Sponsored by:

"We consider it to be the safest property-type that goes into CMBS. Investors like seeing multifamily in conduits." -Stewart Rubin, vice president, senior officer, structured finance group, Moody's Investor Service and author of "CMBS: Moody's Approach to Rating Loans Secured by Multi-Family Properties."

MBA Survey Places GMACCM as Top CMBS Special Servicer

Industrial Property Could Take Charge in 2003
Kmart Closings More Severe This Year on REITs Compared to 2002

Multifamily in CMBS Market is a Safe Investment, Says Moody's

Collateral Mortgage Arranges $210 Million for Mixed-Use Development

CapMark, Atlanta Hosts Regional Forum in Less Than Two Weeks

MISMO Waits for Comment on Conceptual Model Draft

New WTC Likely to Enter Private-Public Partnership

How Will Proposition 46 Affect Affordable Housing?

MBA Survey Places GMACCM as Top CMBS Special Servicer
MBA (3/6/03) Murray, Michael

GMAC Commercial Mortgage Corp.(GMACCM), Horsham, Pa., is the industry leader in special servicing for commercial mortgage backed securities (CMBS), based on the results of a 2002 year-end survey just released by the Mortgage Bankers Association.

The survey shows GMACCM with 16,432 loans totaling $76.9 billion, with Lennar Partners in second with 10,455 loans for a dollar volume of $65.8 billion.

Meanwhile, Midland Loan Services, ARCap Investors and Lend Lease Asset Management (CapMark) rounded out the top five, respectively, with more than $20 billion worth of loans at year-end.

Tabulations from a new question in the annual survey showed that 2.9 percent of the loans and 3 percent of the dollar volume had been transferred to become "actively managed" by the firms.

The top ten named special servicers in MBA's survey, out of 25 firms reporting, accounted for 97 percent of overall volume.

Please click here for the full results of MBA's special servicing survey in the Industry Data section of the MBA CREF Web page at www.mortgagebankers.org.
(Back To Top)

Industrial Property Could Take Charge in 2003
MBA (3/6/03) Murray, Michael

Sales of industrial assets at more than $5 million totaled $9.5 billion in 2002, dropping from $11.1 billion in 2001. The results are based on an Industrial Market Trends report released by Grubb & Ellis, New York.

In the fourth quarter of 2002, the average cap rate for all industrial transactions hit 9.51 percent, slightly less than 9.57 percent from the same time in 2001.

Authors of the report said that the investment market "looks promising going into the spring" and that Real Capital Analytics reports more industrial properties coming onto the market at aggressive pricing, suggesting cap rates could fall over the next two quarters.

"This would be consistent with trends in the office, retail and apartment investment markets," the report said.

If fundamentals continue to deteriorate in office and apartment leasing, and consumer spending declines, the authors pointed out that retail could take a hit leaving industrial as the strongest contender out of the four food groups.
(Back To Top)

Kmart Closings More Severe This Year on REITs Compared to 2002
MBA (3/04/03) Murray, Michael

The 326 locations that Kmart closed in 2003 had, on average, "superior demographic qualities" to the 284 locations closed last year, but the stores owned by Real Estate Investment Trusts (REITs) were some of the best stores closed in both years, according to a report released by Wachovia Securities, Inc.

The report said that Kmart closed the better demographic stores in favor of stores with less competition with slightly more than 2 million square feet of space.

The closed stores had been surrounded by more people, more households and higher incomes, Wachovia Securities officials said, but store profitability appeared to be the main reason for closing them. The closed stores averaged 8.5 percent to 16 percent more gross leaseable area (GLA) than the average Kmart store.

The average GLA of REIT-owned closings for 2002 and 2003 totaled almost 2.9 million and 2.7 million square feet, respectively, compared with 2.2 million and 2.4 million square feet for the average Kmart closed in these years.

"Logic might dictate that REITs, by virtue of their superior demographics, should have experienced fewer Kmart closings, but the opposite has occurred," the report said. "Despite having better than average locations, REITs saw more than their fair share of closings."

Some analysts in the past have said that Kmart's competition, mainly Wal-Mart and Target big box stores, has better quality merchandise and more timely fashions but still at Kmart's lower price. As a result, more shoppers flocked to those stores.

