“People will never give up their offices.”

“Companies will never allow their employees the freedom to work from home.”

Seven, short years later, more and more companies are operating their offices on a virtual network, sharing files, and utilizing cell phones and Skype to create a virtual office environment.

But why did it take seven years for virtual office to really take off?  The internet was widely used back in 2003, and file sharing via email was rapidly replacing the fax machine.  I think companies have just been downright lazy and reluctant to begin utilizing free virtual office tools.  And many companies have simply dragged their feet in making the change.  By making everyone come to one place, the business owner had no reason to change.

Until now.

The recession has inevitably forced both small and large companies to convert to a virtual office structure and begin utilizing free tools like Google Apps and Google Voice.  These small companies are giving up pricey office space in exchange for home offices.  Many of these companies have provided virtual office tools to their employees, now allowing them to work from home.

In fact, a friend was telling me about his wife’s company with 40 employees.  While the business’s revenues slowed over the past couple of years, housing 40 employees under one roof was killing their income statement.  The solution? The company decided to axe the ridiculous office rent and instead provided tools for its employees to begin working virtually, from home.  The beauty of this new structure was that, not only did everyone keep their job, everyone was also really excited about working from home.

How this company’s income statement will recover or suffer from this business decision, only time will tell.  But the point is that they did it. They made the leap because they had to.  And they are not alone.

Seth Godin wrote about the move towards virtual office in his recent post titled, “Goodbye to the Office.”  An excerpt from his post sums up my sentiments on this topic exactly:

“…..Why go to work in an office/plant/factory?

1. That’s where the machines are.
2. That’s where the items I need to work on are.
3. The boss needs to keep tabs on my productivity.
4. There are important meetings to go to.
5. It’s a source of energy.
6. The people I collaborate with all day are there.
7. I need someplace to go.

But…

1. If you have a laptop, you probably have the machine already, in your house.
2. If you do work with a keyboard and a mouse, the items you need to work on are on your laptop, not in the office.
3. The boss can easily keep tabs on productivity digitally.
4. How many meetings are important? If you didn’t go, what would happen?
5. You can get energy from people other than those in the same company.
6. Of the 100 people in your office, how many do you collaborate with daily?
7. So go someplace. But it doesn’t have to be to your office……”

All of this talk provokes a billion dollar question in real estate: What is the future of commercial office?”

Noah’s of Utah is trying to predict where commercial office is headed with its new concept in commercial real estate.  At Noah’s, you can host a ballet class for an hour a week in a large room filled with mirrors and ballet bars.  The same day, a corporation can host a weekly meeting with its 40 virtual employees, and in the same room. How? The mirrors and ballet bars are on swivel doors as if inside a funhouse. White boards and projector screens are on the reverse side of the mirrored doors.

Noah’s is one commercial office concept that I think will do well in the future.

What other commercial office concepts will best serve the needs of companies that have chosen to ditch their conventional office space?  As Seth Godin lays it out in his recent post on this topic:

“When you need to have a meeting, have a meeting. When you need to collaborate, collaborate. The rest of the time, do the work, wherever you like.

The gain in speed, productivity and happiness is massive. What’s missing is… someplace to go. Once someone figures that part out, the office is dead.”

I wouldn’t say that commercial office as we know it will be completely dead. But I would say that it is certainly evolving, and fast.  What are your thoughts?

Posted by Corey Curwick on July 12, 2010

With such a shortage of cash over the last two years, it seemed that there were just too many good deals chasing a limited supply of cash.  Since the start of 2010, it now seems that there is more liquidity in the market.

