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"They already know the fundamentals are fine. They are just more concerned, at this stage, that the technicals can take them wider, so the mark-to-market is a killer." —Darrell Wheeler, head of securitized strategy at Citigroup Global Markets Inc., on CMBS investors and spreads.

Landmark Legislation Creates FHA LIHTC Pilot Program
In Brief: NYC Condo, Apartment Prices Increase in 2Q

Wider CMBS Spreads Unlikely to Tighten Soon

Office Sales Come Back Slowly in Second Quarter
Beige Book: Financing Tightens as Activity Slows
Consumer Confidence Inches Higher, Home Prices Decline

Executives Split on Olympic Effect of Future Beijing Investment

Texas Realty Capital Closes $35.7M for Austin Office

MBA Calls for SEC to Approve Uniform Ratings Symbols

Registration Open for MBA’s Commercial/Multifamily Capital Markets Winter Conference 2008
CampusMBA Announces Upcoming Multifamily Property Inspection Workshops
MBA Mid-Year Survey of Commercial/Multifamily Servicing Volumes

MISMO Adoption Webinar, Wednesday, August 6

Gross Joins MBA as AVP of Accounting, Tax and Bank Regulation

Self-Storage, Student Housing Enjoy ‘Cinderella’ Season

“There are several ways that this legislation helps make financing of tax credit assisted properties more available through FHA,” said Cheryl Malloy, senior vice president at the Mortgage Bankers Association.

Chief underwriters would review applications under the streamlined processing pilot program for all LIHTC loans instead of processing functions that would otherwise be performed by other employees.

Under the legislation, the HUD secretary must issue instructions for implementing the pilot program within 180 days, or before February 1, 2009.

The legislation exempts tax credit transactions from cost certification requirements if the estimate of the loan proceeds to actual cost ratio—at firm commitment—is less than 80 percent. It exempts tax credit properties from periodic inspections by the mortgagee, provided the agency allocating tax credits performs periodic inspections.

“The new legislation would eliminate several unnecessary processing steps, including a HUD subsidy layering review by providing that FHA insurance is not a subsidy,” Malloy said.

The legislation also prohibits HUD from requiring the escrowing of tax credit equity or any other form of security, such as a letter of credit.

“It requires the [HUD] secretary to determine whether any compliance monitoring by the allocating agency is sufficient to ensure compliance with any HUD requirements and, if so, to accept the agency’s evidence of compliance,” Malloy said.

In addition, the HUD secretary could not increase current multifamily mortgage insurance premiums until at least October 1, 2009, unless increased premiums would be necessary to prevent programs from requiring a credit subsidy appropriation.
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In Brief: NYC Condo, Apartment Prices Increase in 2Q
MBA (7/31/2008) MBA Staff

Average sales prices for New York City homes increased 12 percent in the second quarter to $824,000 compared to the same period last year, based on a report by ResidentialNYC.com, a real estate listing web site managed by the Real Estate Board of New York (REBNY).

The data contrasts slumping sale prices across most of the country. REBNY attributed continuing price increases for Manhattan apartments, particularly condominiums, as a major reason for citywide price increases. However, it reported the number of sales declined.

Throughout New York City, condominium average sales prices increased 29 percent to more than $1.316 million. In Manhattan, condominium average sales prices increased 33 percent to $1.834 million compared to second quarter of last year.

The report tracked apartments and one-to-three-family dwellings in New York City. It found apartment prices—condominiums and cooperatives—jumped 21 percent to more than $1 million compared to the second quarter of last year. In Manhattan, average apartment sale prices for condominiums and cooperatives increased 29 percent to $1.548 million.

Brooklyn and Queens apartments retained their values in the second quarter with Brooklyn average sales prices rising 3 percent to $500,000 and Queens average apartment prices increasing 7 percent to $286,000.

The report found that although Manhattan condominium prices were bolstered by sales of high-end properties at buildings such as 15 Central Park West and The Plaza Hotel, condominium prices still climbed 9 percent throughout the borough without factoring in the most pricey units.

