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	"Moviegoers can now sink into cushy seats in a stadium setting with extravagant sound systems and everything from Starbucks cafe lattes to Soft Taco Supremes to fill tummies." - Larry Feldman, president and CEO of Feldman Equities, discussing a renaissance in movie theater profitability through expansion and diversification.

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Movie Theaters Could Find Investment 'Reloaded' For Summer

Homeowners Grab 10-Year Mortgages
Wall Street Journal (05/21/03) P. D1; Simon, Ruth
A growing number of homeowners are trading in their 30-year mortgages for 10-year loans to save on interest and pay off their homes before they reach retirement age. Lenders say 15-year, 20-year, and 25-year loans are also becoming popular, but many homeowners are simply refinancing their 30-year mortgages to slash their monthly payments. Since shorter-term loans carry higher monthly payments, borrowers are urged to consider their future income to avoid financial crisis. Though lenders were anticipating fewer refinancings as the economy picked up steam, interest rates have remained at record lows, forcing the Mortgage Bankers Association of America to revise its mortgage volume estimate to an all-time high of $3 trillion.
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Mortgage Aids Are Attacked
Salt Lake Tribune (05/21/03) ; Mitchell, Lesley
Mortgage lenders in Utah are questioning whether down-payment assistance programs are responsible for the rising rate of foreclosures in the state. Utah had the second-highest percentage of Federal Housing Administration insured mortgages in foreclosure last year, and the U.S. Department of Housing and Urban Development is investigating the rising trend. Lenders are suggesting that such programs may be helping low- to moderate-income home buyers who otherwise would not have been able to buy a home, ultimately setting up families living from pay check to pay check for failure when they are faced with long-term payments, and maintenance and repairs cost on their home. As many as 4,000 home buyers may have benefited from the Nehemiah program, The Buyer's Fund, and dozens of similar down-payment assistance programs last year when about 30,000 homes were sold in the state.
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Fannie Mae Overstepping Mission--Rivals
Reuters (05/20/03)
FM Policy Focus insists that Fannie Mae's "PaymentPower" program, which lets borrowers skip some mortgage payments and adds them to the loan balance, goes far beyond its mission of purchasing mortgages and into direct lending. Though Fannie claims the program is provided by individual lenders to help borrowers avoid default, FM Policy Focus considers it direct lending because the borrower receives a new loan obligation. The group also accuses the government-sponsored enterprise of neglecting to seek the approval of the Department of Housing and Urban Development and wants the agency to eliminate the program. GE Capital Mortgage Insurance, Wells Fargo Home Mortgage, Household International, and Chase Manhattan Mortgage are just four of the companies that make up FM Policy Focus.
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Bill Aims to Rein in High-Cost Lenders
Boston Globe (05/21/03) ; Grillo, Thomas
Mortgage companies that lend in Massachusetts say a new antipredatory lending bill would make business unprofitable in the state. A hearing is scheduled for Wednesday on the bill co-sponsored by Senate chair of the Joint Committee on Banks and Banking, Andrea Nuciforo Jr. (D-Pittsfield). The bill requires mandatory credit counseling, limited prepayment penalties, and a reasonable and tangible net benefit for borrowers who receive loans at more than 5 percentage points above the 5-year Treasury rate. "This bill is far too aggressive and will drive out lenders," says Massachusetts Mortgage Bankers Association board member Linda Bates, who co-owns Sherwood Mortgage Group.
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Fannie Mae, Freddie Mac Prepay Differential 'Nothing New'
Dow Jones Newswire (05/20/03) ; Haviv, Julie
Though faster prepayments of mortgage-backed securities are to blame for Freddie Mac's loss of market share to rival Fannie Mae, Bear Stearns prepayment analyst Dale Westhoff says the companies' constant prepayment rates (CPRs) revealed similar differences in the last four refinancing cycles. Only during the 1998 refinancing frenzy were differences absent, mainly because lenders did not join forces with Fannie and Freddie until 1999 and 2000. Westhoff blames the speedier prepayments on Wells Fargo and ABN Amro, which account for much of Freddie's business. Last month, Fannie's CPR for 15-year 6s was 58, compared to Freddie's CPR of 68.
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Bonds Rally on Heightened Terror Alert
Los Angeles Times (05/21/03) P. C4
After the U.S. government raised the nation's terror-alert level once again to "orange" on Tuesday, Treasury bond yields slipped to new generational lows. The yield on the 10-year T-note, widely viewed as a benchmark for mortgages, ended at 3.36 percent--a 45-year low. In addition, the purchase of longer-term Treasury bonds has been stoked by a number of portfolio managers' need to hedge against the potential for their mortgage-backed bonds to be paid off early. As rates remain on the decline, mortgage refinancings will likely see another surge.
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Freddie Pursues CRA-Eligible Loans From Community Banks
Dow Jones Newswire (05/20/03) ; Kopecki, Dawn
Freddie Mac has embarked on a plan to aggressively purchase and repackage mortgages originated by small lenders. The government-sponsored enterprise is reselling them at a premium to banks that are looking to bolster their low-income investment scores with federal regulators. Freddie Mac officials have established several alliances with such organizations as the American Bankers Association and the Credit Union National Association in recent months, buying up their loans that qualify for Community Reinvestment Act (CRA) credits and offering free portfolio management and securitization training to bank employees. Freddie officials believe there is a lot of promise in consolidating the secondary mortgage market among smaller depository institutions, which typically boast less than $500 million in assets.
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New Mortgage Programs Reward Buyers of Energy-Efficient Houses
Sarasota Herald-Tribune (05/17/03) ; McLinden, Steve
Homeowners who want to do more than install programmable thermostats or add weather-stripping around doors to boost their homes' energy efficiency may want to consider an Energy Efficient Mortgage (EEM). The U.S. Department of Energy says these loans--which are used to make energy-efficient improvements--allow homeowners to put the savings from lower utility bills toward their mortgage payments. Homeowners can borrower as much as 15 percent more than the home's value without an extra down payment or income with the Fannie Mae-backed EEM, which is currently available from Countrywide Home Loans. Since many lenders are unaware of EEMs because they have been focused on the refinancing boom, RESNET executive director Steve Baden urges borrowers to bring the program to their attention.
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The final rule [pdf] , published May 16 in the Federal Register, requires that appraisers on FHA's Appraiser Roster have credentials based on minimum licensing and certification standards issued by the Appraiser Qualifications Board of the Appraisal Foundation. It also clarifies that an appraiser can be removed from the Appraiser Roster if the appraiser loses his/her license or certification in any state because of disciplinary action. The removal could occur even if an appraiser whose license or certification in any state, even if the appraiser continues to be licensed or certified in another state.

