Let the bargain hunting commence!

That's one possible interpretation of CalPERS (California Public Employees' Retirement System) and their announcement yesterday that the system is going to allocate 10% of assets towards real estate.

The Calpers fund is worth about $250 billion, which isn't a bad day at the office. In a time when people are fleeing real estate, Calpers is diving into the pool by putting another $5 billion into the market It's almost as though someone taught them how to buy low and sell high..... (Besides, even in California, you can buy a good bit of property with $5 billion.)

If you have money to put into play, this is a great time to buy and hold multi-family housing, as a number of properties that should be good deals and snapped up quickly are moving more slowly. While commercial real estate is still a long way from the apocalypse that some have forecasted for it, there is room to make a value play on some properties.

Give me a call and see if I can help!

New product alerts!

Two sweet new products that have come into my toolkit:

1) Medical working capital loans. These are unsecured loans with an 84-month term, with no requirements on the part of the lender for the practice's daily deposits. Because they're unsecured loans, the heart of the business, such as machinery or real estate, is not put at risk.

2) Direct franchise loans. Traditionally the answer for anyone buying a franchise is to go with an SBA loan. But what if you don't qualify for an SBA loan, or what if you don't want to pay their loan guarantee fees? On some busineses, that fee is going to be as high as 15%!

This program can get approved more quickly than a traditional SBA loan, and it can be thousands of dollars cheaper than for the entrepreneur!

If you want to talk about these or any other loan scenario, call me on my new 800 number: 800-956-3915.

Good news for Kansas City

Two bits of good news for those of in the Kansas City business world:

1) Our area economy is strong and expected to stay strong through 2008, with strong growth predicted in the coming year. KC should have strong job growth for the next two years.

2) Commercial real estate will stay strong as well, with new projects breaking ground. KC is taking the lead among MidWestern cities, and is on track to become a distribution powerhouse.

The Fed holds an auction

So because banks are having trouble borrowing money to lend out, the Federal Reserve is holding an auction. Banks get to bid on money that they can't borrow from each other.

Essentiallly the Fed is injecting money into the system to offset the credit crunch, not just here, but also in Europe. From the story:

The Fed linked the new auction process to an announcement that it was extending a line of credit in dollars to the European Central Bank and the national bank of Switzerland so that those institutions could better deal with credit problems in Europe. The Fed said it was also coordinating with the central banks of England and Canada.

The stampede starts to turn

Back in the days of the Old West, during the long cattle drives from South Texas up to Kansas or beyond, there was no question of if the cattle would stampede -- it was a matter of when. Any sudden noise, from a dropped cookpot to a clap of thunder, could set the longhorns off.

Once a stampede was under way, there really wasn't anything that could actually stop it. Thousands of cattle would be running like mad.

The only way to get the herd back under control that I heard of was to ride to the front and to the side of the stampede and start firing shots into the ground. The idea was to make the herd turn and turn again, until the stampede was essentially panicked cows running around in a circle. After awhile, they'd get tired of running and go back to "normal."

If a "herd mentality" was to blame for the "credit crunch", then you can see the stampede starting to turn in this article from Forbes. Essentially a French bank, finding that it can't sell its SIV, is taking over the fund itself.

Here's the money quote:

About 9% of the fund's $4.3 billion portfolio of investments is made up of securities backed by American subprime mortgages, and investors are wary of investing in anything that is backed by to subprime debt because of the growing number of defaults in the United States.

If half of that debt went bad, the fund would be off by 4.5%. Yet investors are so skittish that they're not willing to pay anything over firesale prices for that risk.

While no one wants to lose 4.5%, it beats losing 50%, or more. Investors in Societe Generale are responding positively to the move, and stock prices in the bank are going up on news of the move.

New product alert

A new product that's now in the mix: short-term "hard money" for commercial loans. Essentially this is a bridge loan, with an interest-only payment option and a 75% LTV cap. The loan size goes all the way up to $100,000,000, and this loan is idealy suited for foreclosure bailouts and bank workouts.

Well, actually, it's "effect" not "affect"...

If you can ignore the mistake in the title, this essay posted on Net Gain Real Estate is actually quite good.

Titled (incorrectly) "The Affect of Record Crude Oil Prices on Commercial Real Estate," the author does some analysis on what rising oil prices mean, not just for retailers, but also for employers in the non-retail section. Required reading if you're going to buy commercial property.

Well, that's interesting....

Years ago, when I was in college, my work-study job was in the theater technical department. This was where I found out life skills like how to splice tape, run and dress cable, and how to solder three-pin connectors. In short, skills that are mostly useless now, but ones I'm still glad to have.

The theater's Technical Director was a man named Bob Bovard, who had what could only be described as a very dry sense of humor. When something really went very wrong, Bob would stand amidst the wreckage and say, with apparent relish, "Now that's an interesting problem."

Here's a piece of news, that, to put it mildly, is an interesting problem: some banks in the United Kingdom are asking customers to stop borrowing money.

In other words, these banks can't execute their core business for another four weeks. Granted, these are special customers and specific loans, but even so -- imagine calling your customers and saying "please don't work with me for four weeks."

So how did the subprime meltdown get this bad? If you can get past the funky formatting, Richard Martin, a Canadian management consultant, has this very good write-up on how a herd mentality developed. Essentially people were loaning money based on assets that didn't exist, and then packaging those loans and selling them to each other. Now, no one knows exactly how much is in the bag they're holding.

What does this mean for you? One, don't overestimate the degree to which the sky may be falling. But secondly, do make sure the loans you're in now are the loans you can be in for a 3-5 year window.

