Between now and 2017, over $300 billion in Commercial Mortgage-Backed Security, also known as Conduit Loans (“CMBS loans”) will need to be refinanced. What does this mean and why is it important?
Many of the current CMBS loans were made at the height of the real estate bubble, around 10 years ago and now, many commercial real estate owners find themselves in a bit of a pickle. What does that mean for commercial real estate in the South Florida? All classes of commercial real estate properties experienced some measure of delinquencies throughout 2014, but now, a handful of borrowers are faced with aging assets that they are unable to reposition. The reason for this, in many cases, can be traced to the growing demand of new and renewal tenants in multifamily, office and retail properties.
What does that mean for real estate transactions in 2015? It’s simple, if CMBS loans facing maturity continue defaulting at greater levels, rather than upgrading a property, these commercial real estate owners will be forced to replace financing on older properties. This replacement financing comes at a time when most secondary markets are experiencing competitive pricing along with demand for updated space. Rather than buying new properties, these developers and owners are taking measures to refinance these CMBS loans.
For now, interest rates continue to remain historically low, but this love affair with low rates may end soon, creating a quick cool off period for the real estate market. Low rates, along with other factors, such as availability of capital and relaxed underwriting standards, are forcing developers and owners to move quickly to lock in the most favorable rates.
Moral of the story: Lock your rate before it’s too late.
Khani & Auerbach is a law firm that focuses a majority of its practice on both residential and commercial real estate transactions. Contact us for more information.
Summary of Monthly Market Detail of Single Family Homes in Broward County for January 2015, provided originally by the Greater Fort Lauderdale REALTORS®.
Recently, the attorneys at Khani & Auerbach had the privilege of attending an industry meeting where they heard a representative from the Greater Fort Lauderdale REALTORS® group provide some insight on real estate changes in the Single Family Home market in Broward County. The changes were not significant, but definitely indicate a return to a healthy real estate market in South Florida.
While closed sales, cash transactions, new pending sales, average percent of original list price received and pending inventory have decreased from January 2014, there are some great statistics for Single Family Homes in Broward County that have increased. New listings, median sales price, average sales price, active listings (inventory) and months supply of inventory have all increased. Among the good news, the bad news is that the median days on the market have also increased by 28.9% since January 2014, up from 38 days to 49 days.
So, of all these statistics, you might be most interested to know 2 figures, Median Sales Price and Average Sales Price. The Median Sales Price for January 2015 was $265,000 (up 1.9% from January 2014) and the Average Sales Price is $342,106 (Up 1.1% from January 2014).
Overall, these indicators are a sign that the market is rebounding in a very healthy way, without too much decrease or increase in a short amount of time. The next data release from the Greater Fort Lauderdale REALTORS® is expected in on March 23, 2015.
According to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) indicates that February resulted in a slight increase in mortgage credit availability.
The MCAI increased 0.7 percent to 118.6 in February. This slight increase in the index indicates that credit is loosening, while a decrease would indicate that lending standards would tighten.
The MBA’s Chief Economist stated, “Credit availability improved marginally in February, led by further increases in jumbo loan programs, and additional take-up of Fannie Mae’s 97 LTV program. More than half of investors are now offering a 97 LTV program, and Freddie Mac announced that their program will be available in mid-March. In terms of conforming credit, this was offset by somewhat tighter constraints on cash-out loans and investors with multiple financed properties.”
It’s good news for consumers seeking to borrow money in order to buy real estate and that’s good news for everyone!
As 2015 has comfortably settled in, we are beginning to notice an increase in the Millennial’s (ages 18-34) becoming first-time home buyers. As rents are continuing to increase faster than incomes can keep up, it should come as no surprise that in 2015, Millennials are choosing to buy real estate rather than rent, as rents in large cities like New York, Chicago, Miami and Los Angles have continually increased since the “great real estate crash” a/k/a GREC of 2008. The GREC left a bad taste in every person’s mouth, and rather than have the confidence to invest in real estate at all, this entire generation basically chose to rent. Yes, this is a generalization, but it’s a generalization based on statistical information from a variety of sources. It would seem that the choice to flee-from-purchase created an overnight demand for rentals causing higher than normal monthly payments, far outside the reach of the Millennials.
During this “supply and demand” situation in the rental market, banks made it more difficult for first-time home buyers to borrow money, leaving them with very few mortgage options and tons of restrictions on down payment resources. The good news is, however, over the past few years, lenders have now relaxed their lending requirements, the real estate market has improved and Millennials are finally seeing the light at the end of the tunnel. They can discard the chains of rent and embrace home ownership.
