Situs Newswatch 2/9/18

Improving the Commercial Real Estate Appraisal Report: Tenant Analysis

In many cases, the tenant analysis in appraisal reports does not give sufficient attention to evaluating the creditworthiness of a tenant, and this is especially true with retail properties. A careful understanding of a property’s tenancy is critical for providing a creditable valuation conclusion.

Cash flow analysis is what drives the value conclusion; therefore, establishing the basis for assessing the quantity, quality and durability of the income and its future performance potential is the pillar for a discounted cash flow analysis. For properties with multiple tenants, many appraisers tend not to give sufficient attention to the assumptions regarding tenant quality, credit loss and tenant retention. Even for many net-leased properties, appraisers often fail to carefully analyze publicly available information for that tenant.

When Situs RERC reviews appraisals (or completes our own appraisals), we expect to see an in-depth analysis of the tenancy. This requires that property managers, investment managers and even the landlords all provide their perspective on a particular tenant’s business, its financial condition, space utilization, growth and retention prospects.

These sources all need to be engaged to develop as much primary intelligence about the tenancy as possible.  Indeed, many of the participants in the investment process — and in particular, banks — require tenant financial statements and in-depth tenant credit information.  The appraiser can develop a clearer risk profile of a tenant through carefully incorporating this information about the businesses’ prospects for growth or consolidation.

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Without Steve Wynn, Casino Empire Risks Losing More Than a Name
As the chief architect of modern Las Vegas, and a visionary who didn’t understand the meaning of subdued, Steve Wynn spent more than three decades luring visitors to the Strip with his opulent hotels, fantasy-filled casinos, fine dining experiences and luxe shopping.

But now, the question on everyone’s mind is: What is the $18 billion Wynn Resorts casino and hotel empire without Steve Wynn?

Hours after an unscheduled meeting of Wynn Resorts’ board of directors on Tuesday, Mr. Wynn, a 76-year-old billionaire, suddenly resigned as the chairman and chief executive of a casino conglomerate that stretches from Las Vegas to Boston to Macau.

With pressure mounting on his lucrative business operations, including a half-finished $2.4 billion casino resort near Boston, and with shareholder lawsuits and various investigations clouding his future, Mr. Wynn said he was stepping down because of “an avalanche of negative publicity.”

“Elvis has left the building,’’ the global investment firm Jefferies wrote in a note on Wednesday. “Mr. Wynn’s value to the company is unarguably profound as its chief visionary and diplomat. As such, we do not believe the company can grow at the same trajectory nor can it maintain its cutting edge position.”

read more: NY Times

Hot CLO Market Boosts Liquidity for Bridge Loans
Bridge lenders are fighting for elbow room in what has become a very liquid and highly competitive marketplace.

“There is an abundance of capital available for bridge loans,” says Joe Franzetti, senior vice president, capital markets, at financing solutions provider Berkadia.

Berkadia estimates that there are about 90 different organizations that say they are actively doing bridge loans. “That is just a staggering number. There are plenty of folks who want to lend on a transitional real estate play,” Franzetti notes.

Capital is coming from a variety of sources that are lending using all types of strategies, from opportunistic and value-add to more conservative core and core-plus projects. Some groups are using bridge loans as a feeder pipeline into their permanent lending business. Another driver behind the inflow of funds involves rising interest rates and a bigger investor appetite for commercial real estate collateralized loan obligations (CRE-CLO) tranches.

Fixed-income investors and large bond fund managers are buying CRE-CLOs, which is creating a permanent term financing tool for bridge lenders, notes Felix Gutnikov, a principal and executive vice president of origination at Thorofare Capital, a loan origination and servicing company. “We believe that this year there is going to be an increase in bridge lending activity that is fueled by a white-hot CRE-CLO market,” he says.

read more: NREI

Twitter Posts First Real Profit, Sending Shares Soaring
Twitter Inc. posted a surprise gain in revenue, the first growth in four quarters, driven by improvements to its app and added video content that are persuading advertisers to boost spending on the social network. The shares surged.