Where's Waldo?

I was embarrased today to look down and realize that it's been almost the whole week since I've updated the blog! This week, I've been spending time behind the wheel or in front of people, not at the desk.

Lots of great stuff going on, including an owner-occupiped property purchase at 90% LTV. This property may be eligible for a 30-year amortization.

The 30-year amortization is the newest crush I have. I've seen experienced commercial realtors and bank officers get pretty surprised when I show this product. When cash flow is the imperative, (and for most business owners, that's going to be the case), the math can be pretty impressive. On a 90% purchase transaction for a $300,000 property, the difference between the usual 15-year amortization and at 30-year would be $435 a month -- $5,184 per year. That's assuming that the 15-year loan has a lower interest rate, which isn't always the case.

Now that loan isn't for everyone. If your goal is to actually physically own the property, you should explore a 15-year fixed rate loan. (Fortunately, I can find that for you too.) If your first priority is cash flow, let's run some numbers and find out if a 30-year loan works for you.

New rules 1-5

What does the "credit crunch" mean for a local entrepreneur? Someone who wants to buy a 12-plex apartment house, or a gas station, or an office building?

It means a lot of things: it means we run an increased recession risk, as some of the big companies are dancing on the edge of bankruptcy. It means that if you have the nerve to buy while prices are falling, you can get into some very good deals. It means that some lenders are running away from you and others are running towards you.

But in short summary, here are the new rules 1-5 for what it means:

Rule 1: Make sure your debt is structured in ways that make sense for you.
Rules 2-5: See Rule 1.

Let's say, for instance, that the cash flow of your property is just okay. If an economic turndown means that you could be losing money, you should investigate a rate/term refinance. We have some 30-amortizations that can increase cash flow.

Let's say you need to free up some operating reserves. If you can lock in a good payment for 5 to 7 years now, and still free up cash, now's a great time to do that.

In my own opinion, the worst thing you can do is to hold on to an adjustable rate commercial mortgage. If property values fall, you may not be able to refi out of it.

Take a look at your payments now and make sure that the loans you're in are the loans you can be in for another 3-5 years. If not, call me today.

How will Rudd and Brown color the credit crunch?

Hope everyone had a great Thanksgiving. I would have preferred my long weekend to include a KU victory over at Arrowhead Stadium, but you can't have everything -- including a win over a very good, very fast team you've just spotted 14 point lead.

Over the long weekend, Australians decided to go moderately socialist by electing the Labor Party, headed by Kevin Rudd, who has described himself as an "economic conservative" who believes in an "activist government".

Leaving aside that head-spinning level of cognitive dissonance, what I'm wondering is what kind of trouble this spells for the worldwide credit-crunch. With the recent elevation of Gordon Brown to be the United Kingdom's Prime Minister, two of the most important economies in the Anglosphere are headed by people who, like Barney Frank here in America, believe in legislating first and asking questions later.

When times are bad, bad ideas become attractive, and in a democracy, there is a lot of pressure to "make an example" or "punish the bad guys." While real reform is needed in how banks account for their off-book assets, and in how investments are valued, something tells me that a torches-and-pitchfork approach will hurt more than it helps.

Why you need a broker

It's a terrific example of the psychology of the marketplace. Commercial lending standards are tightening, even as default rates are microscopic.

If you're a lender having to foreclose on a gas station or an office park, one foreclosure is probably too many. But given that default rates are .4% of commercial loans, and that those default rates haven't increased much, it's a pretty sound investment.

Yet instead of turning to this as a revenue stream, many lenders are running away from the market. That's why having a broker is a good move for anyone trying to do something unusual or a little out of the box -- you need someone who knows who's running away from business and who's running towards it with a checkbook.

I want to believe...

Is there a commercial real estate bubble about to burst? I don't know. Maybe, maybe not.

But there's little question in my mind that some people are looking for one.

Take this article from Seeking Alpha about the Blackstone Group.

The author focuses his attention on this pull quote:

During the periods presented, weakness in the sub-prime residential lending area spread to general commercial real estate lending. Although there was no evidence that these credit problems have significantly affected the underlying operating fundamentals of the investment portfolio, valuation multiples have declined modestly.

From this paragraph, the author concludes that Blackstone was issuing loans with subprime-like sloppiness in underwriting, that assets are declining because of systemic flaw in their approach, and that from here on out Blackstone will be able to say "I told you so" to investors when the shoe finally drops.

Maybe. I have to say that seems like an alarmist interpretation of what looks to me like fairly standard CYA language.

In that same vein "the underwriting shoe is finally going to drop", there's this little quote from a Financial Times story posted to MSNBC:

Industry insiders insist that underwriting standards for commercial loans are better than those for subprime residential mortgages.

This is at the end of a story that's about how investors are fleeing the securitized debt world.

Now maybe it's my turn to over interpret, but I don't think you need to be the Amazing Kreskin to find the disbelief in that last paragraph. In the alternative commercial loans I do, for instance, there's always a counterweight to what's unusual. If there's a very high LTV, there's very good income and/or credit. If there's bad credit, there's a great cash flow or great value for the lender. Also, since the lender engages the appraiser, not the loan officer, there's very little way to game the system, as happened in subprime.

The reporter was no doubt told all of this and more. But instead we get a mental picture of someone leaning across the table and shaking their fingers.

Cool networking idea

I come across a lot of networking ideas each week, but Kansas City's Small Business Monthly has an article with some really neat ideas for managing your networking.

Meeting new people and cultivating current relationships is an essential part of any business venture. It's awfully easy to let this become haphazard. This article essentially gives you some ideas on how to plan your networking, making it more goal-directed.