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Fannie Mae Announces New DUS ERL Product
Fannie Mae said this week it will introduce a new streamlined rate-lock execution that will provide Delegated Underwriting and Servicing (DUS) lenders with an earlier one-time rate lock than the current DUS Early Rate Lock (ERL).

Manny Menendez, vice president of multifamily product development at Fannie Mae, said various DUS ERL products now extend to 12 months but with certain prescribed underwriting conditions. In the new product, a borrower could lock a rate during any time in the underwriting process.

"Here, we are removing those prescriptions and delegating back to the lenders that decision to when their rate's a rate lock," Menendez said.

"We're seeing alot of interest in our Early Rate Lock product," more than doubling in the first half of the year, said said Heidi McKibben, vice president and head of multifamily production at Fannie Mae.

McKibben said Fannie Mae's multifamily DUS lenders produced $18.2 billion in volume during the first half of this year, including $1.5 billion in senior housing and $3 billion in structured transactions, up from $1.8 billion in the first half of 2007.

With a nearly 30 percent increase for small loans during the first half of this year, Fannie Mae DUS lenders totaled $4.1 billion compared to $2.7 billion in the first half of 2007.

"We continue to see alot of interest in shorter term products as well," McKibben said.

Fannie Mae would not comment on the Housing and Economic Recovery Act of 2008—signed by the President yesterday—or its impact on affordable housing and volume. However, McKibben said loans based on earning 60 percent or less Area Median Income (AMI) totaled $617 million during the first half of the year.

"Especially in this type of an economic environment, it is a critical part of our mission and an area of focus for us," McKibben said.
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(Robert White is president of Real Capital Analytics, New York).

For the first half of this year, significant office sales totaled $30.4 billion, down 67 percent year-over-year, the worst performance of the major property types. Still, office is the only sector to see second quarter sales rise above first quarter levels.

CBD volume of $15.4 billion in the first half of the year was only slightly ahead of suburban volume of $15 billion, both representing a 65 percent–70 percent decline from a year earlier. Second quarter transactions were boosted by the $2.8 billion sale of the GM Building, but large-scale deals were scarce. The number of $100 million-plus properties selling through June fell to 60 from 220 year-over-year.

Deals in contract include another 40 properties valued at $100 million-plus as well as some large portfolios, previously a 2008 rarity. This could help shrink the inventory of properties available for sale. New offerings exceeded closings by 50 percent through June, but early figures suggest the pace of new offerings has begun to slow, at least for the summer.

With sales activity on the rise, one could assume that the bid-ask spread has narrowed. Indeed, cap rates for both CBD and suburban assets declined slightly in the second quarter, but it is not yet clear if buyers are being more aggressive or that lower cap rates simply reflect the flight to higher-quality properties.

Post credit crunch, cap rates for suburban office property are up about 45 basis points (bps), similar to industrial properties and strip shopping centers. Average cap rates on CBD properties are actually down slightly, reflecting a shift in sales toward higher-quality properties and primary markets.

Markets and regions are beginning to show clear differences with Houston, Washington, D.C. and New York City among the best performers. The Northeast and West have seen the smallest deterioration in average cap rates and pricing.

Apartment
Having remained remarkably stable since the onset of the credit crunch, cap rates on garden apartment properties rose sharply in the second quarter.

The national average jumped 25 bps to just over 6.5 percent, but this rise resulted largely from a 50 bps increase in Treasury rates during that period. Nevertheless, cap rates are at levels last seen at year-end 2004. Despite—or perhaps because of this—sales activity has started to pick up. Apartment sales in June totaled well above recent months’ figures and a considerable volume of transactions ($5.5 billion) have already closed or are in contract at this early time in the third quarter.

Overall, the pace of decline steepened, though: second quarter sales, at $8.7 billion, were down 33 percent from the $13.0 billion posted in the first quarter. For the first half of this year, sales of apartments totaled $21.7 billion, off 45 percent versus the first half of 2007.

Sales of garden apartments were off 41 percent while mid/high-rise properties were off 55 percent. Despite these poor results, the pace of decline was slower than in all other property types such as office (-68 percent) or retail (-63 percent).

