Wall Street - The Real Winner

Friday’s jobs report seems to be pretty positive in light of historical figures. But with Census temp jobs making up almost one third of the 162,000 jobs created in March, that’s hardly cause for celebration. Although the unemployment figure still stands at 9.7%, the Underemployment Rate is a much higher 16.9%, since it includes part-time workers who would prefer a full-time position (bankers flipping burgers) and the people who have given up looking for a job. Bloomberg also reported that 6.5m of the 15m jobless people (a tall 44%) have been out of work 6 months or more, a new record.

So with these figures, the stock market is nearing 11,000 and the 10-year treasury is now nearing 4.0%. Real Estate investors are still waiting for access to some colorful deals with outsized returns. But the lack of transaction volume is clearly holding up the real estate markets. Banks are not unloading their toxic assets as many had hoped, Investors are not really buying or selling much, and well capitalized investment funds are waiting for signs of a market bottom to deploy their capital.

The real winner in this economy it would seem is Wall Street. While everyone was focused on the new Health Care Bill last week, Wall Street quietly reported that it made $61B last year. That’s right $61 billion. A new record. Pretty impressive considering the prior two years combined losses were $54B. Nearly all of these earnings were due to enormous government subsidies ($2.8T to all financial firms, and $1T to NY banks and insurers). Between low rates, accounting waivers, and Federal assistance, banks were given a free pass. Revenues were only half of 2006 figures, but what made the REAL difference is funding costs (namely interest costs) which fell by 80%. With expected rising interest rates, new regulations, and a lack of Federal assistance, Wall Street will have a hard time reaching this new benchmark again any time soon.

On the commercial real estate debt side, there is $475B of loans coming due in 2010, of which maturing CMBS represents 10%. Delinquencies are around 6%, with a peak of 12% expected by 2012. High unemployment will continue to effect MF properties, with falling rents not likely to improve until the supply overhang is absorbed. Lack of new construction should help restore the balance. Hotel occupancies are way down and value declines in some markets could reach 50%. Office vacancies are 17% nationwide. The retail sector still faces cautious consumer spending and limited new store openings.

On the bright side, new loan originations are starting to happen from lenders outside the GSE arena. Life companies are looking for high quality deals and funding 65% LTV at rates with 5 and 6 handles, sometimes even competing with the GSE’s. CMBS lenders are also starting to look at deals, with several new issuances now reaching over $3B this year. This volume is well below historical marks, but encouraging nevertheless as the capital markets find a footing.

Multifamily Debt
Compared to other core property sectors, apartments have still fared very well due to the continued availability of financing through Fannie, Freddie and FHA HUD. In the right market, with a well occupied property, you can still get up to 85% LTV at rates between 5% and 6%. Fannie and Freddie are looking for stronger deals and can close in 60 days. FHA will provide much higher leverage at 85%-90% for construction and permanent loans respectively, but the processing time is longer.

New Multifamily Construction Program
For any real estate developers building multifamily, we have a new program in place with a large modular construction company that can build your project in half the time of a stick build, and also provide up to 50% of the equity needed to start construction. If you would like to learn more about this program, or need any construction or permanent debt capital for multifamily, please contact us at [email protected].