Posts Tagged ‘CRE’

RED FLAG WARNING for Commercial Property Owners – a $45B Problem

Written by Landlord Property Management Magazine on . Posted in Blog

By Kathy Fettke |
Commercial Building

This may be the year that billions of dollars in commercial mortgages go belly up. These loans were financed in 2007 and are maturing this year. That means some commercial property owners will be faced with huge balloon payments and for some, a major headache to pay them off.

The Federal Reserve stated in its semiannual Monetary Policy Report to Congress on Tuesday that commercial property prices were becoming a “growing concern.”

Specifically, the report said, “”Commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels,”

While commercial property debt remains small compared to the overall economy the report said that the rising “valuation pressures may leave some smaller banks vulnerable to a sizable CRE price decline.”

According to Reuters, commercial real estate loans by U.S. banks surpassed their pre-financial crisis levels in September 2015, and at last reading for January stood at a record $1.97 trillion. Small banks hold nearly two-thirds of that total, some $1.22 trillion.

Commercial property values in the U.S. have more than doubled from their 2009 low, according to Green Street Advisors’ Commercial Property Price Index. Things started slow down in 2016, with just a 3% rise in values.

And this all comes at a time when there’s also a concern about a tidal wave of commercial loans that will come due this year. Lending standards in 2007 were lax and real estate investors jumped in with both feet, taking on huge amounts of debt in that red-hot market. Back then it was difficult to see anything but skyrocketing real estate market.

Then, the impossible happened. The residential real estate bubble burst, and property valuations plummeted back to earth, and even below the water line. We know now that many homeowners lost their property because they couldn’t make the payments or because banks simply failed.

This is the year we could begin to see the same fall-out on their commercial loans.

While commercial property in the most populated metro areas like New York City and San Francisco are seeing record high prices for real property,  the real-estate recovery has been a little lopsided.

There are many U.S. markets where valuations have not caught up yet. It’s those landlords who might have trouble refinancing their monster balloon payments, and if they can’t refinance because they are underwater on the loans, they might have to sell at a loss.

Bloomberg says that prices for suburban office buildings are still 4.8% below their peak compared to Manhatten skyscrapers that have surged 50% higher than they were at their previous peak. So when it comes time to refinance loans for buildings that aren’t worth as much, lenders may want landlords to cough up the difference… and that may not be easy to do.

Borrowers may also have to pay higher interest rates, or they may run into lenders who are now pickier about what the buildings they are willing to finance. Bloomberg writes that lenders may not be eager to finance retail properties, especially malls, as e-commerce takes a bite out of their sales.

Lenders may also have to retain a 5% stake in any loans they make to comply with the risk retention rule under the Dodd-Frank Act. That prevents them from making risky loans and selling 100% of the risk. It also makes banks more selective about the loans they grant.

The fate of the Dodd-Frank Act is uncertain however. President Trump has signed an executive order to begin the unraveling of those regulations and the risk retention rule is sure to be reviewed. But those changes won’t happen over night and maybe not in time.

So just how hard will commercial property owners get hit?

Bloomberg says the delinquency rate is expected to hit 5.75% this year,  after several years of declines. Because these mortgages are packed into bonds, there could be more bondholder losses as well.

According to Bloomberg, banks sold $250 billion worth of commercial mortgage-backed securities to institutional investors in 2007. But not all of them are maturing this year because many have already been refinanced or the properties sold. Property owners with less desirable properties and weak financials have already defaulted.

Using data from Morningstar, Bloomberg says the amount of debt that will actually come due this year now stands at about $90 billion dollars. From there, Morningstar is estimating about “half” of those remaining loans will run into refinancing roadblocks!

For people faced with this situation, it’s critical to have a back-up plan. You shouldn’t wait until the last minute or you might end up losing your property. It’s best to start working now on refinancing, or selling the property before you run out of time.

If you are looking for commercial investments, be careful about paying too much and accepting low cap rates. If you just wait a bit, you could find much better deals.

And all this is happening just as the economy is in a major shift. Baby boomers are turning 65 at a clip of 10,000 per day. Their spending habits will change and that will affect commercial property. Plus, technology and innovation is quickly making some industries obsolete practically overnight.

A commercial builder asked me if we’d like to finance the construction of an auto dealership in Sacramento, “because the auto industry has been booming.”

After researching it a bit, I told him that yes, it has been booming, but only because of easy financing. But this is the year that many leases will be returned to car dealers and we could very well see a huge glut in cars for sale. My daughter needs a new car and I told her to wait just a bit longer as we could see some steep discounts this summer.

Never base your decisions on the way things have been. In 2005, Fed Chair Ben Bernanke said, ”We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize…”

Bernanke was dead wrong, and made the fatal mistake of not taking into consideration massive debts from easy lending that couldn’t be repaid. We are seeing some of the same debt issues today, just not in residential mortgages.

We expect to see some bargains in the commercial property world over the coming year. If you’d like to be first to know about those, join the network to get on the VIP investor list.

Kathy is an active real estate investor, licensed Realtor, certified coach, and former mortgage broker. She specializes in helping people build multi-million dollar real estate portfolios through creative finance and planning. With a passion for researching and sharing the most important facts on real estate and economics, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best seller, Retire Rich with Rentals, and is host of The Real Wealth Show – which is a featured podcast on iTunes with listeners in 27 different countries.

4 Ways Competition is Heating Up in CRE

Written by Landlord Property Management Magazine on . Posted in Blog

By Billy Fink | Shared post from the Hightower Blog

Los Angeles, California, USA downtown cityscape.

Over the past 30 years, the commercial real estate industry has transformed from a “mom-and-pop” industry to an institutional asset class where owners manage massive, complex, and global portfolios.