New apartment offerings outpaced closings two to one in the second quarter; overall, $34.9 billion in apartments came to market in the first half of this year. This backlog, combined with a higher interest rate environment, will continue to put upward pressure on cap rates. In addition, any effects arising from the recent liquidity concerns of Fannie Mae and Freddie Mac are not yet reflected in statistical trends. Since these two have become the main lenders for multifamily property investment, their lending volume could drop.

Investors shied away from CBD assets—Manhattan apartment sales were down more than 60 percent versus the first half of 2007. The more positive markets were Houston and Dallas. With more than $1 billion in trades in the first half of this year, these cities became the second and third most active markets nationwide.

Retail
Sales of significant retail properties remain weak.

On a quarterly basis, just $5 billion of significant retail property changed hands in the second quarter this year, a 30 percent slowdown from the previous quarter’s $7.2 billion and 63 percent down from the second quarter last year. 

Transactions for strip centers in the second quarter fell to levels last recorded in 2002, and no significant mall properties changed hands. Only one modest shopping center portfolio and a few portfolios of net-leased properties sold.

For the first half of this year, retail property sales fell 62 percent year-over-year to $12.2 billion. Only office sales took a tougher tumble post credit crunch (-68 percent), and a recent resurgence of office activity is not evident for retail properties.

Few retail properties are currently reported in contract except for Centro’s $700 million-plus portfolio of 29 shopping centers. Urban retail properties were the only retail property type to see volume rise in the first half of this year, propelled by the $525 million retail condo in Manhattan that equates to nearly $6,200 per square foot and an interest in the Harry Winston building on Fifth Avenue for a record price of $7,660 per square foot.

Prices for more ordinary retail properties continue to soften. Cap rates for strip centers have risen about 40 bps post credit crunch. Strip center cap rates displayed a small decline in the second quarter due to a flight to quality.

Even former favorites such as power and lifestyle centers have seen their market premium deteriorate and cap rates rise. Cap rates for freestanding, net-leased properties, especially drug stores, are up only slightly compared to strip centers.

Cap rates are expected to remain under upward pressure as interest rates have gained 50 bps since March, and concerns are growing over retail failures with Mervyns [filing Chapter 11 bankruptcy] and Linens ‘N Things the next possible casualty. In addition, growing for-sale inventory means dim prospects for near-term price growth. New retail offerings—outpacing closings three to one in the second quarter this year—have totaled about $50 billion.

Markets and regions are beginning to show clear differences as sales figures mount post credit crunch. The Northeast and West have seen the smallest deterioration in average cap rates and pricing.

Industrial
Acquisitions of industrial properties have slowed to a trickle, averaging less than $1.6 billion a month for the past quarter. Just $4.6 billion of significant industrial changed hands in the second quarter, down 42 percent from the $7.8 billion posted in the previous quarter.

Warehouse properties posted a steeper decline than flex properties on a year-over-year basis, with second quarter sales volume for both down 65 percent. Portfolio sales dropped precipitously: less than $1 billion in transactions were closed in the second quarter compared to $6.1 billion in the second quarter last year.

Overall year-over-year through June 30, industrial property sales fell 50 percent, for a total of $12.4 billion. Volume in the office and retail sectors took a tougher tumble in the first half of the year, but industrial posted the largest percentage decline in sales between first and second quarters this year. Moreover, few industrial transactions are currently reported in contract.

Fortunately, new industrial offerings to market—outpacing closings four to three in the second quarter—have not matched spiking levels in other property types. But as closings slow, existing offerings are piling up and with interest rates up 50 bps since March, cap rates are expected to remain under upward pressure.

Both warehouse and flex properties have seen cap rates move higher, 75 and 50 bps respectively, since the onset of the credit crunch. The rise in flex cap rates mirrors the 50 bps rise for suburban offices and strip centers. Over the past quarter, average cap rates for flex declined slightly reflecting a greater proportion of sales in lower cap Western markets. The 75 bps increase for warehouse properties is among the largest of any property type.

Markets and regions are beginning to show clear differences as sales figures mount post credit crunch. For example, sales in the West are off far more than in other regions, but pricing has held up better.