But areas with below-average supply bring greater value to above average demographics, according to the report. Wachovia Securities said that it favors REITs with high quality portfolios that operate in high barrier-to-entry and supply constrained markets. Those REITs include Federal Realty Investment Trust, found in the Baltimore-Washington, D.C. area, and Mid-Atlantic Realty Trust in the Northeast. In the West, Pan Pacific Retail Properties fits the Wachovia bill.
(Back To Top)

Multifamily in CMBS Market is a Safe Investment, Says Moody's
MBA (3/5/03) Murray, Michael

Multi-family properties consist of slightly more than 22% of collateral securing commercial mortgage-backed securities (CMBS) loans, based on loan balance, but Moody's Investors Service, New York, considers the property type to be the safest of the bunch, despite higher retail and office property loan balances in the CMBS market.

Although some analysts have concerns about over-construction in multifamily, job loss and low interest rates sending more multifamily residents into single- family housing, the ratings agency still considers the property at the low end of the commercial real estate risk spectrum over the long term.

Stewart Rubin, vice president, senior officer, structured finance group, Moody's Investor Service and author of "CMBS: Moody's Approach to Rating Loans Secured by Multi-Family Properties," multifamily properties have one of the lowest default rates of the major property types.

"There are exit strategies [in multifamily] that don't exist for other property types like Fannie [Mae]," Rubin said. "There are more options. It puts less pressure on the balloon."

Rubin added in the report that there is generally less cash flow volatility, multifamily has lower operating expense ratios, and the property-type is less capital intensive than other property types.

"We consider it to be the safest property-type that goes into CMBS," Rubin said. "Investors like seeing multifamily in conduits."

However, the report also pointed out negative aspects of multi-family properties with regard to short-term leases, although this is mitigated by the reality of high residential lease renewal rates. But the primary drivers of the multifamily property market are still job growth and household formation.

"The apartment property sector is threatened by the booming market in single-family-home sales spurred by low interest rates, weak demand resulting from a struggling economy and job losses, and overbuilding," Rubin said.

But the report noted that since 1982, the national vacancy rate in multifamily has not risen by more than 10 percent and in Moody's Red-Yellow-Green report score including all years since 1982 Green is 77, compared to Yellow-48 for office, Yellow-66 for industrial, and Green-70 for community retail. The national average composite vacancy rate for all years in multifamily since 1980 is 7.3 percent. "In the long term, compared to other asset types, [multifamily] has performed better with lower vacancy rates," Rubin said.
(Back To Top)

Collateral Mortgage Arranges $210 Million for Mixed-Use Development
MBA (2/28/03) Murray, Michael

Collateral Mortgage Capital, LLC, Birmingham, Ala., recently placed interim financing on the Easton Town Center located in Columbus, Ohio. The $210 million loan was funded through a consortium of six major financial institutions led by HSBC Bank USA and Key Bank. Other investors included Eurohypo AG, CharterOne Bank, First Commercial Bank, Midfirst and Comerica.

Easton Town Center, completed in 2001, is a work/live, entertainment and shopping destination with property that includes 1.5 million square feet of retail and office space on 73 acres of the land. An International Council of Shopping Center (ICSC) award winner, it is designed as a six-block village.

The borrowing entity in the transaction is Easton Town Center, LLC, a partnership between Limited Brands, Inc. of Columbus, Ohio; Georgetown Company of New York; and Steiner + Associates of Columbus.

Ted Schmidt, executive managing director, Collateral Mortgage Capital, said that Collateral conducted a comprehensive search of the market, looking at a number of long-term institutional lenders, a variety of long and short term commercial mortgage backed securities (CMBS) sources and a number of major banks.

"The borrower's objectives, which we achieved, included taking advantage of the current interest rate environment while at the same time maintaining maximum flexibility to allow for additional development opportunities," Schmidt said.

The interim loan has a 36-month term and can be extended for two additional years contingent upon the achievement of certain conditions. The loan is priced at 1.75 percent over LIBOR. The borrowing entity utilized the proceeds from the loan to recapitalize an existing construction facility and retire other partnership debt.

Easton Town Center's anchors include Nordstrom, Lazarus, and a 30-screen, 600-seat AMC Theater. At the time of funding, the property was 92 percent occupied.
(Back To Top)

CapMark, Atlanta Hosts Regional Forum in Less Than Two Weeks
MBA (3/6/03) Murray, Michael

The Mortgage Bankers Association is sponsoring its fifth Commercial/Multifamily Regional Forum in Atlanta on March 18, 2003. The forum, hosted by CapMark Services, LP, Atlanta, includes technical training and networking opportunities for entry to mid-level servicing professionals and managers.

