackson. One is the road we were on, the other comes up from I-80 at Rock Springs.

At the Hoback neutral, we pulled in as Javier was hoping to sit in one of those “soft” camp chairs. I on the other hand, was looking for one of those outhouses to take a nature break. Sure enough, I found Javier sitting in a camp chair. I went right to work! I found some gummy bears that he was craving and a coke. We shared both. I took a picture of him, then sent it and a text to notify his family and let them know that we were ok, but we would to be slower than what we had planned on being. We only had 27 miles to go!!!

By the time I sent the text, Javier was on his bike, saying, “let’s go!” I grabbed my bike and we were off. We rode over the new Hoback Junction bridge that spans the Snake River and through the new round-about in the center of town. It has to be the most desolate round-about in the country! The next little bit of road has no shoulder at all! Riders have no choice but to obstruct traffic. Javier managed through that and we continued on.

We caught up to and drafted behind two couples on tandom bikes all the way to South Park Road at the south end of Jackson. The course turns left there on to South Park and takes us off the main highway. This is an inspiring part of the course because all of sudden you look up and see the Grand Tetons. We had what for me was a comfortable pace at 17 mph; Javier was just trying to survive to the finish. We picked up too older guys who were also struggling. They welcomed our draft as we continued north into a headwind. I mentioned to them, read Javier’s shirt. They were grateful we were pulling them along.

Tire check…
Javier asked me to check his tire again. I looked but it appeared fine. I asked him if he wanted to stop and check it. I told him let’s find a good place where we can pull off the road. I had a Co2 cartridge that we had discussed that we should have used earlier south of Alpine. Now, I wasn’t going to hesitate to use it!

We came upon some grass that lined the street with some townhomes set back off the street. Javier said, “Let’s stop here!” Some women were sitting in chairs cheering on cyclists. We stopped several yards past them. Javier got off his bike and laid down on the grass. The women stood up, alarmed. “Is he ok? Can we do anything? Do you need anything?” I smiled and told them thanks and that we were ok and that I was just checking his tire. It was pretty much full, but I put in some air just in case.

We only had less than 10 miles to go at this point—after completing 193 miles!! Javier was so tired and spent! He said, “Mike, I have never felt this bad, I have never suffered on a bike like this.” Javier had bonked hard. Bonking, is a term cyclists and runner use when they do not have any energy to go on. It’s hard to explain the feeling, really. But you know what it means when it happens to you. I guess it would be like when your car runs out of gas, and it is still rolling, but the motor is off. Sort of like that. At our pace, I call it, “bonk speed.”

We had the Grand Tetons in full view, the sun had gone behind the Teton Range to the west of us and we were in the shade. We rode on the new bike/pedestrian bridge over the Snake River and saw a large white crane out on one of islands in the river fishing for food. The water was a darker blue with some white cap ripples. It was a gorgeous view to the north of the Jackson Hole valley.

We reconnected with the main road that leads to the Teton Village and Jackson Hole ski resort. The finish line was only 7 miles away. I gradually stepped up the pace to about 19.5 mph. I kept looking back to make sure I didn’t drop Javier. He was glued to my rear wheel. He was giving it all he had. We passed several people who were riding at a slower pace. We could see the finish line in view and event signs on the road side indicating 5 kilometers, then 4, then 3. We looked down and compared times on our bike computers. I had mine set to display the rolling time, which was about 10:45. Javier’s reported 11:30 because his was total time—the total time is the time that really matters for the event. It had been 11 hours 30 minutes since the time we left Logan. He said, “Mike, you don’t know how much this means to me to have your help today. You could have finished with a respectable time at 10:30.” I said, “yeah, but it meant way more to finish with you and live the quote on your shirt—“we were not placed on this earth to walk alone.” It was an honor show support for our friend Matt and his family and we were relieved to have completed another year racing LOTOJA.

A big thank you goes to the Trizon Racing team and its sponsors for their support. You can read more about LOTOJA here

Real Estate Investment Trusts Get Their Own Sector

By | Commercial Real Estate, Financial Markets

On September 1, 2016 the public real estate investment trusts (REIT) were given their own sector in the S&P sectors. Now there are 11 sectors. Previously REITs were combined with the financial services sector. It is anticipated that this will increase the attention that REITs receive. If you are looking for a way to compare your commercial property against a basket of other properties, this might be an option for you.

The Wall Street Journal reported, “The Global Industry Classification Standard, since its inception in 1999, has grouped companies into 10 industries, such as energy or health care, allowing investors to see and compare broad trends. Real estate will form group No. 11. The new classification from MSCI Inc. and S&P Dow Jones Indices LLC, which manage the indexes, is a recognition of the growth of the listed real-estate sector. With a market capitalization of $1.48 trillion, it now accounts for 3.5% of the global equities market, up from a 1.1% share in 2009, according to the European Public Real Estate Association, or EPRA. The new classification means “there is going to be more money looking at the sector,” said Matthew Norris, executive director for a real-estate fund at London-based property firm Grosvenor Group. “This is going to bring real estate into focus.”

For those of us in commercial real estate, we already know the yields are better than many bonds. The separation should generally help investors more clearly see the opportunity available to them in REITs. The additional investor attention should lead to increased capital being invested in these funds which should bode well for commercial properties, generally. Read the full article here (WSJ).

You can also check out the new index and get additional information on the new REIT index at the S&P Dow Jones site here.