Average cap rates have held much firmer in U.S. coastal regions than in other markets in the Midwest and Southwest.
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Beige Book: Financing Tightens as Activity Slows
MBA (7/31/2008) Murray, Michael

Commercial real estate activity was constrained in a number of Federal Reserve districts as financing continued tightening, according to the Federal Reserve's Beige Book.

Commercial lending activity in the Richmond district was generally stable—loan demand ranged from steady to slightly up across Virginia and the Carolinas—but activity weakened somewhat in the Washington, D.C. and Charleston, W.Va. markets, the Beige Book said.

Contacts in Washington, D.C., Charlottesville, Va. and Charlotte, N.C. reported further credit tightening, especially for projects in real estate-related industries. Credit quality showed signs of deterioration in Washington, D.C., Virginia and the Carolinas, where lenders reported an uptick in client bankruptcies and weaker financial statements.

The availability of financing continued to tighten for new commercial projects in the Chicago district, and an industry contact in the New York district said new hotel development has "virtually ground to a halt." The pipeline of existing development is "larger than ever"—close to 15,000 rooms, the contact said, but a number of the projects are having trouble getting adequate financing.

Sentiment in the Boston district was "decidedly morose" among commercial real estate contacts this cycle, with the exception of a small mutual bank that continued with robust demand for its small-scale commercial property loans, the Beige Book said.

However, despite enjoying brisk business and high commercial mortgage interest rates, a small Boston mutual bank reported that it could run up against lending capacity constraints before year's end, and lending officers at the bank were instructed to adopt a "more selective" stance.

"Compared with the last report, contacts [in Boston] are less optimistic that market conditions will improve by year's end," the Beige Book said. "One commercial broker is cautioning his clients to be prepared for a long period of stagnation in commercial property values and leasing demand."

Contacts in the Philadelphia district anticipated that markets would continue softening while economic conditions remain unsettled. One contact said "there's too much uncertainty, tenants adopt the do-nothing strategy" and negotiate short-term lease extensions rather than look for new or expanded space.

Commercial contractors in the Atlanta district also anticipated further softening through the remainder of the year with a weak 2009. Contractors in the Cleveland district do not foresee any dramatic downturn in business, but several contractors said lending standards are becoming tighter despite available financing.

Most developers in the Kansas City district expect declines in current prices and rental rates to continue into the near future. Several contacts in the district reported sluggish new construction due to increasing costs and scarce financing options, and some expect the sluggishness to continue or worsen in the near term.

Commercial real estate respondents in the Dallas district noted a continued decline in investment deals getting done, particularly for larger projects. There were reports of a general drying up of liquidity in the market and a flight of capital out of real estate, the Beige Book reported.

On the upside, however, higher quality assets did not see a major deterioration in value in the Dallas district.

Contacts in the San Francisco district noted a steep reduction in the total value of commercial construction permits in San Diego and an ongoing reduction in rental demand for commercial real estate in San Francisco.
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Consumer Confidence Inches Higher, Home Prices Decline
MBA (7/31/2008) Velz, Orawin

The Conference Board's Consumer Confidence Index rose to 51.9 in July from June’s 51.0, which had been the lowest reading since February 1992. This was the first increase in seven months.

Consumer assessment of current labor market conditions deteriorated further. The share of consumers finding jobs plentiful fell to 13.5 percent from 14.1 percent. The share finding jobs hard to get increased to 30.3 percent in July from 29.7 percent in June.

In a separate report, home prices continued to decline in May in selected major cities, according to the Standard and Poor's/Case-Shiller home price indices. While the year-over-year declines in the indices continued to set records, the report offered some good news in that the month-to-month declines in the indices continued to moderate over the last few months. 

A month-to-month comparison offered a better picture of home price trends. The 20-metropolitan area composite index dropped 0.9 percent in May from the prior month, with seven metropolitan areas posting increases in home prices for the month. The decline for the month of May slowed from month-to-month declines of 1.3 percent in April, 2.2 percent in March and 2.6 percent in February. However, since the data are not seasonally adjusted, some of the moderation in home price drops could be influenced by seasonal factors as home prices generally rise during the spring buying season. 