The forum is open to loan servicing and closing personnel that include asset administrators, servicing managers, as well as master, primary and special servicers.
(Back To Top)

MISMO Waits for Comment on Conceptual Model Draft
MBA (3/6/03) Murray, Michael

After releasing its Conceptual Model Draft at the CREF Convention in San Diego on February 3, 2003, the Commercial Working Group of Mortgage Industry Standards Maintenance Organization (MISMO) is waiting for comment. The draft provides a high level data model of how the business should operate and it is a road map that will enable MISMO to proceed with its efforts for standardizing data in the commercial mortgage industry.

"It's extremely important that we have the industry provide feedback early," said Dave Bodi, executive vice president and chief technology officer at Midland Loan Services Inc., Kansas City, Mo. "[Full industry comment] will make everything move quickly in the end and pay tremendous dividends in the long run."

The high level data model consists of "containers" that hold data elements. A "parent container," such as origination to servicing transfers or servicing to servicing transfers, branches down to the "children" containers that have one or more deals, loans, types of collateral and people involved in the transfer (or transaction).

"As you walk down the level, that is what we are defining out," Bodi said.

Bodi chairs the Commercial Servicing Group of MISMO. He said that Servicing has leveraged off of the developments of residential MISMO, but the structure did not correlate from a commercial perspective.

According to Bodi, the residential servicing transfer specification reflects the higher volume of loans in a transfer and the lower number of data fields in a typical loan.

The commercial data model is designed to fit the wide-ranging needs of a typical commercial mortgage, Bodi said, since each transaction or transfer of data might require more than one property, loan, piece of collateral or set of vendors. And beyond those "containers," more data elements branch out within a less standardized industry.

"We're trying to standardize where we need to standardize," Bodi said. "We're taking data elements and trying to apply them to the logical data model."
(Back To Top)

New WTC Likely to Enter Private-Public Partnership
MBA (2/28/03) Murray, Michael

Perhaps it is fitting that the design for the new World Trade Center, a symbol of peace in its original construction, will now represent the "durability of democracy" and "confirmation of life," because it appears that only the most durable of institutions will be able to fund this structure. As terrorism insurance concerns continue for lenders, despite the help of the Terrorism Risk Insurance Act (TRIA) and some signs of insurance companies lowering costs, the new WTC will likely remain an economic symbol from September 11, 2001 and, therefore, a potential target for terrorism activity.

But the American Insurance Association (AIA) said that the new WTC towers would be treated like any other high trophy property in New York City. While the architecture of the new towers will not influence the potential costs of insurance, its location and density of the people will be the key to insurance costs.

"New York City is a continuing target. That's what the government officials are saying," said Nicole Mahrt, spokesperson at AIA. "The cost is going to reflect their relative risk of loss and where the building is located is going to influence their rates."

Financing a skyscraper or trophy property alone has been difficult with the threat of terrorism hanging over the towering buildings, but a structure that might be a terrorism target for an indefinite time period could require some extraordinary provisions.

L.J. Melody & Co., Houston, Texas, arranged a transaction on a large trophy property last year in New York City for $440 million. The high rise tower, 1290 Avenue of the Americas, had been financed by Morgan Stanley Mortgage Capital Inc., New York. But the new WTC towers will carry more political baggage as well as a substantially higher price, said Brian Stoffers, executive managing director and chief operating officer of L.J. Melody & Co.

Stoffers said that it will most likely involve a public and private partnership that includes the New York City Port Authority adding credit enhancements to the project.

"I'm sure that it will be a quasi-public and private execution that ultimately pulls it off," Stoffers said.

But on the private side, a financing institution or investment might need to take a bold stand in order to stand behind the financing, such as entrance into the new structure as an anchor or lead tenant. Some analysts have said that the occupancy rate alone might cause some financing concerns.

"If you get a consortium of law firms and investment bankers that are really committed to bringing life back into downtown, then that combination of preleasing and some financial backing would probably get it off the ground," Stoffers said. "It will take a concerted effort from a lot of different [firms] to make it happen."

The Lower Manhattan Development Corporation and the Port Authority will continue to accept public comment on the design in general and as part of the environmental review process that has been scheduled to begin this spring.
(Back To Top)

How Will Proposition 46 Affect Affordable Housing?
MBA (3/6/03) Johnson, Hunter L.

