Chicago, Illinois, December 1, 2009 – Substantially discounted senior loan levels combined with eroding property values force legacy funding sources into difficult decisions in managing technical defaults, monetary defaults and loan maturities. The stage is clearly set for workouts and recapitalizations well into next year, while new lenders are seeking high-yield opportunities with fresh capital for workouts/restructures, partner buy-outs, loan purchases and property acquisitions.
Multifamily and senior housing properties continue attracting low-priced/high-leverage funds via the Triple F’s (FNMA, Freddie and FHA). Otherwise, commercial properties attract capital with mixed results.
For instance, partially leased, Class-B office ventures are considered only if located in Class-A locations. Discounted-cash-flow underwriting for such fundings include trended economic vacancy is trended towards historical norms, often below actual figures as investors brace for more economic storms.
In today’s tight credit market, important metrics for any financing ventures include:
• Quality Sponsorship: Sponsor analysis is tantamount. Lender must have complete information about a borrower’s portfolio performance and maturity schedule. Full understanding required of assets, liquidity, liabilities including all contingent liabilities. All information must be up-to-date, especially valuations and economic performance.
• Reset Valuations: Commercial real estate prices have dramatically declined by more than 30% from a year ago and well over 40% as compared to peak levels of 2007. The most shocking is the steep plunge in prices for multifamily assets, historically considered the most immune sector in the industry. Furthermore, even the most resilient markets in the country (e.g., Northern California) report fundamental weakness in demand.
• Changing Credits: Although numerous credit tenants are contracting, newly forming tenants emerge including governmental agencies, academic institutions, specialty retailers, etc.
• Additional Leverage: Mezzanine loans and preferred equity selectively offered for building up the capital stack. Consideration of additional collateral and partnership interests for leverage enhancement.
In summary, overall market sentiment focuses on avoiding liquefying legacy projects unless absolutely mandatory.
Mark Hayton, an Advisory Board Member of the Real Estate Capital Institute notes, Credit-tenant commercial properties remain financeable, although strict underwriting standards are necessary
The Real Estate Capital Institute® is a volunteer-based research organization that tracks realty rates data for debt and equity yields. The Institute posts daily and historical benchmark rates including treasuries, bank prime and LIBOR. Furthermore, call the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825) for hourly rate updates.
Omaha, Neb., Union Pacific Railroad opened its Donner Pass route to domestic double-stack intermodal container freight traffic Nov. 19, marking the completion of a 12-month project designed to move customer products over a shorter, faster and more efficient route.
The Donner Tunnel project is a great example of how Union Pacific capital investments continue to support our customers’ ability to grow, drive increased operating efficiencies for our railroad and improve America’s transportation infrastructure said Jim Young, Union Pacific chairman and chief executive officer. Union Pacific has invested nearly $17 billion in our rail network since 2004 and remains committed to running the railroad as efficiently as possible while providing customers with the highest levels of service
The construction project included:
* More than 18,000 lineal feet of notching to improve tunnel clearances in 15 restricted tunnels between the California cities of Rocklin and Truckee;
* Upgrading 30 miles of system signals to centralized traffic control standards, thus eliminating dark territory and allowing signal technology to control train movement instead of radio communications between dispatchers and locomotive engineers;
* Removing track, lowering the floor and reinstalling track in two tunnels, and
* Installing rock bolts for added stability in five tunnels.
This project will benefit our customers by improving our intermodal transit times compared to the current Feather River Canyon route said John Kaiser, Union Pacific vice president and general manager – Intermodal. Completing this project will help us better serve our customers while supporting economic growth in Northern California and at the Port of Oakland
Union Pacific’s Donner Pass route is as much as 73 miles shorter and up to three hours faster than the Feather River Canyon route, depending upon the destination.
Our Feather River Canyon route will continue to play a strategic role in how we serve our customers Kaiser said. The combined benefits of the Donner Pass improvements and our existing Feather River Canyon route will provide additional flexibility to our network as we strive to improve upon Union Pacific’s record levels of customer satisfaction
In addition to utilizing the Donner Pass route for double-stack container rail traffic, the completed construction project provides Union Pacific the ability to operate up to 9,000-foot trains, a 58 percent increase over the 5,700-foot trains that run through Feather River Canyon.
A single Union Pacific intermodal train takes up to 300 over-the-road trucks off America’s congested highways, reducing highway congestion and repair costs, particularly over the busy I-80 highway system. In addition, rails are at least four times more fuel-efficient than trucks, resulting in fewer greenhouse gas emissions.