Many private lenders are beginning to match the lower interest rates being offered by private investors or individuals lending out their IRA money.  Some of the programs that are currently being offered in the Western United States include:

• California Residential & Commercial Purchases, Refinances and Cash Out Refinances
  • 8.5 to 9.95% APR
  • Hard money 2^nd mortgages starting at 10% APR

• Utah Residential and Commercial Purchases, Refinances, and Cash Out Refinances
  • 10 to 11.99% APR

• Nevada Residential & Commercial Purchases, Refinances and Cash Out Refinances
  • 11.99 to 12.5% APR

• Arizona Residential & Commercial Purchases, Refinances and Cash Out Refinances
  • 11.99 to 12.5% APR

• Idaho Residential & Commercial Purchases, Refinances and Cash Out Refinances
  • 11.99% APR

These are just some examples. Last year at this same time, interest rates were typically starting at 12 percent and ranged between 12 to 14 percent.  Like you, I’m hoping rates will continue to trend downward for the remainder of 2010!

Any comments on this topic?

Posted by Corey Curwick on May 12, 2010

I convinced a banker friend to submit to an anonymous interview with me.  I agreed to keep the dialogue in the interview completely confidential and anonymous.  For this reason, he was able to admit some pretty shocking things to me. Things that bankers just can’t talk about or admit, without the risk of losing their jobs or worse, getting cut off from the precious TARP money from the government.

Before you read the interview, I am encouraging all of you to contribute your comments below, at the end of this interview.  I expect that most of you won’t be surprised by any of the answers to the questions below, in fact, most of you will think to yourselves, ‘Doesn’t everyone already know this?’

However, the majority of people out there really don’t know what’s happening in banks and lending.  A program that was intended to pull banks, and thus our economy out of this crisis, has only invited more abuse and greed in the banking world, and further delayed inevitable bankruptcy.

• How long have you been with this particular bank?

15 years

• Is this a community bank, a regional bank, or national?

It is a community bank that focuses on commercial loans.

• What is your title at the bank?

I was a commercial loan officer for 10 years. I am now Vice President of the commercial division of our bank.

• Tell me a bit more about how lending has changed over the last few years at your bank? For example, number of loans your bank was making then, versus now, the requirements then versus now, etc.

In 2006 we were making 125 commercial loans per year.  In 2009, we made 36 commercial loans.  In 2006, we lent based on appraised value, up to 85% of appraised value.  We also did not require borrowers to have a depository relationship with us in 2006.  Now, we lend primarily based on the DSCR, and up to 75% of value or the purchase price.  However, our average loan to value is actually only 70%.  We also require borrowers to establish a depository relationship with us. Typically 20% of the loan amount.

• So let me clarify what you’re saying. If a borrower comes to you with a commercial building that he or she can buy for fifty cents on the dollar, you are still requiring a 30% down payment based on the purchase price plus an additional cash deposit of 20%?

Correct. Even if the building is worth much more than our customer is buying it for, we are still only lending 70% of the actual purchase price.

• O.k., let’s use an example then, just to illustrate the numbers here. Let’s say I’m able to buy a building that’s worth $2 MM for $1 MM.  I’m coming to your bank for a loan of $1 MM to buy this building.  In this case, I’ll need to bring in a $300,000 down payment in cash as well as a $140,000 cash deposit.  This is a total of $440,000 in cash that I need to put up for a loan of $700,000?

That is correct.

• Wow. Unbelievable.

Yes, that is the reality I’m afraid.  If we give you a loan at all.

• So based on what you told me about only issuing 36 commercial loans total last year, you aren’t really lending right now are you?

Frankly, no.

• Do you think your bank will stay afloat and outlast this crisis?

Yes, I think we will.  The only reason we’re still operating is due to the conservative stance our President took at the end of 2006.  After 2006 we began to curtail our lending a bit because our President could see the bubble about to burst.  During that time, there was a lot of pressure on us to compete with other banks. The lending environment was very competitive, and frankly, it was out of control.  Some of our competitors were making 48 hour closings on commercial loans. In order to compete for the business, we were being pushed to do the same. Looking back, this was ridiculous, but at the time, it was just, well, business as usual.  Unfortunately, our competitors that were putting pressure on us at that time to keep up, well, they’re all out of business.