Tim Doyle, a director in the government affairs department at the Mortgage Bankers Association, said the final rule gives FHA the ability to bolster its existing regulations regarding appraisers.

"We support FHA's efforts," Doyle said. "The most effective way for FHA to improve appraiser quality is to strengthen its existing oversight mechanisms."

Doyle said no national system exists to license appraisers, so the provision tying FHA's roster to state licensure and certification would give the Appraiser Roster more teeth. "Certainly tying the Appraiser Roster to the states is a good step," he said.

The final rule goes into effect on June 16.

In a May 20 letter to House Transportation Committee Chairman Don Young, R-Alaska, House Aviation Subcommittee Chairman John Mica, R-Fla., and ranking Democrats James Oberstar, D-Wis., and William Lipinski, D-Ill., MBA said that H.R. 824, the "Aviation Investment and Revitalization Vision Act," would result in an "across-the-board increase in the cost to borrowers of obtaining residential mortgage loan financing from regulated lending institutions with no added benefit to them."

In the letter, MBA Senior Vice President for Government Affairs Kurt Pfotenhauer said that subsections of H.R. 824 would direct federal banking regulators to develop regulations to prohibit federally regulated lending institutions to "…make, increase, extend, or renew any loan that is secured by residential real estate or a mobile home that is located or to be located in the vicinity of an airport on the Secretary's list … unless the loan applicant's purchase agreement for the residential real estate or mobile home provides notice to the purchaser (or satisfactory assurances are provided that the seller has provided written notice to the purchaser prior to the purchaser's signing of the purchase agreement) that the property is within the area of the noise contours on a noise exposure map…"

Additionally, the bill would require each federal agency lender (including Fannie Mae and Freddie Mac) by regulation to require …notification in the manner provided in subsection (c) with respect to any loan that is made by the federal agency lender and secured by residential real estate or a mobile home located or to be located in the vicinity of an airport on the Secretary's list…"

"While MBA agrees that prospective homebuyers should be aware of potential airport noise and other environmental factors, MBA believes that this legislative language is ambiguous and inappropriate for several reasons," Pfotenhauer said. "Moreover, the disclosures mandated by S. 824 are made to the prospective homebuyer at a point after the buyer has financially and contractually obligated himself to the purchase of the property."

