Commercial Lending Increases

The Mortgage Bankers Association (MBA) issued commercial loan numbers for last year in it’s recent “2013 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation.”According to MBA, commercial and multifamily mortgage bankers closed $358.5 billion in loans. Commercial banks and savings institutions were the leading investor groups with $100.5 billion. CMBS (commercial mortgage-backed securities) had the second highest volume, $79.8 billion, followed by life insurance companies and pension funds; Fannie Mae; REITS, mortgage REITS and investment funds; and Freddie Mac.

“For the past several years, investors have been waiting for lenders to make moves and be more active,” said Jayme Nabors! co-founder of NBI Properties. “Last year was finally the turning point when we started seeing more banks excited about commercial lending.”

According to the MBA report, multifamily properties had the highest origination volume at $136.9 billion, followed by office buildings, retail properties, hotel/motel, industrial and health care. First liens accounted for 97 percent of the total dollar volume closed. Driven in part by increased coverage, the report’s dollar volume for commercial and multifamily mortgages closed in 2013 was 47 percent higher than the volume reported in 2012. Among repeat participants, the dollar volume of closed loans rose by 22 percent.

Nabors added that he expects commercial lending on the Emerald Coast to remain on the upswing due to rising property values and low interest rates.

Consumer Demand, Infrastructure Drive CRE

A recent survey of public and private-sector leaders conducted by the Urban Land Institute and EY Global Real Estate concluded that the the quality of infrastructure systems – including transportation, utilities and telecommunications – is a key factor influencing real estate investment and development decisions in cities around the world. Consumer demand was also cited as a top concern.
Conducted in January 2014, the survey tallies the opinions of 241 public sector officials and 202 senior-level real estate executives (developers, investors, brokers, lenders and advisors) based in large and mid-sized cities across the globe.
The survey found that 88 percent rated infrastructure quality as the number one influencer of real estate investment and development. Public leaders rated infrastructure quality as the highest influencer (91 percent) while private leaders ranked it second highest (86 percent).
Demographic forces, including consumer demand and workforce skills, ranked as another top consideration determining real estate investment locations. Consumer demand was listed as the top factor by the private sector (90 percent).
Strong telecommunications systems (including high-speed internet) led the list of infrastructure categories that drive real estate investment, along with good roads, bridges, and reliable and affordable energy. Public transit led the list of infrastructure investment priorities. Seventy-eight percent of survey respondents’ said public transit systems, including bus and rail, should receive top priority for infrastructure improvements, followed by roads and bridges (71 percent) and pedestrian facilities (63 percent).
Jayme Nabors, co-founder of NBI Properties in Fort Walton Beach, Florida, said that infrastructure is the first thing investors ask about when they are interested in commercial properties on the Emerald Coast.
“Of course they know we have excellent roads and highways here since we don’t have snow or sleet to deal with half of the year,” he said. “That’s a huge plus, but we also rank high in other categories such as telecommunications and utilities.”
The public’s willingness to pay for infrastructure was ranked as the top factor shaping both infrastructure and real estate development over the next 10 years, followed by consumer demand for compact, walkable development, and the prevalence of families with children. The cost and availability of energy and the use of innovative pricing systems to fund, manage and operate infrastructure ranked slightly lower.
Nabors said that investors he works with at NBI Properties are also impressed with the area’s quality of life, schools, and recreational facilities.
“One of the first things investors from out of town comment on is the fact that we have so many beautiful public places, parks, and common areas,” he said. “Investors or business owners who are thinking about relocating are usually impressed that this is such a great place to live and work.”

Five Things to Consider Before Investing

Research the Property

This is an important first step for new or experienced real estate investors. Although you’ll be dealing with brokers, attorneys, and other professionals for any commercial real estate transaction, it’s good to do your own due diligence for peace of mind and to avoid any surprises that could crop up later in the deal. Do web searches about the property you are interested in, talk to others who own businesses in the area, and visit the property at different times of day and during the evening to get a better sense of the area. Although having a broker you can trust is a huge plus, you’ll feel better about the transaction if you thoroughly research the property beforehand.