• That’s sad.  I guess the writing was on the wall though. Your bank’s President sounds like a smart guy.

Yes. He was, and is. Too bad our Board of Directors forced him to resign shortly after the bubble burst.

• What has happened to your bank since the bubble burst?

Well, we bought a larger, regional bank that was going out of business.  The problem is, they only had to disclose their “bad loans” at the time of the purchase. They did not have to disclose those loans that they knew were about to become “bad loans.”  So, shortly after the purchase was complete, we found out about a lot of problematic, or soon to be bad loans in their portfolio.  And, just as we feared, many of these “problematic” loans started to go into default, soon after the purchase.

• So what now?

Unfortunately, we must set aside a large sum of capital in reserves to cover these bad loans, 80% of the loan amount, for each loan that is in default.  This has eaten up all of our capital, which we could be using to make new commercial loans.  This is the primary reason we are unable to lend right now.  We are not lending because we are short on capital.

• But what about the TARP money from the government? Didn’t your bank receive any of this?

Yes, we’ve received over $50 MM.

• Wasn’t this government money meant to keep banks like yours lending? $50 MM is a lot of money to make loans with.

Yes, technically it was meant for that purpose. But I think most banks like ours are using their TARP money to cover bad loans on their books.

• Ugh. That’s the ugly truth.  So, that $50 MM dollars, that was lent to you by the U.S. government to keep lending, and indirectly to keep the wheels of our economy turning. You are using that to cover your bad loans and not to make new ones? And there’s no accountability, no regulations on this?

Correct to the first question. And, no, not really, to the second question. There are no regulations. It’s a pretty screwed up system. I can say that because I’m on the inside. I know first hand how it ticks. And this is exactly why I’m not supposed to say that we are not lending. If anyone caught wind that we are “not lending,” we’d be in a lot of trouble and those government loans would be called in immediately, if we weren’t shut down altogether.

• So what about your commercial borrowers? The ones that have a long-term relationship with your bank? Are you renewing their loans?

No. Unfortunately these are the customers that are getting hurt the worst in this whole thing.

• Why?

Well most of them have just completed their Phase I financing and are coming back to us for perm.  Some of these customers have been banking with us for over 20 years. We know their first names and we’ve seen their kids grow up etc.  When they come to us for this perm financing or after a 3 to 5 year call to refinance, we have to tell them to pay us off and go to another bank.

• What happens to them?

Most of them are so strong that we are hoping that they will be able to obtain a loan elsewhere.

• This seems backwards. Aren’t you trying to obtain more deposits? These customers are taking their deposits and walking.

Well, right now we need to raise capital through stock issue.  Investors won’t look at our stock unless no more than 20% of our portfolio is secured by commercial real estate.  This means we have to get this ratio down to attract investors to purchase our stock.  This is why we are not issuing new commercial loans. I think a lot of banks are in this same position.

This concludes the end of the interview with a banker. This story is not the same for all banks.  Some banks are stronger than others and have sufficient capital to continue making news loans.  However, the truth is that many banks are actually turning away long-term customers that have never made a late payment on their commercial loans. Customers with which they have built long-term relationships for 20 years or more.  These are the people who are truly getting hurt in all of this.

The more grim outcome of banks not lending, even though they have been lent millions by the U.S. government in order to keep doing so, is that the mere action of lending to businesses is what fuels our economy. This action creates jobs, and inventories of stuff that people buy, or services that people buy and sell, and profits which allow loans to get paid back, and then the cycle repeats itself over, and over, and over again.  Lending is the impetus behind this precious cycle.

Please leave your comments, good or bad, negative or positive. I’d love to hear from you on this controversial topic. Or, share your own story or a story of your clients. Please share.

Posted by Corey Curwick on March 21, 2010

You aren’t the only one who is having a tough time financing commercial property under $1 MM. Banks just aren’t lending right now on the following types of property:

· Mixed-Use Commercial under $1 MM

· Multi-Family Commercial under $500K

· Retail Commercial under $500K

Even if the properties are income-producing, qualified borrowers just can’t get their banks to do refinances much less any cash-out.