A terrific property and a great example

Just down the street from me, near the interection of 87th and Lenexa, is a prime medical building. The realtor who has the listing emails me the following information:

The property is a one story medical office building built in 1984 and is in excellent condition. The structure is wood frame with stucco and brick with aluminum framed, tinted windows and doors lining the east and west sides. Entrances can be found on all sides of the building. The structure has a pitched roof with composition shingle covering for easy maintenance and is only approximately three years old. The ceilings are finished with acoustical tile and recessed lighting. There are reception/waiting rooms, conference rooms, two large private offices, four restrooms, and storage area. The medical office space includes a lead lined x-ray room, typical patient rooms and nurse stations. WAC is zoned and new with auto sensors in every room for patient comfort. Currently, a doctor has a lease for approximately 2,855 square feet at $14.50 per square foot or $3,449.79 per month until July 3 1, 2009. The balance of the building of approximately 4,372 square feet is available to either lease out or be occupied by an own/user. The purchase price of the property is $980,000, which is below the 2004 bank appraisal by Gretzinger Appraisal Company of $1,000,000.

In the traditional model, the doctors who purchased this building would need to bring about $200,000 to the closing table. Then they'd spend tens of thousands more on new equipment as well. With the lending programs we have that are specifically dedicated to medical professionals, we have the capacity to lend 100% of the value of the building, including new equipment that might be brought in.

Is this the right loan program for everyone? Of course not -- no one particular loan is right for everyone. But for a new practice that wants to keep cash reserves intact, we have the ability to put them in a great building.

If you want to schedule a viewing of the property, call me at 913-712-8442 and I'll put you in touch with the listing agent.

Two other hot programs

I came across two new lenders today, each with a very interesting program.

One lender has a strong program for hotels and motels. This lender is getting hospitality owners into long-term amortizations and fixed rate programs, which they're finding useful. I don't know too many hospitality owners, but I'd like to try this out and see if it's as good as advertised.

Another lender has conforming rates for multi-family housing. These are loans that are usually at or over prime, so anything that starts with a "6" is pretty attention-getting.

What's hot right now

Every so often, I ask my lenders to let me know if there’s anything hot going on in their programs. A few things that have come up:

1) High LTV on multi-family is back! One of my lenders now has multi-family housing loans up to 90% LTV, purchase or cash-out. 6-unit minimum, 680 minimum FICO, very flexible on debt service ratios.
2) Another lender has stated income purchase deals for office or warehouse properties, up to 90% LTV. (700 minimum FICO, 12 month rent-roll required with application.) This lender also has rate/term or purchase deals with below prime rates for income producing properties with value of $500,000+.
3) Lastly, I have another lender with accounts receivable loans for businesses with slow payers. (Work must have already been performed.)

Let me know if you have questions on any of these programs or anything else.

Will transparency save the world?

Another entry where 3 separate stories came together for me to make a point.

For starters, just in case you're keeping score at home, the commercial paper market shrank again, making this the 12th consecutive week. This week's shrinkage was a little over 1% of the market. Do that over 12 weeks and you're starting to take a haircut.

And while I don't pay as much attention as I probably should to those who insist that the world is ending, (at least financially), there is more than one person who's shouting very loudly that the sky is falling. (I can't help but think many of these are giving their money to Ron Paul for President.) Roger Ehrenberg of Information Arbitrage seems more grounded than most of the writers I'm reading, and he points out that there are some very serious potential outcomes to the subprime meltdown, and that at the bottom, they involve a root cause of secrecy and and abuse of trust.

Then, in one of those happy Internet coincidences, I came upon this article from a local Kansas City blog, with the lovely name of Tasty Data Goodies. Without giving the whole article away, the idea is that the future of business is in instant and accurate data exchange. The problem with the subprime meltdown wasn't a lack of information, it was a lack of good data, and also, if you believe some stories, an active disinterest in good data.

Being able to tell what's really happening would go a long way towards preventing another meltdown, and it would create more jobs in a new field that's only really bloomed since 1997 -- knowing how to find and synthesize the world's open secrets.

Killing the patient to cure him....

Brian Brady brings us news from Capitol Hill, where Barney Frank has introduced legislation aimed at preventing another subprime meltdown.

It's your standard federal intervention -- locking the barn door after the horses have run off. But because Representative Frank has never worked outside of government in his life, it's worse than the usual nonsense. As is usually the case for politicians who have no business world experience, Frank puts all of the blame on "Wall Street fatcats" and (because let's face it, they're easy targets) mortgage brokers.

It's a bill that would neither help the borrowers or mend the actual problems that caused the meltdown in the first place. (I would say that this is a case of destroying the village in order to save it, but the problem is that no one ever actually said that.)

After you're done reading Brian's article, find your Congressional contacts and place a phone call asking him or her to work on defeating HB 3915. In your call to the staffer, be sure to ask for a written reply.

Irwin wants to lend you money

Irwin Home Equity was one of the lenders originating the 125% loan-to-value home loans. Not surprisingly, they don't really do that anymore.

CNN carries the report of
Irwin's 3rd quarter results, and there's a hint of things to come in the transcript.

On the commercial side, we are seeing mixed results. Our commercial finance channel produced record quarterly income, with strong production and good credit quality. However, loan growth in our commercial banking segment, while stronger than earlier in the year, continues to be behind our targets.

I don't know about you, but I read this as basically meaning, "it's as good as it's ever been and we need it to be better."

