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Banks Edge Back Into Investment Property Lending

This article is taken from CoStar News:

Banks Edge Back Into Investment Property Lending
Focus Is Still on Multifamily, and on Core Markets and Borrowers
By Mark Heschmeyer
March 6, 2013

After tentatively testing the water in 2011, banks increased their overall lending for commercial real estate in 2012 with total CRE loan balances outstanding at year-end up 3% year-over-year. Investment property loans outstanding showed the biggest gain, ending 2012 up 11% from 2011. And multifamily loans outstanding were up 7% year-over-year.

Banks also continued to shrink their loan exposure in areas that caused the biggest problems during the Great Recession. Construction and development loans outstanding ended down 16% year-over-year.

Still, a great deal of disparity exists between which banks are lending again and which borrowers and markets are benefiting.

“Larger institutions have historically been significantly under-allocated to CRE relative to the banking universe,” said Matthew Seminerio, a financial analyst for CoStar Group’s Property and Portfolio Research (PPR). “The largest banks (those with more than $50 billion in assets) are down 0.4% year-over-year, while banks with $10 billion to $50 billion in assets are up 7%. Smaller institutions are down even more. Banks with $1 billion to $10 billion were down 0.3%, and those with less than $1 billion, down 4.5%.”

“However, the larger banks are better positioned from a balance sheet perspective, and thus have also been able to take more writedowns,” Seminerio said. “For example, if you remove the impact of construction loans, the more than $50 billion change is actually up 3.6%, vs. 9.6%, 1.6%, and -3.1% for the other three categories, respectively.”

Here is how CRE lending for the six largest banks fared in 2012.

Bank — % Change in CRE Lending YoY (excluding construction & development)

PNC Bank — 15.02%

JPMorgan Chase Bank — 13.36%

Bank of America — 9.32%

U.S. Bank — 2.44%

Branch Banking and Trust Co. — 1.56%

Wells Fargo Bank — 1.45%

Pittsburgh-based PNC’s 2012 numbers include its acquisition of more than 400 branches across six Southeastern states from RBC Bank (USA) last year. This was PNC’s seventh acquisition in the past eight years.

For banks in the $10 billion to $50 billion asset range, here is how the six fared that had the largest amount of CRE loans on their books at year-end.

Bank — % Change in CRE Lending YoY (excluding construction & development)

People’s United Bank — 769.15%

Signature Bank — 39.81%

New York Community Bank — 6.14%

Synovus Bank — 2.87%

First-Citizens Bank & Trust Co. – (-0.47%)

Zions First National Bank – (-3.93%)

The New York City metropolitan area proved a huge stomping ground for many of biggest CRE lenders.

For People’s United Bank in Bridgeport, CT, mortgage warehouse lending, asset-based lending, New York commercial real estate and equipment finance, all contributed to total loan growth of $1.4 billion during 2012, the bank said. The bank also posted a $935 million increase in total deposits in 2012 and expanded it branch acquisition activity in both the Boston and New York City MSAs.

Signature Bank posted record loan growth in 2012, including commercial and industrial, commercial real estate including multi-family and specialty finance. At year-end 2011, loans comprised 46.7% of its balance sheet and that grew to 56% at the end of 2012.

“This past year we again demonstrated our consistency, discipline and reputation as the bank of choice for New York privately owned businesses,” said Scott A. Shay, chairman of Signature Bank.

CoStar also looked at the six largest bank lenders that concentrate primarily in CRE lending. More than 90% of these banks’ loans outstanding were for commercial real estate.

Bank — % Change in CRE Lending YoY (excluding construction & development)

The Dime Svgs. Bank of Williamsburgh — 31.08%

Oritani Bank — 26.98%

Parkway Bank and Trust Co. – (-3.80%)

The National Republic Bank of Chicago – (-8.01%)

Intervest National Bank – (-8.12%)

United Central Bank – (-18.00%)

Vincent F. Palagiano, chairman and CEO of Brooklyn, NY-based Dime, said his bank’s results reflect elevated loan refinance activity. The bank also typically ranks among the top five multifamily lenders in its delineated lending market (primarily Manhattan, Brooklyn and Queens counties), and Palagiano said his expectation is that it will continue to be among the leaders again with last year’s results.

The bank also expects to record gains on property sales during both the December 2012 and March 2013 quarters. Real estate values in New York City have climbed steadily over the past 15 years, and the bank owns certain New York City properties with market values greatly exceeding their recorded book values, Dime reported.