MBA notes the bill's legislative language would prohibit federally regulated lending institutions to: "…make, increase, extend, or renew any loan…" which suggests that the language would apply to lending transactions involving refinancings and modifications of existing loans. "However, those financing transactions do not involve home purchases and, as such, do not involve the transfer of a property from a seller to a buyer," Pfotenhauer said. "Thus, a plain reading of the language implies that a borrower seeking to refinance would have to present the original sales contract, from years past, to qualify for the refinance."

MBA said the bill would be of "little or no benefit" even to borrowers seeking to purchase properties located in these areas, "because the vast majority of those borrowers undoubtedly would know (by personal observation from visits to the property, by notice from reputable real estate agents, or as a result of the independent appraisal of the property) that a property is located in an area with air traffic. Many borrowers, in fact, might consider an additional fee to cover a lender's cost of ensuring that they have received proper notification from sellers to be duplicative of the cost paid to receive a reliable and thorough real estate appraisal of the property. Other borrowers might object to such a fee simply on the grounds that the location of a property within an air traffic area is readily determinable by them."

Pfotenhauer said the bill was a "misguided attempt" to protect borrowers in the same manner that the flood insurance laws protect borrowers from unexpected losses due to floods. Additionally, he said the bill, by establishing a precedent, would further increase borrowers' home financing costs.

"Such disclosure requirements could encourage other well intended but misguided legislation aimed at protecting borrowers from other risks associated with purchasing a home," Pfotenhauer said. "For example, a legislator could decide to introduce legislation requiring lenders to ensure that borrowers seeking to buy homes near major interstate highways receive notification that the properties have proper sound barriers, while another legislator might decide that lenders should ascertain whether borrowers have received notice about whether a property is located near a waste management facility. Still, other legislators could decide that lenders should require borrowers to present notice of the existence of lead paint in a home, or that a home is in or near a high crime area."

Pfotenhauer said if lenders "are forced to assume the additional responsibility of checking to see whether borrowers receive these notifications, lenders' costs will be passed along to borrowers as additional closing fees because the costs would be incurred for the benefit of borrowers-not the lenders. As a result, the legislation would be a net loss for all borrowers, including borrowers whose properties are not within the affected noise areas and borrowers who are not seeking to purchase a home."

MBA reported that interest rates for fixed-rate mortgages again decreased to record lows. Rates for 30-year fixed mortgages reached a record low of 5.17 percent; the previous record of 5.27 percent was reached last week. Rates for 15-year mortgages also decreased to a record 5.61 percent; the previous record of 5.68 was also reached last week.

"Interest rates are now at 45-year lows, and consumers are definitely taking advantage these rates," said MBA Senior Economist Phil Colling. "With long-term interest rates continuing to decrease in response to the Federal Open Market Committee's May 6 comments regarding the current very low level of inflation, MBA now expects 2003 to be yet another record year in terms of mortgage originations."

Refinancing activity increased to 76.0 percent of all applications from 72.4 percent the previous week.

Other seasonally adjusted index activity included the Purchase Index, which decreased by 4.7 percent to 395.8 from 415.2, the Refinance Index, which increased by 15.2 percent to 8351.1 from 7250.0; the Conventional Index, which increased by 11.3 percent to 2313.5 from 2078.3 from the previous week; and the Government Index which decreased by 1.7 percent to 310.2 from 315.7.

The share of ARM activity decreased to 12.5 percent from 12.7 percent the previous week.

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	Thrift Industry Highlights Thrift Industry Charts [pdf] Thrift Industry Selected Indicators [pdf]

The industry earned a record $3.33 billion for the quarter, nine percent higher than the previous record of $3.05 billion set in the first quarter of 2002. This was the third consecutive quarter of earnings growth for the industry, and only the second time that quarterly income has topped $3 billion.

