1.20.19: Kimco Realty Reinvents Itself with Signature Series Developments

Kimco Realty Corporation (NYSE: KIM), a real estate investment trust (REIT) founded in 1966, is one of North America’s largest publicly traded owners and operators of open-air shopping centers. As of December 31, 2018, the company owned interests in 437 U.S. shopping centers, comprising 76 million square feet of leasable space primarily concentrated in the top major metropolitan markets.

Since 2010, the company has transformed itself from owning 816 properties in primary and secondary markets with 63% of its rent derived from properties in top core markets to 437 properties with 81% of its rent derived from top core markets, such as Boston, New York, San Francisco, Los Angeles and Chicago. The remaining properties in the portfolio are primarily leased to service and experiential tenants, complimented by grocery anchors.

Kimco’s largest investments have been in its “Signature Series” developments. These developments offer a mix of hospitality, office, residential, shopping, dining, and entertainment venues, all in a densely populated area that is walk-able. An example of a Kimco Signature Series project is Pentagon Center, located across the street from Amazon’s planned National Landing headquarters and in close proximity to The Pentagon, in Downtown Washington, D.C. This project is expected to cost $165 million and be completed later in 2019. For additional information on Kimco’s “Signature Series” projects, click here.

ValueXpress Arranges $4,875,000 CMBS Conduit Loan for the Refinance of a 90-Unit Apartment Complex Located in Homestead, FL

ValueXpress has arranged a $4,875,000 CMBS conduit loan for the refinance of a 90-unit apartment complex located in Homestead, Florida. The community is located just east of State Highway 821, which leads north to Miami and south to the Florida Keys. The property is in immediate proximity to Homestead Air Reserve Base, host to the 482nd Fighter Wing. The Wing has more than 1,500 members, including approximately 1,200 reservists (250 are full-time reservists known as Air Reserve Technicians), as well as 300 full-time civilians.

Falcon Cove Apartments, Homestead, FL

The property was constructed in 1990 and consists of 22 one-story apartment buildings. Each building typically contains three to six units. Unit mix is as follows: 10 studios, 65 one-bedroom/one-bath, 10 two-bedroom, one-bath and 5 two-bedroom, two bathroom.

This transaction was underwritten by Jim Brett, head of underwriting at ValueXpress. “The transaction was challenging in that the ownership entity had filed for bankruptcy in 2013, the sponsor had a deed-in-lieu of foreclosure on another property and the proposed loan proceeds were insufficient to pay off the prior lender,” Brett said.

“To solve the issues, we walked the sponsor through the full disclosure process on the credit matters to get decision makers comfortable,” notes Brett. “In addition, we provided support to increase the loan amount by $250,000 to cover the existing loan payoff and transaction costs.”

1.18.19: How Does ValueXpress Keep Deals Flowing Smoothly?

ValueXpress closes loans for a lot of first-time borrowers. A good experience results in a long-time repeat borrower. ValueXpress provides a great borrower experience based on our organizational abilities, knowledge sharing and clear direction.

Our rock-solid organizational abilities means we send out closing and underwriting checklists every day or two. Our knowledge sharing means we explain in detail what each checklist items means to our borrowers. Underwriting checklists are very short on detail. For example, a typical checklist will say “T12 Operating Statement.” A first-time borrower may not have a clue what that means. We take that underwriting checklist item and explain it. What our clients see is “A statement of Income and Expenses for the property for the most recently available 12-month period presented by month with an annual total on one spreadsheet in Excel.” A little clearer, right? The ValueXpress team does this for every checklist item.

We are also well known for giving clear direction. When our detailed explanations are still not clear enough for our borrowers to know what to do? We are happy to answer any further questions. Clear direction also means we provide a timeline for our clients. As each item is ticked off the timeline list, our clients are one step closer to closing. We lend a helping hand to our clients as they tick items off the critical timeline list.

ValueXpress has used this process on hundreds of loans. We know the process like the backs of our hands. And our clients benefit. In a recent Google review, Bill Scott, a ValueXpress client, has this to say about our process:

“Worked with Mike Sneden and his team to put a loan together for a client of mine. Project was an eleven story historic building. Mike was on top of things every step of the way and consistently (daily) kept our updated action list circulated to all relevant parties. We had many obstacles, but with Mike’s help, we closed the transaction in a timely manner. I highly recommend this group for your commercial needs.”

