The new website is up!

Go take a look over at Alternative Commercial Lending. Programs, tips, and a profile to how we can help make your business more profitable.

New Products!

Just when I thought the blog was shutting down while the new webpage gets put together, two awesome new products that deserve some attention:

1) 90% stated income for purchase: While this does need high credit scores to qualify, there are a lot of people whose returns don't necessarily show a profit. Traditionally, stated income products for these folks have been capped at 75 or sometimes 80% loan-to-value. Coming in at 90% is a game changer for those who are looking to buy an office building or retail space.

2) 85% LTV acquisition-rehab: when it comes to buying multi-family investment property, there are usually going to be some property rehabilitation needs. These loans combine the rehab financing along with the purchase, at an oustanding loan-to-value ration. Additionally these loans are amortized over 35 years!

Happy New Year

My very best wishes to everyone for a happy and prosperous 2008. This blog will be "going dark" for a bit while I work on the new website for this brokerage. In the meantime, you can always reach me at 800-956-3915.

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.