With these possibilities before them, Millennials can actually buy a residential home. But keep in mind, buying a home is usually largest purchase anyone will probably make in a lifetime. So, before plopping down the down payment on the dream home, we suggest every home buyer do their homework, be prepared and have this handy-dandy 8 item checklist that includes the following: (Click this link, BUYING RESIDENTIAL, to receive concise .pdf handout version of this article. If you are mobile, it will download to your device for easy future reference)
#1 KNOW YOUR CREDIT SCORE
If you don’t already know your credit score, go and find out what it is. You will be better off knowing what your score is BEFORE looking at homes, finding your dream home and later finding out that what you want is not even within your reach. The heartbreak and disappointment can be avoided. Finding out your credit score is also helpful before speaking with lenders. It’s like being prepared for the biggest test of your life. Would you feel good going in unprepared?
#2 GET PRE-APPROVED
After finding out your credit score, but before even looking at properties, get a pre-approval from a qualified lender or mortgage broker. Better to find out what a lender is willing to give you before looking. Find out what you can afford, how much you might spend in monthly mortgage payments, property taxes and insurance BEFORE looking. Again, this avoids disappointment and the epic fail that follows when you find out that you can’t get a loan on a home you fell in love with.
The pre-approval process requires that you submit current tax documentation, typically from the last 2 years, and additional information. During this time, you’ll also have the ability to get an understanding of your spending habits and make an honest assessment of your budget. It may seem like a cumbersome process, but you will appreciate the fact that you did this before a contract is signed. Be sure to go through this process with a qualified mortgage broker or lender. Having clarity on your financial picture will allow you to have clarity about your assets and liabilities and then, you’ll know what you can comfortably spend on a home. In the end, the pre-approval process will result in knowing the amount you are able to borrow and knowing this information before you look at properties will save you a ton of time.
#3-DON’T BUY THE BEST HOUSE IN THE NEIGHBORHOOD
I wouldn’t necessarily recommend that you buy the worst home in the neighborhood, but you definitely do NOT want to buy the best. Buying the best home in any neighborhood puts you at the top of the home-buying food chain. Should you wish to refinance your home in the future, it’s likely that there will be few, or no, comparable sales in the neighborhood that you can use as leverage to obtain the best loan and pull the most equity out of your home. Buying an “average” home in any neighborhood will put you in a better position to see the greatest value appreciation, even over a short amount of time. You may have to put a little TLC into the property, but a little renovation can go a long way. Watch those home-improvement TV shows and you can learn how to invest very little, but get back a lot of value in return.
#4-MAKE A WISH LIST
What do you want? Before you even think about emailing, calling or even texting a real estate agent, put your wish list together. Again, watch those home-improvement TV shows to get an idea of what you want. Remember, KEEP IT REAL and keep your numbers in mind when you are putting this list together. If you know you can’t even afford the home in a gated community with high monthly maintenance requirements, put yourself outside the gate. If you know there are extra costs for living in a community on the water, don’t put the home on the water on your list. Make two lists, name them however your wish. On one list, put the “must haves” and on the other list, put the things you “wish” to have. Be willing to give up the items on “wish” list. Be practical and don’t let this process become too emotional for you. Remember, it’s just DIRT!
#5-FIND A REAL ESTATE EXPERT YOU HAVE CONFIDENCE IN
Yes, the handsome agent on the billboard in front of your office looks good and yes, the gorgeous agent on the bus bench you pass every day is tempting to hire on the spot, but choose your real estate agent wisely. Find out which agent has the most experience in the neighborhood you are looking into. Getting a referral from someone you know and trust is probably the best way to find an agent. Make sure they have patience to explain the process, details and the contract. If they rely upon too many other people for things you expect a realtor to know, you might be better off finding someone else. You will be spending a large amount of time with this person in a very short amount of time. Make sure you like them because you really want to enjoy the process. If they don’t seem that into you, don’t take it personally and move on. If the relationship works out, then you will both benefit. You can search for agents online, but again, the very best way to find an agent is through your own network or a personal referral. You can always check reviews online using services like Zillow, an agent’s own website, their YouTube videos and various search engines, such as Google, Bing or Yahoo.