In California, the affordable housing crisis is greater than it's ever been. The passage of Proposition 46 in November 2002 was a major step forward as the state grapples to find ways to solve its ever-worsening affordable housing shortage. Proposition 46 is intended to address California's dire need for affordable housing with bond money. The measure's programs are expected to direct new funding to preserving and building affordable housing at a time when only 27 percent of Californians can afford a median priced home.

The wide-spread efforts by numerous groups and stakeholders to pass the proposition have also helped build a strong coalition of affordable housing advocates and created more awareness about the issues related to the housing crisis. Proposition 46 was supported by a coalition of lenders, senior organizations, business groups, labor unions, nonprofit housing and homeless advocates, developers, educators, local governments and numerous charitable groups.

First and foremost, Proposition 46 guarantees a steady source of income to fund affordable housing projects for the next five years. There is a two- to five-year spending plan on all of the programs funded by Proposition 46. Some expire in two years, some in three and some in five. For example, the multi-family program provides the largest amount of funding, roughly $910 million, which is scheduled to be released over the next five years.

This helps developers because they know with some certainty, how much is available and when. As we all know, one source of funding is never enough, so this will help fill the gap between other programs. The four departments within our state that help fund affordable housing are working cooperatively to leverage funding.

These departments include HCD, Cal HFA, TCAC and CDLAC. While this is a difficult administrative task for these departments, it will help maximize the money from Proposition 46, by allowing developers to utilize multiple sources of funding. This steady source of money will hopefully help stimulate better planning, better designs and more construction.

Additionally, it's anticipated the funds will act as development catalyst resulting in at least $13 billion in private investment and federal funds to build new affordable housing. The money will also create approximately 276,000 full time jobs and $9.38 billion in wages, along with $25 billion in spending for home-related goods and services.

While these affects are very positive, due to the budget crisis, cuts will probably be made in several affordable housing programs-cuts that probably would not be made if Prop. 46 had not passed. Governor Gray Davis is proposing to cut $38.1 million from the Housing and Community Development Department and $1.3 million from the Emergency Housing and Assistance Program's operating funds. Prop. 46 only provides funding for capital development, not operations, so those projects that need operating funds will not receive any help from Prop. 46.

While the proposition will provide funding for a substantial amount of new housing, it still isn't enough. Estimates indicate that the proposition will provide between 131,000 to 134,000 units of housing over the course of its five years-which is about 600,000 short of what we need, according to HCD reports. Some of these units will be from new construction, while others will be from preservation.

The fact that it does not provide any long-term solutions is another flaw of Prop. 46. What do we do in five years when all of the money has been allocated? We still don't have a long-term source of funding for affordable housing and those of us within the field are trying to devise some long-term solutions.

Hunter L. Johnson, President and CEO of LINC Housing, has almost 30 years experience in development, affordable housing, and structuring public/private partnerships. During his career he has had a hand in developing over 10,000 units throughout California.

Hunter has led the 17 year old non-profit in its growth from 950 to 3,065 affordable units throughout Southern California. LINC builds, owns and provides asset management for Family and Senior rentals and three Mobile Home Parks. Financing programs have included 4% and 9% Tax Credits, Taxable and Tax-Exempt Bonds, CDBG, Home and AHP grants as well as local redevelopment funds.
(Back To Top)

About MBA Commercial/Multifamily NewsLink Publisher: Cheryl Crispen, Senior Vice President - Communications and Marketing Editor. Electronic Publications: Mike Sorohan 202/557-2855 michael_sorohan@mbaa.org Editor, MBA Commercial/Multifamily NewsLink: Michael Murray 202/557-2851 michael_murray@mbaa.org Advertising Opportunities: Bill Farmakis 203/966-1746 bill@jlfarmakis.com MBA Commercial/Multifamily NewsLink, a daily electronic publication, is free to you as an employee of an MBA member company. For membership information, visit MBA's website at www.mortgagebankers.org/membership (Back To Top )

Copyright © 2003-2002 Mortgage Bankers Association 1919 Pennsylvania Ave. NW Washington, DC 20006-3438 (202) 557-2700, All Rights Reserved. http://www.mortgagebankers.org/    If this e-mail has been forwarded to you, please visit www.mortgagebankers.org/cmnewslink to receive your own free subscription. If you wish to unsubscribe or if you wish to receive MBA Commercial/Mutlifamily NewsLink at another e-mail address,click here