The slower pace of house price declines in recent months supports the view that while home prices should continue to fall for some time, given the historically high months’ supply of homes, the largest drops in home prices may be behind us.

(Orawin Velz is associate vice president of economic forecasting with the Mortgage Bankers Association. She can be reached at ovelz@mortgagebankers.org.)
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Meanwhile, some respondents questioned the future of sustainable building practices in China. While 30 percent said the intense spotlight of the Olympic Games would not move the environmental needle at all, 62 percent were more optimistic, saying the Olympics would prompt incremental progress towards more sustainable construction in China.

More than 55 percent of survey respondents said that Beijing was "primed" for an economic boom regardless of its status as host city of the Olympic Games, and 65 percent said the gains could be superficial because the two-week event would only enhance China’s “image” as a prime development opportunity.

However, an improved “image,” might be an important factor for the Beijing Games as nearly half of the respondents said enhanced perceptions of China might be the Beijing Games’ greatest legacy. Survey respondents considered commuter trains and the transportation infrastructure built for the Olympics as the second greatest legacy for the Olympics, followed by brand identity for Beijing, hotels and the sports stadiums built for the Olympic Games.
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"This transaction came about through an excellent, long term relationship between the developer and Thrivent Financial for Lutherans that started in 1994 with the financing of the client’s Hartland Plaza in Austin," Lemos said.

Developers plan to take 14 months to complete Capstar at Compass Plaza, which is more than 90 percent pre-leased to Capstar Partners, Harden Healthcare, DMX Music and Compass Bank.
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"Recent events have shed light on the important role of credit ratings agencies in the housing finance system," MBA Chairman Kieran Quinn, CMB. "We commend the SEC and the ratings agencies themselves for their efforts to restore investor confidence and bring stability back to the market. Nevertheless, it is MBA's view that implementing different ratings symbols for structured and non-structured securities will only increase confusion and fuel disruption to secondary market transactions. We recognize that improvements can be made to the ratings process, and we are committed to working with the SEC to find the best solution."

MBA's letter notes that structured finance transactions are a vital segment of the capital markets. However the success or failure of a securitization is attributable to the quality of its underlying assets, not its structure. Consolidating all structured securities under a single unique identifier could cause investors to focus on the structure of the security rather than its asset quality. Consequently, the proposal could reinforce the very behavior it seeks to extinguish.

The SEC proposal also significantly increases the scope and depth of disclosures by requiring rating agencies to publish the information they use to assign a rating to a structured product. Rating agencies would also be required to disclose their level of reliance on the due diligence performed by third parties to verify the assets underlying a structured product.

The proposal also includes measures designed to limit opportunities for ratings agency conflicts of interest by prohibiting ratings agencies from structuring the same products that they rate. MBA has long supported efforts to increase the transparency of credit ratings. Requiring ratings agencies to disclose confidential qualitative information however could foster reluctance by those who provide the information in order to avoid the public disclosure of proprietary information.

In April MBA submitted a letter to Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala., opposing proposals to differentiate between ratings for structured finance products and ratings for other asset classes, such as corporate and municipal bonds. The letter also warned that differentiating between ratings would only serve to further erode market confidence and threaten an already fragile economy.

"We are hopeful that the SEC will reach the conclusion that its assumptions about the perceived benefits associated with a unique structured securities identifier are vastly outweighed by both the resultant implementation costs and market uncertainty," said MBA Senior Vice President of Commercial/Multifamily Jan Sternin.
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Topics to be discussed include:
•      Challenges of complex loan structures in today's market
•      Changing role of investors in commercial real estate
•      Effect of rating agencies on commercial real estate finance
•      Evolution of structured finance vehicles
•      Exit strategies/default management
•      Fundamentals of commercial real estate finance for investors
•      Impact of managed CRE CDOs on commercial real estate finance
•      Legislative and regulatory developments
•      Managing credit risk in commercial real estate portfolios
•      Servicing and default management in an uncertain market
•      View from Wall Street analysts
•      Wall Street innovations in commercial real estate capital markets

You can register for the conference online or download the registration form for more information.
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CampusMBA Announces Upcoming Multifamily Property Inspection Workshops
MBA (7/31/2008) Roundy, Alicia

CampusMBA, the education division of the Mortgage Bankers Association, announced two new dates—in September and October—for its popular Multifamily Property Inspection Workshop.