#6-MEET THE NEIGHBORS
Be a Social Butterfly, get the skinny on the fat and speak to the people in the neighborhood. This process might reveal information about everything you want or need to know, but sometimes, you might find out things you don’t want to know. Like calling a previous employer that has been referred as a resource, however, this may not result in the revelation of any information. But, if you are lucky, you’ll find that person who loves to gossip and maybe, that neighbor can share what it’s like to live in a specific neighborhood.
#7-HIRE AN EXPERIENCED REAL ESTATE ATTORNEY TO REVIEW CONTRACTS BEFORE THEY ARE SIGNED
Before you bind yourself to the largest purchase you will every make during your life, have an experienced and qualified real estate attorney review the real estate contract BEFORE you sign the contract. Unfortunately, once you sign the contract, your ability modify or make changes to the major terms of the agreement are diminished, greatly. We have seen this too many times where a client comes to us AFTER the contract is signed and they wish to make changes. Unfortunately, after the contract is fully executed by all parties, it’s usually more difficult to make changes to the major terms, such as the purchase price. Get a real estate attorney involved early on in the process to avoid any unhappiness later.
#8-GET A HOME INSPECTION AFTER THE CONTRACT IS SIGNED
You can’t really do a physical inspection of the home until after the contract is signed, but this is an integral part of home buying and should be done early on in the process. What is a home inspection? A home inspection is where the potential buyer gets an opportunity to analyze the structure and integrity of the real estate. You may see a visually appealing home on the outside or something with awesome curb appeal, but unless you have a qualified inspector go through the property with a fine-tooth comb, you may never know that the plumbing is failing, the air-conditioner is on its last leg, that the foundation is cracking or that the roof has leaks that are not easily identifiable. A qualified inspector will make every effort to determine the integrity of all the major aspects of the property.
So, after reviewing this checklist, you will be armed with the tools you need to find the right home. But remember, before you sign that contract, let a real estate attorney review the terms to make sure you get what you bargained for. Khani & Auerbach is a law firm with experienced real estate attorneys and we are here to help.
Looking to see the estimated value of a potential real estate purchase or real property you presently own? Check out our partners at Zillow for more information.
First comes love, then comes marriage, then comes a mortgage in the baby carriage! While we have traditionally heard that old ditty a different way over the years, traditions change and for many Millennials (ages 18-34) the family expansion has to wait. Not only does the baby have to wait, but for many Millennials, even marriage has to take a proverbial number. Many Millennials are holding off on marriage to save up for a down payment on residential real estate. A recent survey shows that 38 percent of American Millennials said that they would, or have, put off a wedding or honeymoon in order to afford to buy a home. This statistic isn’t very surprising considering that the average American wedding can cost around $30,000. This figure doesn’t even include the honeymoon.
Unfortunately, the decision to hold off marriage before getting a mortgage might be more complicated than the Millennials may have first thought. Take note, I wrote this article to inform, not admonish the reader. I want you to have all the information about making one of the largest investments you’ll probably ever make in your lifetime. Initially, it sounds like it makes more financial sense to put the mortgage ahead of the marriage, but if the relationship goes south between these unmarried Millennials, be sure that divorce is much easier than breaking up real estate encumbered by a mortgage held between two unmarried people. In other words, think before you ink.
Rather than go into the details of how incurring the debt makes financial sense before marriage, if you expect a return on your real estate investment, ensure that your relationship with this significant other can withstand the financial commitment. Here’s an interesting statistic, according to the CDCP, 27.4 percent of couples who co-habitate before marriage break up by the third year of living together. In other words, think before you ink.
UPDATE on 2/20/15:
On 2/19/15, we posted this article about the risks of investing with someone you are romantically involved with before getting married. On 2/20/15, less than a day after posting the article, our office was presented with a legal situation that clearly exposed the pitfalls associated with couples buying residential real estate before marriage. Below are the facts:
In 2012, Boyfriend and Girlfriend purchase a home. They finance the purchase and both are considered borrowers (read: jointly and severally liable for the debt). In other words, both are on the hook for the debt separately and as a couple. Boyfriend and Girlfriend break up and Girlfriend moves out. Boyfriend continues to make payments on the debt and some years later, Girlfriend transfers her interest. The transfer is made to Boyfriend without any money exchanging hands, via Quit Claim Deed, to Boyfriend. Minimum documentary stamp tax was paid upon recording, not documentary stamp tax based upon half the balance of the principal amount remaining on the mortgage, as would be required by the Department of Revenue. There was no refinance or change in liability on the debt.