"Continuing the trend from 2002, the favorable interest rate environment in the first quarter of 2003 continued to support a mortgage refinance boom, leading to record strength in earnings, profitability and capital for the thrift industry," said OTS Director James Gilleran.

Profitability, as measured by return on average assets, also set a new record, at 1.30 percent. This topped the previous record of 1.24 percent in the year-ago first quarter, and the 1.20 percent figure for the fourth quarter of 2002. The improvement came chiefly from other noninterest income, which primarily includes sales of assets, dividends on Federal Home Loan Bank stock and income from leasing office space.

SPG, a division of GMAC Commercial Holding Capital Corp., Horsham, Pa., provided bridge financing for 80 percent of the costs. SPG's total commitment was $6.375 million with $4.65 million funded at closing and $1.35 million held back for rehabilitation, tenant improvements and leasing commission costs. A $375,000 earnout is available to the borrower upon the successful achievement of an underwritten net operating income (NOI) hurdle.

SPG officials said the property and the transaction appeal to the firm because of the location, the property's high in-place income and a strong sponsorship. But there were also challenges on the transaction, such as the age of the buildings, the non-traditional office location and the number of small space users.

However, Jay Rollins, managing director of SPG and senior vice president of Newman Financial Services, said that the transaction is "a unique opportunity to finance a value-added transaction with a strong in-place cash flow."

The property was 90 percent occupied at closing by approximately 170 tenants, mostly smaller users in short-term leases, SPG officials said.

But the value-added strategy for Newman Financial is to convert a portion of those smaller users to larger users on long-term leases, which could increase the durability of the cash flow and increase the property's NOI. To achieve this objective, the borrower plans to redirect the marketing of the property to target larger local users and consolidate existing tenants into an executive suite model.

"The cash flow does not have to dramatically increase in order for SPG to exit the loan, but a different tenant mix does need to be orchestrated," Rollins said.

The loan carries a 36-month term with one, 12-month extension option available. The loan was priced with a spread floating over 30-day LIBOR and with a 25-year amortization schedule.

The loan closed with debt service coverage (DSC) above 2.0x, and SPG officials project the DSC to remain above 1.65x over the course of the loan. The exit fee will be reduced if Newman Financial Services or other GMAC Commercial Holding Corp. entities provide the takeout financing. The loan is locked out of prepayment for the first 12 months, but the borrower could prepay it in whole or part anytime after the year without penalty.

The three interconnecting office buildings, located on New Hampshire Avenue, consist of 145,000 net rentable square feet. The buildings vary in height from three to seven stories. They were built in 1956, 1964 and 1972.

Join industry expert, Brian Sacks, on Wednesday, May 28, from 3:00-4:30 p.m. EDT to learn how to "Close More Loans, Make More Money and Have a Life."

For additional information, go to http://www.campusmba.org/.

The Phoenix, Ariz., office of Feldman Equities, Inc., Manhasset, New York, recently completed a deal to upgrade a 15-screen Loews Cinema in Foothills Mall, a Tucson, Ariz.-based retail complex. Renovations include an exit into the mall rather than the parking lot to increase pedestrian traffic and potential sales. In exchange, Feldman Equities will fund theater upgrades for the Loews cinema in the mall.

"It's a classic 'win-win' business deal for both parties," said Larry Feldman, president and CEO of Feldman Equities. "With modern stadium seating, Loews is expected to generate substantially more ticket sales."

The mall appears to be a strong location for the Loews cinema. A five-mile radius of Foothills Mall has shown 33 percent population growth from 1990 to 2000 as well as a high-income group in the northwest Tucson area near the mall and a 2.5 percent unemployment rate in Tucson. Also, access became easier after construction widened a local roadway going into the mall, officials at Feldman Equities said.

Mike Norris, president of Loews Cineplex Entertainment United States, said that the renovations to the theater will not only enhance the lobby area but access to and from the theater will be more convenient for theater goers and mall patrons.

"The conversion to stadium seating of the Foothills cinema is also consistent with our plans to upgrade and expand our facilities," Norris said.

But not all movie theaters have reaped the benefits of box office smash hits like the recently released "Matrix: Reloaded" movie. In the mid to late 1990s, multiplex movie theater construction shot up to a frenetic pace and caused a number of theaters, including Loews and Regal Cinemas to declare bankruptcy. The Loews Cinemas chain filed for bankruptcy in 1998.