Wash, NJ-based Oritani Bank’s primary focus is organic growth of multifamily and commercial real estate loans. However, the bank said it does not expect originations to continue at its 2012 pace in fiscal 2013.

Not all sizes of borrowers fared as well under the improving CRE lending conditions. Loans outstanding to small businesses secured by nonresidential real estate ended down 4% year-over-year. Banks had 61,650 fewer small business loans on their books at the end of 2012 than at the end of 2011. That amounted to $ 13.2 billion less in outstanding small business loan balances.

Overall, however, owner-occupied loans outstanding to large and small businesses ended up 3% year-over-year.

CRE asset quality indicators continued to improve for banks in the second quarter. As of the end of 2012, 4.2% of the banks’ total commercial real estate loans were delinquent. This was down from 6.2% at the end of 2011.

In addition, non 1- to 4-family restructured loans and leases ended down 19% year-over-year.

The amount of total delinquent CRE loans and foreclosed properties continues to fall significantly. The total amount dropped 29% year-over-year and now stands at less than $85 billion.

Banks disposed of $5.94 billion in foreclosed properties in 2012 with the largest percentage drop off coming from multifamily properties (down 31%). Banks still held more than $22 billion in foreclosed CRE assets on their books, with more than $12 billion of that being construction and development properties.

It’s All Relative

This week, the Mortgage Bankers Association released an analysis of FDIC data and found that commercial and multifamily mortgages fared better through the credit crunch and recession than any other major type of loan held by banks and thrifts.

The MBA analysis showed that commercial and multifamily mortgages had delinquency rates lower than the average delinquency rate for banks’ overall books of loans and leases and that the charge-off rates for commercial and multifamily mortgages were lower than for any other major loan type held by commercial banks and thrifts during that period.

“Commercial and multifamily mortgages were a net positive for banks and thrifts through the credit crunch and recession,” said MBA vice president of commercial real estate research Jamie Woodwell. “The amount of credit extended by banks stayed relatively constant during the recession; the delinquency rates for commercial and multifamily mortgages remained relatively subdued; and banks and thrifts saw far less in charge-offs for their commercial and multifamily mortgages than they did for other loan types.”

Among the MBA’s other findings:

Over the course of the recession, the credit crunch and headlines about the lack of capital available for commercial real estate, the actual amount of commercial and multifamily mortgage debt extended and held by banks remained remarkably steady. The balance of commercial mortgages fell just 3% between the peak (2009) and trough (2011) before rising again in 2012.

By contrast, the balance of construction loans fell by 62% between 2007 and 2012; the balance of commercial and industrial loans fell by 21% between 2008 and 2010 before rising again in 2011 and 2012; and the balance of single-family loans fell by 14% between 2007 and 2012.

Across various loans and leases held by banks and thrifts, commercial and multifamily mortgages finished 2012 with 30+ day delinquency rates lower than the average for all loans and leases held by these institutions. At the end of the fourth quarter, commercial mortgages had a 30+ day delinquency rate of 3.55%, down from 4.67% at the end of 2011. Multifamily mortgages recorded a rate of 2.19%, down from 3.22% at the end of 2011.

Throughout the credit crunch and recession and into 2012, commercial and multifamily mortgages had the lowest charge-off rates of any type of loan held by commercial banks and thrifts. In 2012, banks and thrifts charged off 0.55% of their balance of commercial mortgages and 0.32% of their multifamily mortgages, compared to charge-off rates of 0.84% and 0.74% respectively in 2011.

In aggregate dollars, the charge-offs of commercial and multifamily mortgages by banks and thrifts also remained far below those of other loan types during the recession. From 2007 through 2012, banks and thrifts charged off (net) $212 billion of single-family mortgages, $205 billion of credit card loans, $95 billion of commercial and industrial loans, $85 billion of construction loans and $72 billion of other loans to individuals. By contrast, over the same period they have had to charge-off only $41 billion in commercial mortgages and $8.5 billion in multifamily mortgages.

Proposed Legislation to Reduce Sales Tax on Leases

The State of Florida Department of Revenue collects sales tax on commercial leases. If someone leases an office in Alachua County to run their business, they are required to pay an additional 6% to the Landlord, who then passes it along to the Florida Department of Revenue. If an individual owns property in their personal name and leases it to their business (LLC, Corporation etc), they are STILL required to pay this tax. On $1,000/month, it’s an extra $60. On $4,000 it’s an extra $240. This payment is made every month!