Commercial lenders show signs of shoveling money out the door. Earlier tonight I saw Suzie Orman talking to women who'd purchased houses using negative amortization loans. Make sure you are working with someone who isn't going to let the ease of getting the money put you in a spot where you'll regret taking it.

New product alert

Some new products that have come across my desk:

• Unsecured lines of credit: The good news is that these are immediate funding with low documentation. The bad news, as one might imagine with an unsecured, low-doc loan, is that these loans aren't cheap. However, if you need the money now, and have an increase in revenue that's going to result, it's a great deal for you.
• "Angel funding": The downside -- a minimum loan of $25 million. The upside: repayment terms that are so easy I'm not allowed by the lender to put it on my website. Call me to hear the ins and out.
• Energy funding: One of my lenders is hungry for energy funding. Energy projects that have a definite buyer for the produced energy are getting loans approved fast.
• Aggressive SBA loans: Another one of my lenders is hungry for SBA loans that fall outside what banks usually write. If your scenario has a higher loan-to-value than your bank is comfortable with, or you have less reserves than your lender likes, call me and we'll see if we can your deal done.
  

Why you can't find the 125% loan these days

For awhile one of the more popular residential products was the 125% loan.

While borrowing more than your home is worth sounds approximately as entertaining as playing with dynamite, it was a great deal back in the day (i.e., 2006, when dinosaurs still walked the earth) for those people who had 5 figures worth of credit card debt. The total payments would drop and cash flow would improve. For homeowners who were committed to staying in their houses for the foreseeable future, it was a way out.

Those loans are effectively dead, and this entry from the Market Oracle shows you why. In painstaking detail it shows how the theory behind the second mortgage went very wrong, and how the market in collateralized second mortgages absolutely collapsed.

While the article contains some hyperbole, it's an accurate asseesment of how a good lending tool went bad.

For entrepreneurs, it all means one thing: the housing market in the US has a long way to go before it gets better. Lenders will be eager to write good loans to businesses, but it's important to get in on that at the ground floor, and not buy an office building or a gas station at the top of the market.

Asset-backed commercial paper dwindles again

The credit crunch shows little sign of slowing down. Reuters reports today that asset-backed commercial paper shrank again last week. That's the eleventh consecutive week.

That shrinkage translates to one-half of one percent. By itself that's a rounding error. But in the overall picture, it means there continues to be less money to lend, and hence, that money's going to be more expensive.

Correction: "The Fed didn't say that"

I linked to a story on Tuesday indicating that the Fed would "do whatever is necessary" in order to protect the economy from the credit crunch that stemmed from the subprime meltdown.

Don't believe everything you read in the news, my friend. I came across this post on the Motley Fool website today. What do you know? The AP had the quote completely wrong.

AP reporters misstating quotes? That could never, ever happen.

SIVs continue to roil markets

Most of the loans that I can put a business into are ultimately going to end up in an SIV -- a "Structured Investment Vehicle". SIVs are like any other tool -- they aren't inherently good or bad, they're just tools. But because of the subprime lending meltdown, there's a tremendous amount of turmoil in the lending world around SIVs right now.

Here's an example of the repercussions: today's London Times has the story of a $2 billion SIV set up by a German bank that has gone into receivership. The Rhinebridge fund, owned by IKB, defaulted on payments to creditors last week. If I'm reading the story correctly, and if the reporter has the facts right, then there are $600 million in assets that the fund controls. So investors are "only" losing
70 cents on the dollar. I've seen worse.

Here's where things get really interesting: Today's Seattle Times reports that the King County Investment Pool has $100 million in the aforementioned Rhinebridge fund.

So King County may have just taken a $70 million haircut. To have a chance of meeting their obligation to bondholders, they have to find a way to invest their money in safer ways... but if they play it too safe, they won't make enough to pay the bonds back.

High quality commercial loans are going to be an expanding area of interest for lenders. There's a world of difference between loaning to a profitable enterprise and loaning 100% of a home's value to a family with no assets, a history of bankruptcies and three maxed credit cards.

TIP: if you can't show a profit on your tax returns, all is not lost. If your business bank statements can show a history of more money going in than out, there are loan programs that can help. Make sure your credit is good and try to keep any credit cards associated with your business either paid in full or at least below 50% of the available balance.

This is what I mean

I came across Jordan Crouch's blog today. I can tell that he is extremely good at his job, he's a good writer, and I'm honestly not trying to pick on him. But this post is exactly why I started this brokerage project.

First of all, if you look at the numbers this guy is tossing around, it's clear he's operating on the big time major league level. $400 million here, $684 million there... that adds up pretty quickly.

Jordan quotes terms that are 3, 5, and 10 years. That is going to do your average individual gas station owner or 12-plex landlord very little good.

Major commercial lenders are operating in a world where the lender, the buyer, and the seller all have attorneys on retainer, and where everyone can afford a refinance in a 5 years. If you want someone who can operate on a more everyday level... and still get you fixed rates and 30 year amortizations... then I'd be happy to see what I can do.

Commercial real estate: investing for your nest egg?

As always, there's a fine line between "investing for retirement" and "gambling." Today a trio articles caught my eye that seem to tie into a common theme, which is "you can make a bunch of money, but you can also lose your shirt. So do your homework."

First up is this happy article from the Springfield News Leader, which tells us about the "strong growth in the office and retail segments" and says that while there are some signs of slow-down there is no sign of any imminent crash.

Keep in mind that there are posts on this very blog from people who are very nervous about over-valued commercial real estate.