Don’t Buy From a Picture

After researching a property, don’t even think about buying it until you’ve seen it — in person! We’re still amazed by investors who see a few images of a property on the Internet and then say they are ready to buy it. Our advice is just common sense. Don’t buy properties sight unseen! Whether you live across the country from the property or reside in the same town, make time to go see it and do a walk through with the broker. Not seeing a property before buying it is risky business.

Hire A Professional to Inspect the Property

We’ve worked with some investors who think they can skip this step because they have been buying properties for years and can easily spot repairs that need to be made and estimate the costs. An professional inspection will usually only run you a few hundred dollars and can pay for itself if faulty plumbing, wiring, or other problems are uncovered. No matter how new a property may be or how great everything looks, don’t take chances by doing your own inspections. What you could miss could end up costing you thousands of dollars to rectify later on.

Avoid “Great Deals”

If you’re an experienced investor, you know the type of brokers we are talking about. Instead of offering sound advice and attractive properties for fair values, they like to steer you to the “great deals or steals” that can make you rich overnight. Of course they don’t want you to pay too much attention to the fact that some of these great, discounted properties have been on the market for months or longer. They’ll tell you it’s just because no one else has been smart enough to see the full potential of the property. If you’re still willing to listen to these kinds of brokers who operate more like used car salesmen, then we’re willing to bet they also have some nice waterfront property in Arizona to show you! Bottom line, if someone is trying to pressure you into a deal that seems too good to be true, start running like Forrest Gump because this is a deal you probably don’t need!

Always Have Extra Cash For a Rainy Day

One of the things that new investors learn quickly (and sometimes the hard way!) is the need to always have enough cash reserves. Things can and will happen, and properties will need plenty of upkeep, repairs and maintenance. Properties require maintenance and repairs. Failure to have enough cash reserves to properly maintain the property will almost always result in the investor losing money when the property deteriorates and loses value over time.

Florida Leads Nation in Recovery

Although Florida was one of the first states to feel the sting of a national recession with job losses starting in 2007, economist Sean Snaith said the state now leads the nation in recovery. In his First Quarter Florida Economic Forecast, Snaith noted that the national recovery began in June 2009, but Florida was slow to join in and lagged behind the pace of the rest of the nation for several years. Today, that’s all changed as the state is definitely a front-runner as well as a magnet for economic growth.
“This has been no small accomplishment,” said Snaith. “Looking forward, Florida will extend its lead over the national economy the next several years as we expect the Florida economy to continue to outpace the nation as a whole.”
NBI Properties co-founder Jayme Nabors said the Emerald Coast has been showing strong signs of economic growth in the past three years.
“Around here, we’ve seen that construction is up and lots of new jobs are being created,” he said. “Eveything was at a standstill during the recession, but things are really clicking now and more places are hiring.”
According to Gov. Rick Scott, the state has created more than 500,000 new private sector jobs since December 2010. “That’s half a million jobs in just over three years,” Scott says.
The sectors expected to have the strongest average growth during 2014-2017, he says, are construction (10 percent); professional and business services (4.3 percent); trade, transportation and utilities (4 percent); education and health services (2.3 percent); and leisure and hospitality (1.8 percent).
Snaith also notes housing starts that jumped in 2013. In 2014, total starts will be more than 108,000, he projects. That will rise to just under 144,000 in 2015, hit 161,600 in 2016, and go up to 165,500 in 2017. He says the growth in residential activity will catalyze growth in the commercial sector and push employment growth in the construction sector into double digits.
Nabors added that his brokerage, NBI Properties, is getting more interest from investors in commercial real estate listings as well as residential communities.
“We’re hearing that housing starts will average 32.5 percent growth during 2014-2017, with the most rapid growth in 2014 and 2015,” he said. “That’s going to be a huge boost for this area.”

Know the Facts About Short Sales

Realtors routinely get calls from home buyers who are misinformed about short sales. Often the buyers believe a short sale means a property will be a good deal and is being sold by a distressed seller, particularly in areas where prices have already begun to rise quite substantially. Some buyers also mistakenly think the sale will happen quickly, when the reality is that short sales can take a long time to complete.