Private money may be the only option if you or your clients have an income-producing property that you are seeking to purchase, refinance, or need cash out.

Why? Private lenders are very active in this space and are looking for mixed-use commercial, multi-family, retail strip commercial under $1 MM.  Banks are not.

Any further comments on this discussion? I’d love to hear from the anyone who may have had recent experience with this property type in the current lending environment. Please share.

I was surprised to learn about a new distressed construction program and a stated income loan program for top-tier professionals.  Although not offering the lowest interest rates, these programs are evidence that investor confidence is improving in these harder to service areas.  Private money and hard money lenders are more liquid and looking for new loan options.

See below for some of the loan programs that my private lenders are making available in 2010.

As we head into 2010, any thoughts on where the values of real estate are going? Can values only go up from here, or do certain real estate sectors still have further to go in some regions?  Please contribute to this discussion.  I’d love to hear your thoughts on investing and lending in 2010.

Posted by Corey Curwick on December 25, 2009

2010 Private Loan Programs:

Eastern and Midwestern States:

OH, NY, MI, NC, TN, PA, IN, IL, MO, KS

Property Type – 1-4 family residential

Loan Amount – $50,000 to $500,000

LTV – Typically Maximum of 70% of as completed value.  Will consider slightly higher for strong client.

Interest Rate – Typically 9.5%

Points – 5% – 6%

$400 documentation fee

Credit Score – Minimum Middle Score of 680

Require Spousal Guarantees

***In Michigan, 700 mid credit score, minimum cash deposit of 10%, and maximum LTV of 65%.

CA, AZ, NV, OR:

Property Type  SFR’s, apartments, income producing

Loan Amount (sweet spot) 50k-500k and will look at deals up to 2M

LTV (as it relates to credit score) 60% max.

Interest rate and points as per loan term 12.5%, 4.5-6 points, 1-2 year term, no prepayment penalty.

Western States:

Residential and Commercial: OR, WA, CA, ID, NV, UT

Commercial only: CO, AK, HI

CONSTRUCTION FINANCING:

We typically require the land to be free and clear. (650 minimum FICO) Max loan amount is around $2m. Loan amounts between $500,000 and $2,500,000. Typically we’ll do the construction loan but will want to be taken out through immediate sale of the property or a refinance by another lender.

COMMERCIAL & RESIDENTIAL REAL ESTATE:

• Residential Loan Amounts up to $1 MM
• Commercial Loan Amounts up to $2 MM.
• Commercial: Well-located, multi-tenant, income-producing properties including: apartments, shopping centers, retail strip centers, mixed use, industrial, and office.  (No single tenant commercial or owner user properties such as restaurants, non-flagged motels and hotels, and convalescent/skilled nursing facilities).
• LTV ratios will normally be in the 50 to 65% range.

• 55% or less LTV, 60 to 65% or less LTC (Total costs include:  land cost, soft and hard costs, construction interest, points and closing costs).
• 9.99% to 11.99% interest only, 4.25 to 4.75 points to us
• Loan Terms up to 5 years

Utah ONLY:

Loan Program #1: Residential properties only.

• Short-term 1 to 2 unit residential, non-owner investment property.
• High Credit Score = Highest LTV ( 720+ Score = 80% to 85% LTV ).
• Max Loan Amount $400,000.
• No appraisal required.
• Loan Terms: 30 to 90 days.
• Interest rates from 12% interest only.

Loan Program #2: Residential and Commercial

• Loan Amounts up to $400,000.
• Up to 60% LTV.
• Loan Terms up to 7 years.
• Interest rate 14%.