Fast-forward to 2015, where the Department of Revenue does an audit of the transfer referenced above. The Department of Revenue questions the Boyfriend about the minimum documentary stamp tax and now wants him to pay taxes based on half the balance of the principal amount remaining on the mortgage. This figure requested by the Department of Revenue most probably includes penalties for not paying the correct documentary stamp tax upon transfer. Now, here is a real life situation that probably could have been avoided by being informed of the risks before taking on the mortgage. Technically, it is our opinion that the Department of Revenue is entitled to collect on the unpaid balance of documentary stamp tax, but however you look at it, there is a problem that needs to be addressed. Think before you ink.
Rather than rehash, review and regurgitate 2014, we’ll do something that might be more productive and useful to you. Let’s predict the future and see what we all might anticipate for the residential real estate market in 2015. As most everyone has seen, the real estate market has shown improvement which has been catapulted forward by improvements in the economy, low mortgage rates and reduced inventory. The analysts out there are predicting that this will translate into larger gains for 2015. Everyone has tons of questions, like “What should we expect next? Will there be another real estate boom? Will the real estate market recovery be consistently steadier?” What we can tell you is that the trends from 2014 indicate a better 2015. Here are a few indicators:
1. Low Mortgage Rates: The Federal Reserve did take steps to ease lending, but despite doing this, mortgage rates continue to decline and assisted the home buyers with lowered borrowing costs. The borrower benefits continue with the 30-year fixed-rate mortgage remaining below 4 percent.
2. Economy Improvement: The beginning of the year brought the nation’s harshest winter, but despite this, the economy improved steadily and new jobs were created, resulting in a higher GDP and stronger consumer confidence.
3. Foreclosures and Short Sales Decline: To everyone’s delight, distressed sales that include foreclosures and short sales have significantly declined. The numbers don’t matter, but should you care to know, foreclosures are expected to be reduced by at least 30 percent by 2014’s close.
4. Investors Retreat From the Market: In conjunction with the reduction in distressed sales and increased median home prices, those large scale investors in the single-family market have significantly decreased. This reduction results in less competition from investors, allowing for first-time home buyers to dip their feet into the real estate market.
5. Home Prices Level Out: In 2012 and 2013, we saw some unusually high levels of home prices appreciating and it wasn’t until 2014 that we saw a leveling out of these increases. The present increases in the residential home market are more consistent with “healthy” long-term growth.
With these positive predictions for 2015, there are factors that may interfere to prevent a truly strong recovery:
1. First-Time Buyers Fear: According to the National Association REALTORS®, first-time buyers dropped to the lowest level in nearly 30 years. As we have continued to report over the past few months, however, there are signs of improvement. While these improvements are modest, the next largest home buying market, The Millennials, are starting to think about the residential real estate market. Federal policies for lenders implemented in December resulted in revised lending regulations and lower down-payments from lenders have greatly assisted in first-time home buying confidence.
2. Credit Requirement Inflexibility: Even though the mortgage rates have been historically low, homeowners have seen an inability to borrow on their homes because of lender qualification standards. Therefore, 2014 saw mortgage credit availability come to a screeching halt and did not improve.
3. Inventory is Low: Despite the small increase in inventory of residential real estate, supply did not outweigh demand. As has been reported throughout 2014, the supply of new and existing residential real estate continues to remain below “normal” expected levels.
4. New Home Startups Don’t Increase: 2014 saw that new home sales were still at the levels they were in 2013. Despite this lack of growth, new home prices continued to rise substantially in 2014. The rise in prices might indicate that the increased home prices actually put a wall up on demand.
5. Renting Rules: There continues to be record levels of renting, which seems like a likely result when home ownership continues to remain at low levels. As long as this continues, rental prices will continue to increase.
This will be the last post for the year 2014. All of us at Khani & Auerbach wish you a wonderful New Year and may 2015 bring you everything you hope for in health, happiness and peace.
According to a Bloomberg survey of 25 economists and analysts, and after what seems like a rather disappointing year in the U.S. housing market, these experts predict that home sales will resume recovery in 2015 and anticipate an increase in sales, construction increases and mortgage credit eases.
In summary, the results indicate:
1. An increase in both new and existing home sales;
2. As a consequence of the relaxation of mortgage-lending standards, younger people who previously favored renting over buying may now consider purchasing;
3. Although the average rate for a 30-year mortgage is at its lowest level in a year and a half right now (last week 3.93 percent), rates are expected to rise to 4.725 by the end of 2015, but that won’t prevent an increase in new home and existing home sales; and
4. The median prices will continue to increase, but home-value appreciation will level off and both buyers and sellers will benefit from this more balanced market.