“A short sale simply means that a home is being sold for less than the amount of the outstanding mortgage,” said Craig Barrett, co-owner of NBI Properties in Fort Walton Beach, Florida. “It doesn’t mean the transaction will happen any faster, as the sellers’ bank has to approve the sale before the closing and confirm that the seller can no longer afford to pay for the property.”

Before a short sale can be approved, banks will evaluate the seller’s finances as well as the buyers. This process isn’t quick, and can actually take far longer than buying from a motivated seller. The mountain of paperwork and signatures required to complete a short sale can often mean paperwork becomes lost and the process is delayed. Often banks will not allocate the same level of resources to short sales as they would for other bank procedures that are considered to be more profitable, and as a result the entire process can be cumbersome and time-consuming.

“The worse case scenario is when a short sale involves two different loans,” said Barrett. “This can mean a major loan is being settled as a short sale while the second loan may be smaller, such as a line of credit, and can be completely wiped out. If these loans are from two different banks, then the process can get even more complicated, as each bank will have its own system and is unlikely to communicate with the other bank.”

Sellers interested in a short sale should look for an agent who has experience with this process so they will be more able to push the sale through. Buyers interested in short sale homes should find out if an agent is experienced with short sales and can advise if the purchase will be a long drawn out process.

How Avoiding National Brokerages Can Benefit You

Finding a knowledgeable, trustworthy real estate broker is not without its pitfalls. While there are many reliable, competent brokers, there are also others you should avoid in order to prevent the temptation for professionals to manipulate the deal. The most prominent is dual agency. Dual agency refers to when one real estate office represents both the seller and the buyer in the same deal.
Even when two different agents are involved, having the same agency represent both the buyer and seller is not a good thing. It creates the strong possibility of in-house collusion to close the deal so that both agents and the broker collect their maximum commissions. A broker might also encourage closing the deal or collusion because he or she is in the position of doubling the commission.
“It’s about the same as a couple having the same divorce lawyer,” said Jayme Nabors, co-owner of NBI Properties in Fort Walton Beach, Florida. “It’s just not a good idea.”
The dual agency issue transcends individual offices. If the buyer and seller are independently represented by separate agents in different offices of the same national real estate chain, the issue of collusion remains real. Although the buyer is usually more at risk of being manipulated, the seller may also be talked into selling at too low of price. In most states, if the buyer is not paying the commission, it falls to the seller. The selling agent has a fiduciary responsibility to the seller. Although legally, the buyer’s agent has a fiduciary responsibility to the buyer, their higher fiduciary priority is to their own bank account and obtaining the highest selling price. All too often, the temptation to misinform the buyer can become too great.
If you’re not convinced this could be a problem, consider the fact that in almost every other profession dual agency is illegal. Would you hire your adversary’s attorney to represent you in a legal case? Common law assumes that dual agency involves fraud. However, real estate brokers have lobbied long and hard to keep dual agency a viable option in real estate.
Nabors added that another source of confusion is that some people do not know the difference between real estate agents and real estate brokers.
“I’ve talked to a lot of people who believe real estate brokers and agents are the same things,” he said. “But brokers are, in fact, a lot more experienced and require a lot more training. Brokers were actually established to protect consumers from less ethical and less trained agents. We have some of the most experienced, reputable brokers on the Emerald Coast, and we prove to our clients that we have their best interests at heart and will get better service than they can get with national brokerages.”