"A depression kicked into the whole movie theater business," Feldman said.

In 1999, that bankruptcy and other theaters filing for financial protection, stalled a contract between Earvin "Magic" Johnson's Magic Johnson Theatres, Inc. (MJT), Los Angeles, and a new retail and entertainment development planned for Landover, Md. near Washington, D.C. called The Boulevard at Capital Centre. The $85-million planned town center project would cover approximately 55 acres on the Washington Beltway at the former site of US Airways Arena.

But some leaders in the community said that without the Magic Johnson Theatres as an anchor in the mall, the project could be compared to a failed retail center a mile away called Landover Mall.

Loews Cineplex Entertainment partnered with MJT in 1998, and Loews Cineplex now operates under Sony, Cineplex Odeon, Star Theatres and Imax Theatres.

In February of 2001, an investor group comprised of Onex Corp., OakTree Capital Management, LLC and Pacific Capital Group Inc. signed an agreement to purchase the theater chain. One-year later, in March 2002, Loews Cineplex emerged from bankruptcy.

"The balance sheet is in good shape and their theater is making money," Feldman said.

Now, after four years of negotiations and a bankruptcy behind it, the Washington Post reported this week that MJT has agreed to operate a 12-screen, 52,000 square foot movie theater complex as anchor to the $82 million shopping mall called Boulevard at the Capital Centre, scheduled to open this November.

The planned redevelopment of Capital Centre is the culmination of a promise by Washington Sports and Entertainment chairman Abe Pollin, partial owner of the Washington Wizards and former owner of the Washington Capitals, to make the Capital Centre a viable part of the Prince George's County community, Cordish Co., officials said. The Capital Centre was a sports arena that Pollin developed in 1972 but later changed the name to the U.S. Airways Arena.

"[The retail/entertainment center] will create a much needed sense of place for the community in a wonderful upscale environment," said David Cordish, chairman of The Cordish Co., at a groundbreaking ceremony last year.

MJT touts itself as providing quality family entertainment to underserved areas, and some analysts say MJT fostered economic development and increased sales within minority communities in New York and Los Angeles. Under the MJT/Boulevard at Capital Centre deal, Cordish will make a $9 million investment to pay for the costs to develop the theatres.

Last year was the strongest year for movie attendance since 1957, with about 1.64 billion tickets sold, Feldman said, and multiplex theaters reversed a decline in attendance from the year before with an 8 percent increase in 2002.

The National Association of Theater Owners reports steady growth in moviegoer audiences with 2002 box office increases of nearly 9 percent to $9.37 billion from $8.41 billion in total U.S. box office grosses in 2001.

An increase in demand for movies and an improved balance sheet made movie theaters more attractive to Wall Street as Regal Cinemas formed an Initial Public Offering, and Loews is on-hold for one, Feldman said.

Feldman said that about 50 percent of moviegoers are younger than 25, and about 33 percent of moviegoers are between 25 and 39. Some analysts say that younger movie audiences might frequent one film numerous times if it becomes popular, such as the "Star Wars" and "Harry Potter" films, making them greater moneymakers.

"The hits keep coming," Feldman said. "They're rolling out one big blockbuster after another."

Although average U.S. movie ticket prices increased more than 9 percent in 2002, Feldman said that the movie theater industry attracts audiences with an investment of billions of dollars in the movie theater experience itself.

"People are attracted by the new amenities offered by exhibitors," Feldman said. "The improvements in the theaters include high-tech sound systems, brighter pictures and stadium-style seating that provides better sight lines. Moviegoers can now sink into cushy seats in a stadium setting with extravagant sound systems and everything from Starbucks cafe lattes to Soft Taco Supremes to fill tummies."

Feldman Equities of Arizona not only focuses on real estate investment and management but development as well. The firm purchased Foothills Mall in April of last year and the mall now has more than 97 percent occupancy, but Feldman Equities and its partner, Paul Ash Management, plan to create 50,000 square feet of new retail space within a 508,000 square foot entertainment and retail center. The plans also include a 10,000 square-feet expansion of the mall now under construction with the capability for an additional 80,000 square feet of expansion.