Banks Get Increased Commercial Real Estate Oversight

By | Lenders, Regulation

U.S. Bank Regulator Toughens Commercial Real Estate Oversight

Credit risks have increased in U.S. commercial real estate as lenders more aggressively compete in a low-rate environment, according to the Office of the Comptroller of the Currency’s semiannual risk report. The report indicates that the Federal Reserve has held down interest rates for more than seven years to help the economy recover from the 2008 financial crisis, which is putting a damper on bank profits and increasing competition among lenders. However, that competitive pressure is increasing risk. Comptroller of the Currency Thomas Curry said, “It’s at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk.” The regulator also flagged risks in commercial and industrial loans and indicated that it is monitoring financial technology and marketplace lending.

via (Rueters)

Mortgage Rates for 30-Year U.S. Loans Drop to Lowest Since 2013

By | Uncategorized

Freddie Mac reported on April 14 that the average 30-year fixed-rate mortgage dropped to 3.58 percent during the week from 3.59 percent the prior week, marking the lowest level since May 2013. The average 15-year fixed-mortgage fell from 2.88 percent to 2.86 percent over the same period. “The persistent weakness in the global economy has been a boon to mortgage shoppers,” says Greg McBride, chief financial analyst at “It brought rates lower in a year we widely expected them to go higher.” The 30-year rate has been below 4 percent since the start of the year, and experts do not expect mortgage rates to spike anytime soon, as the Federal Reserve announced last month that it would hold interest rates unchanged as it waited to see whether slower growth abroad put a damper on the U.S. economy.

From “Mortgage Rates for 30-Year U.S. Loans Drop to Lowest Since 2013”
Bloomberg (04/14/16) Gopal, Prashant

Fed Sends Signal That April Rate Hike Is Unlikely

By | Uncategorized

According to the minutes of the March policy meeting, Federal Reserve officials signaled an interest-rate increase in April is unlikely. Officials expected headwinds to subside slowly but noted “that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.” Some officials, however, disagreed, stating that they might want to raise rates as soon as April “if the incoming economic data remained consistent with their expectations for moderate growth in output, further strengthening of the labor market, and inflation rising to 2 percent over the medium term.” The next meeting is scheduled for April 26-27.

From “Fed Sends Signal That April Rate Hike Is Unlikely”
Wall Street Journal (04/07/16) P. A1 Hilsenrath, Jon

Large Banks and Small Banks Are Allies, Not Enemies

By | Uncategorized

JPMorgan Chase Chairman and CEO Jamie Dimon says that in the current economic climate, it is tempting to pit large banks against small banks, but the relationship between financial institutions is more complex. “A healthy banking system depends on institutions of all sizes to drive innovation, build and support the financial infrastructure, and provide the essential services that allow the U.S. economy to thrive,” he says. “In this system, regional and smaller community banks play an indispensable role. They sit close to the communities they serve … are able to forge deep and long-standing relationships and bring a keen knowledge of the local economy and culture. They frequently are able to provide high-touch and specialized banking services.” However, he stresses that regional and community banks depend on large banks for their service offerings, as Chase and other large banks provide vital correspondent banking services to smaller institutions, purchase the mortgages originated by smaller banks, and provide critical investment services to community banks. “The financial-services industry, in short, is a story of interdependence among banks of all sizes,” says Dimon.

From “Large Banks and Small Banks Are Allies, Not Enemies”
Wall Street Journal (04/05/16) Dimon, Jamie

New Risk of Weakness In The Commercial Property Market

By | Uncategorized

Wall Street Journal reports there is commercial property market weaknesses in the certain markets. Markets mainly tied to the energy industry.

“New signs of weakness are surfacing in the commercial-property market, ending a half-decade run of improvement with steadily climbing values. Amid global shifts like the sluggish Chinese economy and a new era of low oil prices, defaults on loans are popping up in areas that were considered overheated, occurring in small numbers for now, but stoking fears that more could be on the way.

This comes as there is a growing view that the best days are in the past for this property cycle, which benefited strongly from low interest rates and demand by global investors from regions like China and oil-dependent economies in the Middle East.

“We’re at the top of the market,” said Kenneth Riggs, president of Situs RERC, a real-estate research firm that advises investors on property values and market direction. “There’s going to be a market correction.”

If there is a downturn, few expect it to be severe because the economy is still creating a healthy level of jobs and lending has been far less aggressive than in past booms like 2007, when highly leveraged developers defaulted as the market slowed. Developers back then were routinely able to secure debt for more than 90% of the value of a building, compared with less than 80% today.”

Read the full article in the Wall Street Journal (here)

Manage Cash Flow to Improve Your Business Credit Score

By | Commercial mortgages, Financial Markets, Lenders

By better managing cash flow in your business you can utilize both your capital and credit in a more efficient way– which will improve or maintain a strong business credit score. Cash flow becomes very important if you have a line of credit that you are drawing on. If you have a line of credit, it is to your advantage to show that you have the ability and capacity to repay the line on a consistent basis. Ideally, the balance should be paid down to zero for each billing cycle. If it is a commercial mortgage loan, whatever you do, don’t make a late payment and plan ahead for the balloon payment by seeking a replacement loan well in advance to give enough time to correct any weaknesses.

Here are some ways to improve cash flow and therefore improve your business credit score.

  • Know what your credit terms and conditions are and live by them. Do all you can to prevent violating those loan covenants.
  • Review your credit terms to ensure you are receiving competitive terms. Look at the whole relationship. Shop around find out what others are paying to give you leverage to negotiate better terms and fees.
  • Improve incoming cash by giving your customers incentives to pay you early.
  • Don’t out spend your growth by trying to grow too fast.
  • Control your costs associated with advertising, sales and administration.

At the end of the day, the more cash you report on your financial statements the better!