I sit on the Florida Realtors Commercial Council, and just received notice that there are two bills, one in the Florida House and one in the Florida Senate, that if passed would reduce this over time. The bills propose to reduce the sales tax each year by 1%. In 2014 it would be 5%, and by 2018 it would be 1%.

The 2013 Legislative Session begins on March 5 and it is hoped that these bills will be addressed during this session.

When a company is looking to expand to another state, Florida is at an immediate disadvantage if the other states being considered don’t charge sales tax on leases. The reason that the proposed legislation doesn’t immediately eliminate the tax is that the legislators have to find ways to offset the loss of revenue through cuts or other funding sources.

I strongly encourage you to contact your local elected representatives to advocate for the reduction of sales tax collected on commercial leases. I believe that these taxes are an unnecessary burden on businesses, economic growth, job creation, and ultimately Florida’s citizens.

Panama Canal and Shipping

Taken from National Real Estate Investor:

Panama Canal Expansion Brings Promise of Instant Shipping Closer

Jan 22, 2013 12:45 PM, By Robert Carr, Contributing Writer

Amazon has spoiled the country with fast shipping, and the expectation of instant purchase gratification—brought by efficient distribution methods, better rail logistics and massive cargo ships that will dock daily at deep, modern ports—grows more pervasive every day.
As U.S. ports prepare to handle more and more massive ships, including through the Panama Canal expansion, the attention and spending on infrastructure may one day allow the holy grail of shipping to be reached: A person orders an item off the Internet in the morning, and it’s shipped to their house by the evening.
Logistic experts believe the nation will see one-day shipping as the norm, as well as increased efficiency through the country’s distribution system, in the near future thanks to what is being called Panamax—the term for the new size limits for ships traveling through the Panama Canal. The one-day shipping wave is expected to get a large boost when the $5.2 billion Panama Canal expansion is complete in two years.
The pressing U.S. concern, at least on the East Coast, was in getting the ports ready to handle these large ships, which can carry up to 12,000 20-ft. equivalent units (TEUs). While the West Coast ports, which handle about half of the nation’s shipping, are already deep enough and equipped with newer equipment, the major East Coast ports still have infrastructure problems, illustrated by New York’s $1 billion effort to raise the Bayonne Bridge and Miami’s attempts to rectify its dredging and freeway connection concerns.
The good news, according to John Carver, global director of Jones Lang LaSalle’s ports, airports and global infrastructure group, is that the canal construction effort, which has been delayed by rainy weather, is not expected to be completed until at least the second quarter of 2015. “That’s given everyone a little breathing room to prepare for receiving the larger vessels, as well as more time for the development of commercial real estate infrastructure,” he said.
A few ports need the extra time to make ready, including Port Authority of New York and New Jersey, has yet to start work on raising the bridge. Once finished in 2015, the port should join Baltimore and Norfolk, which are at the required 50-ft. depth, and Miami is expected to complete its dredging by next year.
Carver, who moved his office from the West Coast to the Miami area, said it’s a fallacy that the West Coast will suffer losses due to the Canal opening up big-ship movement to the East Coast and Southeast ports. “The West will still dominate the speed-to-market cargo, such as televisions and ladies’ fashions,” he says. “We feel all the ports will raise their game, and the East Coast ports will grow because of efficiencies of scale with the expanded canal.”
However, K.C. Conway, Colliers’ executive managing director of real estate analytics, says every large U.S. port is trying to get some skin in the post-Panamax game, and that the West Coast is being somewhat facetious if it isn’t acknowledging a challenge to its dominance.
“The West Coast guys want you to believe the canal expansion isn’t a big deal to their bottom line, but it is,” Conway says. “You just look at the institutional capital invested in the California ports, they have a lot financially at stake.”
The challenges for the U.S. ports, followed by the country’s industrial property sector, will be in the chase by each port for the same traffic and the same dollars. While California is still the dominant market, other states are stepping up, Conway says. That includes Houston’s dominance with oil shipping, Charleston’s determination to get 50-ft. deep by 2017 and even Savannah’s concentration on agricultural products.
And don’t forget possible strikes: The International Longshoremen’s Association agreed to extend its contract negotiations until after the massive holiday rush. The new deadline, which could incur strikes if no deal is reached, has been pushed to early February.