Although this development is good news for many CRE professionals, it is not without its consequences. As more money flows into the asset class, competition has worsened across the entire industry.

Competition for Deals

The most significant rise in competition has been on deals. Over the past few years, billions of dollars — from institutional and foreign sources — have flowed into real estate and driven up prices for desired assets across primary, secondary, and tertiary markets. This flow of capital has far outpaced new construction and new development, leaving commercial owners in a classic supply and demand challenge: there are more dollars in the industry chasing each deal.

To handle this rise in competition for deals, many commercial owners have sought investors with deeper pockets, developed a clear specialization in their investment strategy, or sought secondary markets. 

Competition for Capital

Many GPs are fighting a two-front war, feeling pressure on both the deal side and the fundraising side. According to a recent survey of owners across the industry, 67% of commercial owners feel that competition for investment dollars is increasing. Institutional investors are not cavalier with their money. They want to pick the firms with the absolute best yields. Limited partners are placing greater emphasis on better tools, real-time reporting and visibility into performance.

Many proactive owners have decided to adopt new technology to help them better report and analyze their portfolio. 

Competition for Talent

The industry is also beginning to realize that firms are in a war for talent. The next generation of CRE leaders expect a different work environment with mobility, modern tools, and data at their fingertips. The companies that lag behind are finding it increasingly difficult to recruit top CRE employees and are suffering from a growing talent gap. This next generation of CRE professionals is demanding change in its employers, encouraging new ways of working, and new technologies to drive the business forward.

Competition for (the best) Tenants

The last major area of competition is for tenants. Although many believe it is an owner’s market — after all, office leasing activity is strong — that doesn’t mean competition for tenants is not still increasing as well. As a matter of fact, 80% of owners indicated in our survey that competition for tenants is increasing.

Over the past couple of years, low interest rates and a recovering economy encouraged billions of dollars of transactions, and many owners are now trying to find the right tenants to satisfy their specific ROI strategies. As a result, they’re waiting to satisfy certain returns, even if it means a short-term loss. Competition is heating up for tenants.

Billy Fink
Billy Fink is a marketing manager at Hightower focused on writing the best of CRE news and trends. He previously worked at Axial, and is a graduate of Columbia University.

5 of the Coolest Office Layouts in San Francisco

Written by Landlord Property Management Magazine on . Posted in Blog

Written by Shayla Mars | Original Post shared from the Hightower Blog

modern office space

Gone are the days of box-like office cubicles and worn water coolers. You no longer have to bring your lunch to work and hide it in a mini-fridge or warm it up on a college dorm hot plate.

More and more companies are opting for open-floor plans, fully-stocked kitchens, and fun layouts that boost employee moral. However, they didn’t just stop at rows of desk next to each other. Here are 5 of the coolest offices in San Francisco that take open-floor plans to the next level.


Pantheon is located in San Francisco’s Chinatown. The company oversees website management platforms for some of the biggest names in hosting such as WordPress and IBM. According to, their office is 12,000 square feet and was designed by Interior Monkey. 12,000 square feet isn’t much to work with for a growing tech office, so the designers honed in on capitalizing on the space by making good use of the two levels that had. They dispersed workstations throughout the floors so employees would have to move around. Pantheon has what appears to be “rustic phone booths,” but they were custom made pieces that utilize sound-proofing foam and white boards that slide on a partition.

See photos of the office here > 


AirBnB crafted a workspace that embodies the heart of the organization. The office is just moved to the South of Market district in 2015 where it encompasses a massive 225,000 square foot space. The building that houses AirBnB has a five-story atrium that already makes it an exclusive find. When AirBnb moved in, they use their own architect, construction crew, and designers to recreate the old office. AirBnb use the wide floor plates of 888 Brannan Street to construct areas that resemble different parts of the world (ie.  the homes of their clients). The meeting rooms are camping tents and the cafe transports you to Mumbai. The actual workspace makes you feel as if you’re in an industrialized building in Johannesburg. Airbnb wants their employees to feel like their working beyond a building in San Francisco.

See photos of the office here > 


Invuity, maker of medical lights for the invasive surgical field, mixed modern with elegant creating a woodland motif for their Potrero Hill office. Making good use of their 36,000 square-foot loft space, the office is well-lit by natural light thanks for the industrial-size windows and 18 foot ceiling. One notable aspect of the office is the use of cubicles; however, these aren’t the typical plastic three-walls. The designer, Geremia Design, uses wood paneling to create a more cozy atmosphere. The high ceilings and drop lighting offsets any remnant of a boiler room. The carpet and plants round out the workspace.

See photos of the office here > 

Brick and Mortar Ventures

Building out a cool office space can be cumbersome when you’re a new company, but Brick and Mortar Ventures made the best of it. Brick and Mortar Ventures is VC firm in its early stage. Located in San Francisco’s SoMA district, their designer Blitz was able to turn 900 square feet into a translucent eden. By using vertical storage, wood, and lots of glass, Blitz produced a seamless concept with unobstructed views. This has enabled Brick and Mortar to provide their employees with the comfortability of a large office without skimping on the amenities.

See photos of the office here > 

Salesforce East

Salesforce turned heads when they leased the 450,000-square-foot, 30-story skyscraper at 350 Mission Street in the South of Market (SoMa) district. The building is listed at the first Platinum LEED commercial highrise in the city. Each desk in the office comes with personal air controls and height-adjustable desks. Salesforce lobby is open to the public and has stair flight seating for talks. Feature amenities include a Michael Mina Restaurant and a rooftop garden. The most impressive piece in the office is a 3-story LED wall that displays art work by Refik Anadol or Salesforce twitter feed. It can be seen from the street.

Shayla Mars
Shayla Mars is a freelance contributor to Hightower. Her work has previously been featured in Huffington Post Business Blog,, and more.