As they say, “slow and steady always wins the race.”
For a more detailed explanation of these results, please read the source article on Bloomberg.
Foreclosure Protection Bill for Servicemembers is Extended
According to an announcement from Senator Sheldon Whitehouse (D-Rhode Island), who introduced the bill in May, the U.S. Senate and the House of Representatives have both unanimously voted to pass a bill that give military service members who have recently returned from duty added protection from foreclosure.
The announcement from Whitehouse regarding S.2404, a/k/a the Foreclosure Relief and Extension for Servicemembers Act of 2014, states that the bill unanimously passed in the Senate on Thursday, December 11 and in the House on Friday, December 12.
Previously, there was a provision that set one year as the time a servicemember’s house is protected from foreclosure upon his or her return from active duty, if the mortgage was obtained before the servicemember was an active member of the military. This new passage in the House and the Senate extends that protection until January 2016. The Commission on the National Guard and Reserves submitted a report that prompted the foreclosure protection extension from 90 days to nine months in 2008. The period was extended to nine months as part of the Servicemembers’ Civil Relief Act (SCRA) in 2008 and lengthened further to one year in 2012 as part of a bill introduced by Whitehouse.
This one-year protection period was set to expire at the end of December 2014 and would have reverted back to pre-2008 level of 90 days at the beginning of 2015. Whitehouse’s bill, introduced back in May 2014, called for the permanent adoption of the one-year foreclosure protection period.
“After fighting for our country overseas, our troops shouldn’t have to fight to keep a roof over their heads when they return home,” Whitehouse said. “Servicemembers returning from active duty often need time to regain their financial footing, particularly those in the National Guard and Reserves who give up their full-time jobs to fight for our freedom. We should ultimately pass legislation to make this protection permanent, but I’m glad we were able to secure peace of mind for our veterans for one more year.”
The SCRA includes additional protection for military members (while on active duty) and their families from auto repossessions and other personal property. Under the current law, servicemembers (on active duty) and their families cannot be evicted from housing due to nonpayment of rent that is less than $1,200 per month.
No, this is not the title to my next major motion picture, however, it is a topic of much concern to the real estate industry. In addition to being a required element in a real estate transaction with loan, it oftentimes is the factor that makes or breaks the transactions.
Back in 2006, at the height of the real estate market in the United States, real estate appraisals were footloose and fancy-free. Everyone had their appraisers provide high appraisals and the home values became, in the words of Dr. Phil, “Out of Control!” Once the real estate market dove deep and the Great Recession set in, the government and the lenders made a concerted effort to keep appraisers more honest and the opinions tied to reality. It was only after the real estate crash that owners and appraisers did not see values the same way again.
Now, in 2014, several years after the initial crisis, appraisals continue to be just as important as they were before, but now the discrepancy between appraisers’ and home owners’ opinions of home values has begun narrowing. According to Quicken Loan’s Home Price Perception Index, in November, appraisers valued homes 1.56 percent higher than home owners, according to Quicken Loans’ Home Price Perception Index.
“Mortgage financing often hinges on whether the appraised value coincides with the home values agreed upon by the home buyer and seller in the case of a home purchase, and the home owner’s estimated value in the case of a refinance,” says Quicken Loans Chief Economist Bob Walters. “It is reassuring to see the gap between appraiser opinions and home owner opinions narrow, and if we had to choose a side of the fence, it makes for a much smoother mortgage process if appraisers are valuing homes above home owners’ estimates like we’re seeing, as compared to the opposite.”
Quicken Loans recently analyzed metro areas over the past three quarters and found that appraiser opinions were higher than home-owner estimates. Even within the various metro areas, the difference varies widely. For example, in San Jose, California, appraisers valued homes 6 percent higher than home owners on average, while in San Francisco, appraisers valued homes 4.35 percent higher. In Dallas, Texas, there was a 4.22 percent difference.
There were differences that resulted in lower opinions. For example, in Kansas City, Missouri, appraisers’ opinions were found to be 2.53 percent lower than home owners’.
Nationwide, however, real estate professionals are reporting much fewer appraisal issues as the deal breaker. These indicators are what gives buyers, investors and sellers the confidence they need to put their toes back into the water!
Between now and 2017, over $300 billion in Commercial Mortgage-Backed Security, also known as Conduit Loans (“CMBS loans”) will need to be refinanced. What does this mean and why is it important? 