Maximizing Real Estate Tax Deductions

The tax deadline of April 15 is just around the corner, and even though deductions for homeowners remain largely unchanged since last year, it’s worth checking to make sure you have all your deductions in order. It’s also good to keep in mind that if Congress doesn’t take action, some of your real estate deductions will expire for the 2014 tax year. Since many people prefer to do their own taxes or use popular software programs, it’s worth reviewing these tips to make sure you’re getting credit for all of your deductions.
As usual, mortgage interest deduction is the top tax deduction for homeowners. This applies to primary home values up to $1 million. Congress has been considering limits to this deduction for high-income earners, but no laws have been passed yet. The latest proposals are that households with incomes above $400,000 may see a limit placed on them in the future.
If you’ve embarked on any remodeling projects, it’s important to know that home improvement loans have a limited deduction. If you take out a loan secured by the equity of your home, you can deduct the interest paid in many cases. However, routine maintenance such as replacing carpets or painting are not qualified interest deductions.
Something else you don’t want to overlook is mortgage point deduction. These are also known as origination fees, generated when you first buy a home or when you decide to refinance. The fee is charged by mortgage underwriters to originate the loan. For example, a one percent origination fee on a $100,000 house would be $1,000. For an original loan, the entire fee can usually be written off for the tax year the purchase was made. For refinance loans, the fee can be written off in proportion to the amount paid during the tax year.
If you decided to “go green” and use eco-friendly materials in your home, you may be entitled to deduct energy efficiency tax credits. Improved insulation, energy efficient windows, furnaces, hot water heaters, and solar panels can add up to a nice tax credit. This is not a reduction in your taxable income. Instead, it’s a full credit that lowers your tax bill by the full amount of the credit. Generally, an energy efficient tax credit is 10 percent of the total cost with a cap of $500. There are also caps for specific items such as a $150 cap for a furnace.
Private mortgage insurance is often overlooked by homeowners that might not be aware they are paying for it. Home buyers who have less than a 20 percent down payment for a home are typically required to purchase private mortgage insurance that can cost a couple of hundred dollars each month. This cost of homeownership is deductable if the loan originated after January 1, 2007. However, just like other real estate deductions, there are limits. For households with an income between $100,000 and $109,000, the deduction is phased out at 10 percent for every $1,000 in income above $100,000 and not available above $109,000. Something else to consider with private mortgage insurance is that you can stop paying it when your equity reaches 20 percent of the home value. This is accomplished by making monthly payments and/or when the market value of the home increases above the 20 percent threshold.
Did you sell a home in 2013? If you sold a primary residence in 2013, you are exempt from paying capital gains on the first $250,000 of profit. For a couple, the limit is $500,000. If your profit from a sale exceeds $250,000 for an individual or $500,000 for a couple, there may still be deductions to reduce your tax bill. You can deduct several costs associated with the sale, such all fees paid at closing and capital improvements you made while you owned the home. Other possible deductions include damage repairs and marketing costs to sell the home.
Did you work at home in 2013? If so, you may be entitled to claim a home office deduction. You can write off the expenses associated with a home business office that you use exclusively for business. Starting in 2013, there is a simplified procedure that allows you to deduct $5 per square foot and up to 300 square feet.
Finally, if you were delinquent on taxes, check to see if you qualify for debt forgiveness. Until 2007, the IRS considered any debt that was forgiven to be income that taxes were due on. The Mortgage Debt Forgiveness Relief Act of 2007 canceled this debt tax for the short sale of a primary residence up to $1 million for individuals and $2 million for couples. This may also apply in the case of a foreclosure when the mortgage company does not recover the full loan amount and does not require the ex-homeowner to repay the balance owed.

Survey Shows Optimism for Spring Sales

More real estate professionals are feeling optimistic about the coming spring season and that sales will get quite lively. The MRIS Spring Real Estate Outlook Survey collected the responses from more than 1,300 real estate professionals within Northern Virginia, Baltimore, Washington DC, and parts of Pennsylvania and West Virginia.

According to the survey, more than 71% were more optimistic about the coming spring season compared to 2013, and are predicting that sales transactions will increase this year compared to last year. Some 82% of those surveyed think average sales prices will also increase this spring. Experts point out that the housing market in the mid-Atlantic region began to stabilize last year, and this year they expect to see increased inventory and stabilizing house prices. The survey also looked at the challenges faced by home buyers and sellers, including inventory levels and new mortgage rules.

Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, FL, said that sales are expected to pick up even more when the northern states thaw out.

“We’re into the best time of the year with a lot of tourists coming to the area for spring break and vacations with families,” he said. “That always spurs a lot of interest in second homes, vacation homes and people who want to relocate here and enjoy the Emerald Coast lifestyle.”