CampusMBA worked closely with Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac to provide the industry with a course that successfully prepares inspectors for GSE-financed multifamily properties.

This newly revamped two-and-one-half day course is designed to help asset managers, underwriters, servicers and those responsible for inspecting multifamily properties better understand the physical condition and nuances of multifamily properties in order to perform effective, efficient physical inspections.

Successful completion of this course (pass exam) results in a certificate from MBA, recognized by Fannie Mae and Freddie Mac.
 
Select an offering below to learn more or to register.

Upcoming Offerings:
September 9-11, Washington, D.C.
October 22-24, Dallas, Texas (Registration opening soon)

To view a full list of commercial/multifamily education resources visit http://www.campusmba.org/AllLearningProducts/Commercial.htm?wt.mc_id=CMFNLCREF.
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MBA Mid-Year Survey of Commercial/Multifamily Servicing Volumes
MBA (7/31/2008) Toporek, Devin

In mid-July, the Mortgage Bankers Association sent out the survey form for its Mid-Year Survey of Commercial/Multifamily Mortgage Servicing Volumes.

The survey was automatically sent to all those who participated in last year's year-end survey (which can be found at: http://www.mortgagebankers.org/NewsandMedia/PressCenter/59907.htm). If your firm did not participate in last year's year-end survey, you are not sure if your firm did, or you are uncertain who at your firm receives the survey, contact crefresearch@mortgagebankers.org. 

In addition to being included in the publicly released summary listings, participants receive a detailed report that includes breakouts by role (total, primary, master and special CMBS servicing), by investor group and by other categories.

The 2007 Year-End Survey can be found at http://www.mortgagebankers.org/NewsandMedia/PressCenter/59907.htm.
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This call highlights one example of what commercial firms throughout the industry can do during the current market slowdown in order to reap efficiency gains when the markets return to normal levels.

What is noteworthy about the Ballard Spahr/Midland case study is that the effort required by these firms to implement MISMO was surprisingly light. By joining this Webinar, you can find out what exactly “light” means!

The URL for the Webinar is http://connect.mbatechservices.com/commtechmismo. The dial-in number for the call is (269) 320-8300, access code 1040009#.

If you have any questions, please contact Dan Szparaga of MBA at dszparaga@mortgagebankers.org.
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"MBA is very fortunate to welcome Jim to our Government Affairs staff," said MBA President and CEO Jonathan Kempner. "His thorough understanding of financial management and accounting standards and his years of active participation on our Financial Management Committee will allow him to step right in and hit the ground running. He will be an invaluable addition to our policy team."

Gross has more than 20 years of experience working in accounting and tax policy in the industry, including 10 years of Big 4 accounting experience. He previously served as the chief financial officer of NetBank Inc., an internet-only bank for which he designed and built net value-added internal reporting systems for two mortgage production units, a loan servicing operation and an on-line commercial bank. He has also served as CFO or controller for a number of small and mid-size banks and major mortgage banks.

Gross takes the accounting policy reins at MBA from Alison Utermohlen, who is retiring after 20 years of serving MBA members.
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"Colleges and universities have long been strategic real estate investors, and 'banked' real estate holdings can be significant credit strength in some cases," said Roger Goodman, vice president at Moody’s and author of the report. “In higher education, public-private partnerships have been comparatively small transactions and have generally involved student residences or nearby mixed-use real estate developments in urban areas. Recently, we have seen a growing number of structures and strategies for extracting value from a university’s real estate holdings.”

In May, Fannie Mae said it would increase purchases in small loans as well as in the seniors housing permanent debt market; in military housing; and affordable housing.

Commercial real estate prices dropped 3.5 percent overall in May, based on Moody's/REAL CPPI. May was the third month in a row that the index declined.
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