California Only:

• Hard Money 50% or less LTV on NOO 1 – 4 units and commercial income properties.
  • 9.95%, I/O, 12 – 36 month terms, 4 – 5 pts, 0 – 12 month prepay.
  • Purchase / Rate & Term Refinances/ Cash-Out Refinances

• Conventional Fannie Mae 1 – 4 unit rehabs for owner-occ OR investors. Finances the lesser of 75% loan-to-cost or loan-to-after-repaired value (for purchases. refinances are AIV). Low ARM and fixed rates.

• Commercial income property loans — apartments, office, retail, mixed-use, storage. Institutional 1sts, or private 1sts and 2nds — doing lots of equity loans as 2nds these days.

• Direct Lender Fannie Mae, conforming loans: We are a direct lender in CA for conforming, conventional, A-paper deals. Our rates are competitive, but aren’t geared towards low-cost at this point.  Where we excel is in fast closings, since we underwrite in-house, and we control the appraisers who are in our AMC, limiting appraisal problems inherent with everyone else. Therefore, we’re a good source for deals that need fast closings at competitive rates, but not no-cost lending.

• USDA Rural 100% financing: SFRs in 14 northern counties in CA qualify completely for the program. Other designated “spots” in other counties available, but they’re rare in L.A., Orange, San Diego, Riverside, and San Bernardino, as well as the 7-county area around San Fran. The program provide 100% financing for qualified buyers of an owner-occ SFR who meet HUD median income guidelines.
  • NO mortgage insurance. Good rates, though slightly higher than traditional FHA or conventional.

• Residential Lot Loans: 25% down on improved, residential-zoned lots for full-doc, A-paper borrowers, purchase and R/T refi only — no cash-out. Rates in the upper-5.00% range, 30-yr term with 3-year balloon, 1.25 – 3 points.

• Super Jumbo Financing:
  • 80% LTV to $2MM, 40-yr amortization + interest-only — 3/1, 5/1, 7/1, 10/1, 15+25 ARMs only
  • 90% LTV to $1.1MM with 10% seller-carry 2nd — same terms as above
  • STATED INCOME — 65% LTV, 12-24 mos PITI reserves, 700+ FICO, must create depository banking relationship with lender, self-employed or top-tier professionals only. Purchase preferred but will consider rate/term and cash-out. This is a really, really nichey product with lots of requirements.
  • 15 and 30-year fixed to $2MM. 75% max LTV to $900k, reduced LTV thereafter.

CA Only:

Loan Amounts $200-$400K

Loan types- Non-owner occupied residential, commercial properties, and rehabs.

LTV as high as 75-80%.

Interest rate ranges between 10.99-13%

It’s been a “feeding frenzy” in commercial real estate.  But even with an incredible loan to value, is it wise to pick up a bunch of deeply discounted commercial space right now? As retail goes online and offices go virtual to save costs, will there be a glut of commercial property on the market in the next 5 years?

Retail will never completely die, as people still need to go and try on wedding dresses and wander aimlessly around shopping malls. However, I do think that the big days of retail are officially over. As consumers become more savvy online, there will be more tire kickers.  And this trend will just grow and grow.

And, it’s easier than ever before for a company to take its office virtual. A friend of mine works for a small company with 50 employees. Several weeks ago, the company mandated that all employees work from home and meet twice a week for a whiteboard session.  With all of the technology and “freeware” in abundant supply and easy to use, this is certainly the future of office.

Granted, office space will remain a necessity for some businesses, but others will be forced by the recession to grow up faster and use low or no cost technology.  Perhaps multi-use, commercial real estate ventures like Noah’s will be the commercial real estate of the future.

The future of industrial commercial seems to be a little more bright. I imagine that it will enjoy fairly consistent growth after the recession blows over. Although small business is temporarily unable to access working capital, once credit returns, businesses that occupy industrial space will rebound.

Please share your insights into the future of commercial real estate. Do you agree or disagree with my assumptions? Please share!

Posted by Corey Curwick on September 27, 2009

The article that Elaine posted from the Washington Examiner is titled, “Second Wave of Real Estate Crisis to Hit Commercial Property Market.”