Buyers Seek Energy-Efficient Mortgages

According to a recent survey by U.S. News & World Report, more of today’s buyers and homeowners are interested in the benefits of obtaining a “green” mortgage. The survey found that buyers are finding energy-efficient mortgages attractive because they allow homeowners to roll the cost of “green” home improvements – such as solar panels, geothermal heating, tank-less water heaters and more energy-efficient heaters or air-conditioning systems – into their mortgage financing.

Fannie Mae, the Federal Housing Administration (FHA) and the Veterans Administration (VA) offer loan programs that include energy-efficient mortgages. The loans come with a few restrictions, however. On FHA loans, the cost of improvements usually can’t exceed 5 percent of the property’s value and is capped at $8,000 while with VA loans, veterans can usually add up to $6,000 in energy-efficiency improvements. On conventional loans, funding for energy improvements is often capped at 10 percent of the appraised value of the completed property.

Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida, said his realtors have been fielding more questions lately from buyers interested in green mortgages.

“Right now we’re getting more questions and interest in energy-efficient mortgages because it’s tax-season and buyers are looking for deductions,” he said. “They want to know how much they can lower their taxes by making certain improvements or buying a home that qualifies as energy-efficient.”

Lending experts warn borrowers to be make sure they’re comfortable with the higher monthly mortgage payments spurred by a bigger loan. But over the long-term, the decrease in a home’s energy costs may make up the difference. In fact, many lenders won’t even process an energy-efficient mortgage unless it will result in a net cost savings. Often the savings can be significant because the average homeowner spends about $2,200 annually on energy bills, according to the Department of Energy’s Energy Star Program. The Environmental Protection Agency says that adding insulation and improving the sealing of a home has the potential to curb total energy costs by 10 percent.

According to Energy Star, programmable thermostats can save homeowners $180 annually; replacing single-pane windows can offer a $500 annual savings; solar water heaters offer a $140 savings; and energy-efficient HVAC systems can offer $200 or more in savings.

CRE Outlook Positive

According to the National Association of Realtors® (NAR) quarterly commercial real estate forecast, market fundamentals in commercial real estate are continuing to improve — but at a slower pace. However, NAR chief economist Lawrence Yun said fundamentals are still experiencing an uptrend.
“Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy,” said Yun. “Companies appear hesitant to add new space. Office demand is expected to see only slow and gradual improvement. Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space.”
National vacancy rates in the coming year are forecast to decline 0.2 percentage point in the office market, which has the highest level of empty space, 0.1 point in industrial, and 0.3 point for retail real estate. With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.
“Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners,” Yun added.
Jayme Nabors, co-founder of NBI Properties in Fort Walton Beach, said the demand for condominiums on the Emerald Coast remains strong and that commercial real estate transactions have only been hampered slightly by weather conditions.
“Florida has been the only state that has not had snow this year, so we’ve always got that going in our favor,” he remarked. “We’re also optimistic that there will be renewed interest from investors if the bill to eliminate commercial real estate taxes passes.”
NAR’s latest Commercial Real Estate Outlook offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS Inc., a source of commercial real estate performance information.
Office markets:
Vacancy rates in the office sector should decline from an expected 15.8 percent in the first quarter of 2014 to 15.6 percent in the first quarter of 2015.Office rents are projected to increase 2.3 percent in 2014 and 3.2 percent next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 44.6 million square feet this year and 50.0 million in 2015.
Industrial markets:
Industrial vacancy rates are anticipated to fall from 9.0 percent in the first quarter to 8.9 percent in the first quarter of 2015. Annual industrial rents should rise 2.4 percent this year and 2.6 percent in 2015. Net absorption of industrial space nationally is seen at 106.1 million square feet in 2014 and 110.6 million next year.
Retail markets:
Retail vacancy rates are expected to decline from 10.2 percent in the first quarter of this year to 9.9 percent in the first quarter of 2015.Average retail rents are forecast to rise 2.0 percent in 2014 and 2.3 percent next year.