Does that mean that all CRE is overvalued or headed for a fall? Of course not. Like politics, all real estate is fundamentally local. It's the original case-by-case basis industry. A strip mall or office building might be a great deal even with a really low cap rate because of other factors. Similarly, an apartment building might have a terrific pro forma, but there are 6 out of 12 tenants who are sick of the winters in that building and are headed out as soon as their leases are up.

Following that article, I found this article which is both good and bad news: "The Federal Reserve will do whatever is necessary to prevent damage to the economy from the credit crunch that has gripped Wall Street...."

The good news about that statement, for entrepreneurs and people like me who help get money to entrepreneurs, is that interest rates will probably not take off like a rocket. The bad news is that there's a fairly clear signal that the underlying problems -- an overreliance on off-book collateralized debt vehicles -- may not be dealt with. Build assets now, my friend, and structure your debt wisely.

Lastly, Jeff Brown, a man I had the good fortune of talking to yesterday, has this article on his blog: the 401K as a Trojan Horse. 401Ks are sold to the public as a great way to avoid taxes. Guess what? You can easily blow yourself up with taxes using these vehicles. Read the whole thing, as they say.

What does this add up to? As the man said, God isn't making any more land. Real estate can be a terrific investment and it beats the heck out of relying on your 401K to save you by itself. However, in anything you do, you have to watch the fundamentals and make sure the math works for you, your particular risk tolerance and your particular situation.

It's the reserves

Gretchen Morgenson, in yesterday's New York Times, points out an aspect to the subprime meltdown that I haven't seen touched up on very much: where are the reserves?

Traditionally banks keep very little cash on hand. This doesn't just apply to the money they keep at the bank. As banks eat losses from lending, they in turn have to take that money out of reserves, and there's only one way to replenish those reserves, which is out of income.

Ms. Morgenson expects profits to take a big hit at the major banks for some time to come, and her analysis seems compelling to me.

What does this mean for entrepreneurs? Keep your assets handy, and if you have equity in a property, and can get it now, you may want to investigate the pros and cons of getting at that equity. It won't do you any good sitting there, but it also won't do any good to pay more for your property than you can afford. Take a look at the numbers and get a broker to run your scenario past a variety of lenders.

Is commercial the next subprime?

Lenders and brokers both are gritting their teeth and gripping the wheel with white knuckles over the question of "who's next?" Given that the business model of collateralized debt securities has taken such a beating, it's no wonder that there's a worry that commercial loans, FHA loans, conventional loans, etc., will all start falling through the floor.

It doesn't help much when people issue statements such as this:

"...inflated commercial property values, aggressively structured loans, and relatively high bank exposure for many mid-tier banks are 'a fairly toxic mix of factors.' "

Then of course there's
this graph right next to it.

Traditionally commercial loans have been on shorter amortizations and more aggressive adjustments than residential loans. The same kinds of opportunities to profit by refinancing are in front of property owners right now.

Lending money to family and friends -- what could possibly go wrong?

If you feel like setting your personal relationships on fire and making family reunions really really interesting for a long time to come, you can always start lending money.

Richard Branson is now making this easier than ever with Virgin Money -- a way family and friends can lend to each other more efficiently, and hence, spend less time and energy in blowing things apart.

Sir Richard has had some wonderful ideas in his time. I'm not sure this is one of them. Tying together love and money has a somewhat checkered history.

Kansas City's MicroWinery

Well, what's the point of living here if you don't enjoy living here? Add to your "to-do" list http://www.vintnerscellarkc.com/, Kansas City's only "microwinery."

If you were like me and completely unfamiliar with the concept of a microwinery, here's how they describe themselves:

We make our own wine on premise with the highest quality juices from around the world, as well as allow our customers to make their own wine. You can buy wine by the bottle or relax with a glass in our tuscan influenced micro-winery. For special occasions and gifts, we can create custom labels for your bottles. We will also host events at our micro winery such as birthday parties, wine tastings, teambuilders, bridal showers, etc.

Sounds like a winner to me! Call them up at (816) 943-1711.

New programs

While much of my practice surrounds commercial mortgages, there's a whole world of programs out there, especially for business owners with less than perfect credit.

Non-traditional business loans we can write include:

• Heavy equipment leasing and purchase: These loans include items for heavy trucks and other construction equipment, especially bulldozers and excavators.
• Accounts receivable financing: an excellent method for businesses to get through predictable dry seasons in revenue.
• Medical working capital: Doctors, dentists, veternarians, and other medical professionals can get immediate loans to expand their practices, consolidate debt or even handle personal expenses.

Those last loans tie together very nicely with a loan program for medical professionals that allow for a purchase of office space wtih 97% loan-to-value.

Are REITs undervalued?

REITs have taken some big hits during the credit crunch, and now some analysts are wondering if there should be an upward correction.

Does this create an investment opportunity for entrepreneurs? Maybe, maybe not. I'm a firm believer in only investing in things I understand completely, (which rules me out from most investing.)

What does seem to be the case is that the underlying fundamentals for commercial loans and commercial real estate are still sound. If anything, the credit crunch has made made lenders become more prudent:

However, because lenders are more cautious, some deals may get postponed or be slower to complete than in the past few years, she said. “We’re seeing a return to the fundamentals and deal structuring of the mid-(19)90’s and may see some dampening in investment activity, but there is a lot of momentum in commercial real estate.”

The lights are back on....

With the recent turmoil in my family, the blog went on extended hiatus. (Anyone who's caught the blogging bug knows that two weeks can seem like an eternity.)

But we're back on the air, brought to you by my new partners, Fortress Financial.

The folks at Fortress have a great approach to business, with a genuine caring and commitment to helping people build their financial futures. I really haven't run across a mortgage company so committed to helping people plan five and ten years down the road.