The author, William Flook, seems to have no idea about what’s happening in real estate. The article asserts that the ‘second wave’ of real estate crisis is ‘about to hit.’ This is like saying social media is ‘about to hit.’

The author of the article pins plummeting commercial values and the absence of financing options as the key catalysts for a “second real estate crisis.” Although the author is correct about the catalysts, I think it’s just been one big real estate crisis, and not a crisis number 1 and a crisis number 2. Would anyone else agree, disagree on this assertion?

One interesting thing to note from the article, was the premise behind it. The tax man is finally starting to feel the pain of declining commercial real estate values. This was pointed out by another LinkedIn member who commented on this article, Todd Phillips, Managing Director at Halcyon Equities.

Investors, private lenders, and hard money lenders have all been conservative about their investments in the commercial sector for quite some time. Demanding lower and lower loan to value ratios and highly favorable positions of leverage on some of the choicest properties; this has been the norm with most of my private and hard money lenders for the past year.

More and more commercial property owners, seeking to refinance their commercial loans, are having to seek out a hard money loan instead of a conventional loan.  Many of them have multiple commercial properties and an extremely high net worth.  With the ever-shrinking number of loan products and lenders, a hard money loan can be the only option for even the biggest commercial players right now.

Any further comments on the “second wave of real estate crisis,” the topic of this article?

Posted by Corey Curwick of Private Money Utah on July 29, 2009 – Leader of LinkedIn Group: Private Money Network

To access previous discussions: http://www.PrivateMoneyUtah.com

I did a post back in February called, “How to Fund a Hard Money Loan Quickly.” Shortly thereafter, I reopened the topic again with a subsequent post called, “How To Get Your Deals Funded Quickly.” A lot of the good tips in the last posting came from John Kutac of Western Capital Partners.

I think this is a great topic to post on because it solicits feedback and starts a dialogue.  For those who seek a private money or a hard money loan, or even for hard money loan brokers, the tips provided in these postings are standard protocol in the private money realm.  Don’t follow these basic rules of engagement, and you won’t get money very quickly, if at all.

Documentation is now pretty much a rule for hard money lenders these days. Have all of the typical documentation required for a conventional bank loan on hand, when looking for quick funds. For an express hard money loan, documentation will make the underwriters job a breeze because then they only have to ‘verify’ the documentation. Years ago, documentation was not required, but with lenders now cherry-picking deals, you must have all of your documentation prepared to submit.

Another important tip for getting your deals funded quickly, has to do with networking.  Find out who is brokering money hard money loans consistently and quickly. Don’t waste time with someone who doesn’t have access to the money sources. Real lenders are hard to find. When I say ‘real lenders’ I mean those who have money to lend and are actively lending. Don’t spin your wheels with lenders who advertise on the internet if you want your deals to fund quickly.

Any other thoughts that anyone would like to share in order to continue the thread on this topic? Input or additional tips are encouraged.

Even with the credit crunch, the highest interest rates in hard money have typically loomed between 16 and 25 percent for the last year and a half.

But it seems that something good is happening in private money. The trend of interest rates in private money is heading downward. Even within the last few months, I’ve seen rates go down significantly.

For example, take a commercial building in Philadelphia.  Certainly not the hottest market for private money lenders.  And, when a building needs additional construction monies, its even harder to find competitive interest rates.

A few months ago, I queried this loan to all of my commercial hard money lenders. All but one decided to pass.  The lender that did issue a terms sheet, quoted the borrower at 18% interest and 20 points. Ouch!

The good ending to the Philadelphia property story is, I was recently able to get a terms sheet for 11% and 8 points. Even three months ago, these terms were nearly impossible to get for a loan request with these characteristics.

So, I’m optimistic about private money interest rates starting to trend downward. Any thoughts? Please leave your comments or thoughts below.

These requirements sound pretty
harsh but they are what they are I suppose. Does anyone else have a
source for construction financing they can share?