 

1.14.19: Report from CREFC

Sentiment was a mix of guarded optimism with a small dose of caution at the January Commercial Real Estate Finance Conference (CREFC) held in Miami, Florida this year. At this 20^th annual conference, just under 1,900 registered attendees examined real estate values. The consensus seems to be that there is little room for growth, but a meaningful correction does not appear imminent.

In terms of declining changing market share of CMBS, new issuance volume was down in 2018 compared with a year ago; the lack of loan originations from 2008 to 2010 is cited as a potential factor in that decline. CMBS lenders are also competing with private debt funds that may offer more competitive terms. Panelists commented that enhancing the servicer experience for borrowers may be a contributing factor to CMBS regaining its market share.

Investors remain concerned about the slipping credit quality of loans and the increasing presence of interest-only structures. Competition was a big word as several players remarked how many lenders are looking to put money to work right now in the face of slowing loan demand.

 

1.10.19: Sears Survives . . . for Now; Shopko Declares Bankruptcy

Sears Holdings Corp Chairman Eddie Lampert prevailed in a bankruptcy auction for the department store chain with an improved takeover bid of roughly $5.2 billion, allowing the 126-year-old retailer to keep its doors open. Lampert’s bid, boosted from an earlier $5-billion offer, prevailed after weeks of back-and-forth deliberations that culminated in a days-long bankruptcy auction held behind closed doors. The billionaire’s proposal, made through his hedge fund ESL Investments Inc., will save up to 45,000 jobs and keep 425 stores open across the United States.

However, mall owners have mixed reactions to keeping stores open. Strong landlords that own well-located stores in high-performing malls such as Simon Property Group are itching to get their hands on the Sears stores; they’re looking for redevelopment that would result in significantly higher rents. Weaker mall owners like CBL Associates are dealing with other failed department store redevelopments and do not have the capital to redevelop a large block of Sears stores all at once.

Meanwhile, according to CBS, Shopko filed for Chapter 11 bankruptcy protection from creditors on January 16th due to excessive debt and competitive pressures. The retailer released a list of 105 stores that will close within the first four months of 2019 and announced plans to shutter an additional 38 underperforming locations as it works through the bankruptcy process.

 

ValueXpress Secures a $1,443,750 Community Bank Loan for the Purchase of a Warehouse in Houston, TX for Long-Time Client

ValueXpress obtained a $1,443,750 first-mortgage loan that was utilized to purchase a 32,800-square-foot, two-building warehouse complex located at 510 Midland Avenue in Houston, Texas. The building will be owner-occupied by an affiliated company owned by the client.

510 Midland Ave, Houston, TX

The loan was arranged by Charlie Lobetti, who works out of the ValueXpress Knoxville office, with the assistance of Gary Unkel, who is based in New York. “The borrower is a long-time client of mine,” said Gary. “I have completed over ten transactions over the past ten years with this client, and we have two more in the pipeline.”

“This transaction is an example of the breadth of services ValueXpress provides to its clients,” commented Lobetti. “All of Gary’s closings for this client have been in the New York metro area. This deal was the first out of state, and the client had no idea where to get a commercial loan to purchase this property in Houston,” explained Lobetti. “I have community banking relationships throughout the United States and one of my bankers jumped on this deal.”

The client’s company deals in the sale of previously used clothing, footwear and toys. Items are purchased by the pound and are resold in the owner’s vintage clothing stores in the N.Y. metro area. The balance is exported, primarily to Guatemala. The client needed a warehouse in Texas to more efficiently import and export goods.

The loan transaction was structured with a 10-year term based on a 25-year amortization schedule. Loan-to-value was 75% and the interest rate is fixed for 5 years, with a reset in year 5 for the following 5 years.

1.4.19: JPMorgan Wins CMBS Crown for 2018

JPMorgan has taken the top spot for CMBS loan originations for 2018, according to Commercial Mortgage Alert. JPMorgan unseated Goldman Sachs, which led the industry in loan contributions to CMBS transactions in 2017. JPMorgan contributed $9.7 billion of CMBS loans to CMBS transactions in 2018, while Deutsche Bank contributed $8.8 billion to take second place. Goldman, at $8.6 billion, was third.

CMBS issuance in the United States totaled $77.0 billion, down 12% from 2018’s total of $87.8 billion. CMBS loan origination volume in 2018 was lower than in 2017 due to fewer loan maturities, tighter credit standards and strong competition from commercial bank lenders and Fannie Mae/Freddie Mac for multifamily loans.