In memoriam: Ward Meston

Last night my father-in-law, Ward Meston, of Albuquerque, NM, passed away. In a way, he was another combat death of the Vietnam war: his death was due to Parkinson's Disease, which he contracted as a result of exposure to Agent Orange.

What strikes me most about his life was the intensity of his courage. I never saw him brag or try to intimidate anyone, but just a few of his Vietnam stories, told in a dry, matter-of-fact tone, would stay in your mind for ages. While Ward certainly didn't suffer in silence, no one could have ever called him a moaner or a complainer, or one who gave into self-pity. One time he took me out fishing. We were walking down a gravel path, with Ward pushing his walker and shuffling along, until we came to a spot about 8 feet over the creek we were taking on.

This was a slope that looked nearly vertical. I was hesitant to go down, and that was before I blew my ankles out. Ward folded up his walker, laid it down, and scrambled down the steep embankment.

He was the kind of American that we just don't see enough of these days: tough, self-reliant, and a man who made no apologies for how he lived and never asked for one. He fished waters from farm ponds to mountain streams to the deep seas, and he kept going hunting until he could no longer hold a gun. John Wayne, Gary Cooper, and Ernest Hemingway would have been proud to be in his company. He was a role model for me, he was proud of his grandchildren, and I know anyone who knew him will miss him.

What you need to know besides rate

I had a strange conversation with a commercial real estate broker the other day. Essentially he wanted to know information from me, but wasn't giving the information I needed to give him what he wanted.

One of the worst questions you can ask a broker is "What's your rate?" That very question contains a message you're probably not intending to send: in essence, you're saying to the broker that you're going to judge a loan based on one aspect that can be highly misleading.

Here are some other questions you can ask that will get you much better information, and put you in the driver's seat.

1) Is there a lock-out? A lock-out is essentially a prepayment penalty on steroids -- it keeps you from refinancing the loan for the duration of the lock-out. So, for instance, if someone puts you in a loan that adjusts every year and has a three year lock-out, you could be in bad shape.

2) Is there a pre-payment penalty and how long is it? I've seen loans with no pre-pay penalties (and they have higher rates.) I've also seen loans with fifteen year pre-payment penalties.

3) Is the loan full recourse or partial recourse? A full recourse loan sure has a lower rate, but it has a lot of consequences.

4) How is the lender treating the property? Most lenders have four tiers, and generally speaking, you'll find the same properties in these tiers. But there are exceptions -- some lenders, for example, have car repair facilities in the same tier as gas stations. Others won't touch gas stations. Some lenders care that a property is vacant, others don't.

5) What's the loan-to-value ratio? A 97% LTV ratio is a more expensive loan than an 80% LTV, but it's worth it to some people to not have to sink a bunch of cash into the property.

How to make your loan a slam-dunk

I recently got some feedback from a friend of mine on this post. He was urging me to be more positive.

Okay -- I am positive that I want your loan to close.

Well, that's probably not the kind of positivity he was talking about. So from the other end, here's what you can do to make sure your loan goes through.

1) Always be completely upfront. If there's anything about your deal that might be a little off, disclose it immediately. If, for instance, you own a building under one LLC, and you own another LLC that's paying a lease to the first LLC, that may or may not be an issue. Disclose it at the start of the process.

2) Be ready with the data. Any commercial lender I work with is going to want the same kinds of things: rent rolls, P&L statements, tax returns, Phase 1 reports, etc. You don't have to wait until you have every single piece of paper ready, but be prepared to get it. If you don't have the data easily available, that's going to be an issue -- one you should disclose early to your loan officer.

3) Explore a variety of options. Compare a lease versus ownership. Compare a refinance to a non-collateralized loan. Think hard before taking a loan with a lock-out or a pre-pay. Sometimes those are good loans, other times they aren't. This is your business, and its whole future could ride on making the right choice here.

4) Crouching Tiger, Hidden Dragon. If you didn't see that movie, the title was a reference to a continuing theme in Chinese martial arts... waiting for the opening and then moving without hesitation once it shows itself. As I wrote before, the number one deal killer I've seen is a reluctance to move on a deal when it's on the table.

Put it on your calendars

It's almost too late to go for this season, but I finally got around to getting out to a Kansas City T-Bones game.

This is not minor-league baseball as I remember it: no wooden bleachers in sight, and no $5 tickets and $4 hamburgers either. There's a DiamondVision screen, there's theme music for every batter, and most of the seats are right on top of the action. It's like major league baseball, only the players do things like miss routine pop-ups or get to base on a dropped third strike.

Recommended! Put it on your to-do list for next summer.

Is a Fed rate cut a lock? Not so fast....

Many people I've talked to have thought that a rate cut by the Federal Reserve at their September 17 was more or less a sure thing.

Not so fast! Greg Ip of the Wall Street Journal, in this very good article, lays out how Ben Bernanke is definitely cutting his own path.

To sum up the article, there are very real fears that cutting the federal funds rate would encourage people to go back to the bad old days of lending money to borrowers who shouldn't have it. Or, in the words of one broker I talked with recently, "take the industry back to being a bunch of yahoos that can't talk about anything else but rate."

In other subprime meltdown news, HR Block says it's getting out of the mortgage business period, end of story, even if the sale of OptionOne to Cerebrus Capital Management doesn't go through.

Given that Cerebrus was a three-headed dog in charge of guarding hell, this kind of looks like a no-win for OptionOne employees.

No news is good news...

Here's a great example of the cliche come to life: of the top twenty stories in the business section at news.google.com, only one of them has anything to do with subprime fallout.