The company topped analysts’ average sales estimates in the fourth quarter and for the first time posted a real profit, a milestone in Chief Executive Officer Jack Dorsey’s turnaround effort. Monthly active users were little changed from the prior quarter at 330 million, a lower-than-projected total that the company attributed in part to stepped-up efforts to reduce spam, malicious activity and fake accounts.

The report adds to positive momentum in recent months for Twitter, which spent the second half of 2017 explaining how Russian-linked accounts — including automated bots — influenced content on its platform around the 2016 U.S. presidential election.

Dorsey, who also runs Square Inc., has been working to broaden Twitter from a microblogging site into a destination for users to see “what’s happening now” by striking live-streaming partnerships with news outlets and sports leagues.

The shares soared 15 percent in early trading in New York after closing at $26.91 Wednesday.

read more: Bloomberg

Point-of-Sale Lending is Hot Right Now
Many consumers — millennials in particular — have a love-hate relationship with credit.

They are comfortable borrowing for specific purposes, such as paying for school, buying a car or even financing a dream wedding. But research conducted by banks and fintechs has found that many younger Americans are uncomfortable carrying credit card balances, partly because they saw their parents struggle with debt during the financial crisis and prefer the more certain repayment terms of installment loans.

This affinity for more straightforward credit products helps explain why so many banks and fintechs are now offering personal loans that consumers can use to consolidate debt, finance big-ticket purchases and, increasingly, buy smaller items too. Personal loans issued by banks — these exclude credit cards and auto and home equity loans — hit a record $807 billion at Sept. 30, according to data from the Federal Deposit Insurance Corp., up 9% from two years earlier and nearly 30% since 2012. That’s not even including the many billions of dollars of loans made by upstart online lenders that don’t end up on banks’ balance sheets.

It is also giving rise to a fast-growing subset of personal loans known as point-of-sale loans.

Point-of-sale loans are hardly new — banks have been offering them indirectly at the likes of furniture stores and orthodontists’ offices for decades. The biggest players historically have been Wells Fargo, Citigroup and Synchrony Financial.

But this type of lending has become increasingly popular in recent years as technology has improved to the point where merchants and contractors that previously may have only accepted cash, check or credit cards are now offering the option of a loan at the moment of purchase, whether online, in stores, or in person. Think of the owner of a roofing company at the house to give an estimate on a project whipping out an iPad to offer an instant loan to pay for the work.

read more: American Banker

Economists Bullish on the State of Commercial Real Estate in 2018
While there may be issues to keep an eye on—such as shifting consumer behavior and rising inflation and interest rates—the outlook remains positive for the short term, several real estate economists told NREI. 

Last year was largely a good one for commercial real estate investment—and 2018 promises to be strong as well. Momentum for the new year stems from a strong holiday shopping season and tax reform that is anticipated to leave many businesses and consumers with more money in their pockets. While there may be issues to keep an eye on—such as shifting consumer behavior and rising inflation and interest rates—the outlook remains positive for the short term, several real estate economists told NREI.

read more: NREI

Refis Heated Up in Q4 2017
When it came to their mortgages in the last quarter of 2017, a bevy of millennials jumped on the refi bandwagon. As a result, refinances reclaimed their popularity in December, Ellie Mae reports in its latest Millennial Tracker.

December was the third straight month in which refinances made up 15 percent of all closed loans for millennial borrowers, the report says. That’s the highest percentage of refis recorded for this group since February 2017’s yearly high of 17 percent. The percentage of closed purchase loans hovered at 84 percent, the report notes, dropping from the 90 percent peak posted in June 2017.

As for conventional refinanced mortgages, those have been chugging along at 19 percent since October, the report says. FHA refi loans, on the other hand, remained at 6 percent from the previous month. Added together, the percentage of conventional and FHA purchase loans also stayed the same from November to December, coming in at 80 and 94 percent, respectively.

Joe Tyrrell, Ellie Mae’s EVP of Corporate Strategy, sounded off on the potential motivations underlying the numbers.

“With seasonality and low inventory levels at the end of the year, millennial borrowers continued to take advantage of refinance options during the fourth quarter,” he said. “Many may have been driven by a desire to take advantage of low interest rates given uncertainty about potential rate hikes in the new year.”

read more: The MReport

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