Multi-borrower CMBS issuance (where ValueXpress CMBS originations are found) accounted for 52% of overall CMBS issuance, or roughly $40 billion, while large, single-borrower deals accounted for 45% of issuance.

1.2.19: Meanwhile, Kroll Predicts Modest Decline in CMBS Issuance for 2019

For 2019, CMBS issuance will decline to $65 billion and multi-borrower conduit loans to $30 billion, according to Kroll Bond Rating Agency (KBRA) predictions. KBRA indicates that the following factors may contribute to a decline:

• fewer CMBS loan maturities — less than $10 billion of conduit loans scheduled to reach their refinance date in 2019;
• continued-competitive lending environment, particularly from community banks and insurance companies;
• rising rates that have dampened the appeal of refinancing assets at lower rates; and
• some borrowers who are fatigued with the CMBS origination and servicing process.

KBRA notes the CMBS industry is working to attract more investors and borrowers to the conduit loan product by offering these trends:

• more interest-only loans; and
• relaxing certain loan provisions, such a hard lock-boxes, and less-onerous recourse carve-out provisions.

In addition, more CMBS lenders are considering fixed-cost programs to limit the costs to obtain a CMBS conduit loan. Furthermore, some CMBS lenders are marketing “in-house” servicing to enhance the servicing experience that has been less-than-stellar, according to borrowers.

12.28.18: SBA 7(a) Secondary Market Loan Guarantee Premiums Sag

Scott Evans, Senior Managing Director at Government Loan Solutions (GLS), reported at the Secondary Market Summit in Washington, D.C. that for 2018 SBA 7(a) secondary market premiums are down approximately 15% from 2017. The downward trend began in July 2018, when premiums fell to 114 from 116 the prior month. Scott noted that rising interest rates are affecting the supply and demand for SBA 7(a) guaranteed pooled loan portfolios. Rising interest rates result in accelerated SBA-guaranteed loan prepayments, which can result in losses to investors who purchase SBA guaranteed loan pools at a premium when they are prepaid at par.

Of all SBA 7(a) loans, 33% is sold on the secondary market. Historical SBA premiums are shown in the table below.

2018		Premium*		Average (year)	Premium*
Dec		113.00		2018	114.98
Nov		113.00		2017	116.40
Oct		113.50		2016	116.50
Sep		114.00		2015	116.50
Aug		114.00		2014	117.00
Jul		114.20		2013	118.00
Jun		116.00		2012	116.00
May		116.40
Apr		116.40
Mar		116.40
Feb		116.40
Jan		116.40
*Based on Prime + 2.75%, Quarterly Reset, 25-year loan term.

 

ValueXpress Obtains $4.8-Million CMBS Conduit Loan for Neighborhood Shopping Center Located in Mansfield, Warren County, NJ

ValueXpress obtained a $4.8-million first-mortgage loan that was utilized to refinance existing debt secured by a 28,000-square-foot neighborhood shopping center located in Mansfield Township, Warren County, New Jersey. The property is currently 100% occupied by 12 tenants and is anchored by an AT&T wireless store. The property was constructed in 2009 and is in excellent condition. The loan transaction was structured as a 10-year term based on a 30-year amortization schedule. Loan-to-value was 70% and the property provides 1.30x net cash flow DSCR on actual income and expenses.

The Shoppes at Mansfield, Hackettstown, NJ

“The transaction had its challenges,” noted Michael D. Sneden, Executive Vice President of ValueXpress. “But the sponsor was relentless. I have never worked on a transaction in which the sponsor was as tenacious at solving issues. On many transactions I am proud of the value we add to the deal, but not on this one: It closed because the sponsor simply would not give up.”

Two of the more acute issues were an encroachment by a neighboring property onto the subject property. The good news is the sponsor was part owner of the neighboring property. The bad news was he did not get along with the other partners. After a battle, the parties agreed to swap interests in other assets in a complicated transaction that provided the sponsor with 100% ownership of the encroaching parcel, but at a heavy cost.

Then the current lender, a community bank, had an option to acquire an interest in the borrower. The new CMBS conduit lender was okay with a community bank becoming a partner in the borrower, but the community bank wanted to be able to transfer the option to a third party without the conduit lender’s consent. The conduit lender said “no” (You could, in theory, transfer it to a criminal!). After much saber rattling, the sponsor got the community bank to relent at the 11th hour.