Could the end of the credit crunch be in sight? One mortgage broker is seeing positive signs.

And while the Federal Reserve doesn't exactly set mortgage rates, its actions do affect the commercial paper market, and that's what drives the loans I can help entrepreneurs with. If you're in business for yourself, keep an eye out for September 17th.

Subprime meltdown continues to be the story

The massive earthquake of the financial world continues to have aftershocks:

1) The combination of tightening guidelines and foreclosures has created a glut of inventory.

2) That oversupply is creating the first nation-wide drop in housing values ever.

3) The difficulty in measuring the risk to lenders has resulted in the liquidation of a German bank.

4) When you put all this together, it means that the National Association of Business Economics has declared that bad credit is the number one short-term threat to the US economy.

As all of this shakes out, lenders will be more risk-averse for years to come. Naturally you want to do all the right things like pay your bills on time, be careful about taking on new debt, etc.

TIP: One place I've seen entrepreneurs swing and miss is not monitoring their credit reports, or not taking corrective action when there are derogatory items filed. If you've ever had anything derogatory on your credit report, don't assume it's going away. Make sure you take the matter up with each individual credit bureau, and keep monitoring your report until the matter reflects correctly.

An open letter to Dayton Moore

Please please please please please.... please... cut Emil Brown. He's this year's Angel Berroa.

Not that he's as bad as Angel... hopefully no one will ever again display quite that same combination of apathy, lassitude, and marginal competence.

But let's continue the work the Royals have done in sawing off deadwood and invite Mr. Brown to test his weight on the free agent market.

SBA loans

A common resort for small businesses is an SBA loan. In the Kansas guide there are 7 pages of lenders. Each page has about 48 lending banks.

Is an SBA loan right for your situation? Are there better alternatives? Are there alternatives period?

This is your livelihood, and you need a partner who's going to work with you on a number of avenues. That's the value a broker can bring.

Or, you could make 350 phone calls.

``There's just fear gripping the market.''

No matter how you slice it, 891 billion dollars is a lot of money. That sum is the amount that banks have at risk in commercial paper, the short term loans that banks use to lend money on bigger loans.

What we have is a production line where one part of the line is coming to a full stop. This is why so many central governmental institutions are stepping in to get things rolling.

Already there are signs that the panic is starting to abate, but unless the commercial paper market gets going again soon, things could be ugly.

TIP: What's an entrepreneur to do? One avenue is to investigate an SBA loan. These are still moving strongly, with bankers fighting to get into the game. Different banks have different features and guidelines for their SBA loans, so it helps to have a broker working with you. Call me at 913-754-1001 to see if that's a workable solution for your situation.

"They're all Waldos now."

Excellent article in today's CNN/Money section by Bill Gross, describing just why the panic has spread so quickly in the commercial paper market.

Essentially, no one knows quite where the "bad" money went. Here's the money quote:

Those looking for clues to the extent of the spreading fungus should understand that there really is no comprehensive data to allow anyone to know how many subprimes actually rest in individual institutional portfolios.

So if subprime loan default rates have tripled, and you don't know how many subprime loans are currently in your portfolio, you don't actually know how much money you have in your portfolio, because you don't know how much is going away.

But getting back to essentials: no one can make money sitting on a mattress. When the storm clears up -- and it will -- my hunch is that lenders are going to be much less forgiving of mistakes than they have been.

TIP: If you're in business for yourself right now, hold off on any unnecessary car purchases. The single biggest deal killer for loans is that new car you just bought.

Another Fed rate cut?

Question: Will there be another Fed rate cut? Answer: You tell me.

On the one hand, Bloomberg leads off its website today by telling us that the Fed may be able to avoid a rate cut.

On the other, Reuters reports that Fed observers are reading another rate cut as being inevitable.

I'm old enough to remember when people made careers out of watching who was standing next to the Soviet premiers as the tanks went by on parades. It seems there's a certain analogy.

The bottom line, however, is that the trend line for 5 and 10 year bonds is consistently downwards over the past few months. That plus the probability of another rate cute is good reason to think that the current credit crunch is going to ease in the near-term.

Most businesses have started making their 2008 plans. If you're going to need some kind of financing to make those plans happen, the fall will be an important time for you.

5 Ways to Screw Up Your Commercial Deal

In some ways, commercial loans can be easier to get than residential loans. But there's no doubt that they're also more time- and money-intensive than a traditional mortgage. Just like working for yourself requires more commitment than working for others, a business loan requires a real commitment.

Here are 5 really good ways to mess up your commercial deal.

1) Failing to budget: A commercial loan on a property is going to require an appraisal, and these appraisals can run into big money. $2,500-$3,000 is a realistic budget for a commercial deal. In addition, many lenders are going to require a commitment fee. Get a strong sense of what kind of expenses are going to be required before you proceed with your loan.

2) Failing to pull the trigger: Procrastination kills more deals than anything else. If you're refinancing because you need money, then get the money while it's on the table. Credit scores can drop, sellers can change their minds, lenders can pull programs... very few good things come with waiting in today's environment.

3) Not getting buy-in from partners: If you have partners in your LLC or property with a 10% share or better, chances are good you're going to need them in this with you. They'll also have to consent to a credit report pull, submitting their tax returns, and all the steps you're talking to get this done.

4) Not having your ducks in a row. Your loan officer should work with you on this, but the information you're going to have to provide will be considerable. This usually includes at a minimum two years of business and personal returns, a year to date financial statement, a copy of your LLC's charter, and often a rent roll, business plan, or other documents that show how you're going to be able to pay off this loan.

5) Get going too late: Some commercial loans close and fund in a week. Most, however, take a lot longer. From the time you get your underwriting approval to the time when the loan gets done, you should budget about 6 weeks for the whole process. Obviously, if you need the money in two weeks, you're starting late.

What it all boils down to, as usual in business: be more honest, budget more time, and don't procrastinate.

You are SO not alone

Entrepreneurs often miss the office work space, and sometimes it feels more than a little strange to be out on your own.

But there are a ton of people doing it. Check out this quote from the business section of the Kansas City Star:

The U.S. Census Bureau last fall reported an almost unbelievable number: Self-employed individuals who have no paid employees operate three-fourths of U.S. businesses. These self-employed roamers may miss co-worker camaraderie, but, boy, do some office-bound employees covet their peripatetic “bedouin” style.

Everyone of those people is contributing something, and probably everyone of them thinks, "why don't I have a normal job?" But the entrepreneur is becoming the new normal.

Enjoy the river

Part of living here is (and this will shock some of the work-aholics I know) enjoying living here.

Here's a company that can help you do that: the Missouri River Paddling Company. I'm a big fan of canoeing and kayaking, and these folks will take you down the Missouri and Platte Rivers. On a fall day, what could be better?

The Kelo Decision In Kansas City

You might remember the Kelo decision gave a rubber stamp to government's ability to condemn properties for the use of a private party.

An interesting example of that is at work here in Kansas City as the Dunn Company is being slapped around by the local condemnation panel, which has recommended a value of $63 to $77 a square foot for the block bound by 10th, Locust, 11th and Cherry Streets.

I guess I sympathize a little with the Dunn Company... it's hard to see how a mostly vacant parking lot is worth that. At the top end, that means that this lot should be charging $7,000 per year per parking space. I doubt they're getting that, and I doubt Dunn's getting a fair deal.

On the other hand, how many entrepreneurs have the ability to walk to a City Council member and say "Hey, would you get that property condemned for me?" Now compare that number to how many are likely to be on the short end of that stick.

Getting a Business Loan: Not That Hard

I promise that I'll blog about something besides the subprime meltdown soon, but it's certainly the story of the moment in the financial world.

If you're an entrepreneur in the Kansas City area, will the credit crunch kill your loan? Actually, probably not.

The real credit crunch in the commercial world right now is for companies trying to buy companies. For the entrepreneur who wants to buy a six-plex or a gas station, those loans are still out there. For now.

As always, you need to pull the trigger on a deal sooner rather than later, because who knows what tomorrow is going to bring. Anyone trying to predict the future right now is going to have some sleepless nights.

China: We Won't Nuke the Dollar

You'll always see people who get their kicks by proclaiming that a particular crisis is the end of the world as we know it. One of the pieces of doom-and-gloom I've seen is the idea that the People's Republic of China is going to destroy the United States by selling off all of its dollar-based assets and plunging us into another Great Depression.

It's nice that the Chinese are promising not to do that, but the real reason not to buy the hype is down a little lower:

Leading Chinese economist Yu Yongding, the director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, told Caijing magazine that China could not possibly diversify away from the dollar to other currency assets without substantially weakening the dollar, the results of which would not work in China’s interest.

In other words, the Chinese know full well that they'd blow up their export market by blowing up the dollar.

Subprime hits commercial paper

Commercial paper, the assets that are used to back a wide variety of financial instruments have hit their highest rates since 2001.

This is a great example of panic in the marketplace: investors are demanding higher yields on commercial paper because some of them contain mortgages. Note the word "some" -- commercial paper is used to back everything from auto loans to insurance underwriting as well as small business loans. But because of the subprime crisis, the general trend right now is towards an evaporation of lending capital.

Investors can't sit on the sidelines forever -- pension funds aren't going to meet their obligations by putting a few billion dollars in money markets and interest-bearing checking accounts. To ease this liquidity crunch, we're seeing moves by a wide variety of central banks to put money into the system. At my last count, the European Union, the Australians, the South Koreans, and others are making what are more or less emergency loans.

What does this mean for you as a business owner? Expect the costs of doing business to go up, for one thing. If you've been thinking of getting a line of credit or a business loan, act now to lock it down, because the deal on the table today may very well not be there tomorrow.

It's hard out there for a sub-prime lender

Some people are wondering if the worst of the sub-prime storm has passed us by. Maybe. Here's the bad news... if the worst of the storm has gone by, there's still plenty of storm to come.

Check out this slideshow from Business Week. California foreclosures are up 286% from last year.

In other words, the big money is running away from the home loan business. That means lenders are dying off, and in turn, that means many buyers are having a hard time buying.

Bad news for the credit challenged buyer, and bad news for a seller. But it could be great news for you.

If you've got the nerve to buy when prices are low, now's the chance. Between desperate sellers and rising foreclosure rates, this could be one of the best times ever to buy investment properties. That's not a game for everyone -- but if you have some money to put down and if you have strong credit, you're not going to find a better time to scoop up some bargains.

TIP: Be particularly on the lookout for single-family houses or duplexes. Fourplexes are riskier loans to lender, and they carry a correspondingly higher price.

If you'd like see if I can get you into some investment opportunities, give me a call today at 913-754-1001.

Welcome!

You're reading the first post for KCBizFunds. The mission of this blog is to help entrepreneurs enjoy the fruits of their labors. You'll find tips here on how to get a loan for your business, as well as tips on management, marketing, and how to enjoy yourself here in the Kansas City area during those precious off-hours!

With all of the turmoil in the lending industry, take a second right now to bookmark this blog, so that you can keep up with the changes here in our area.