MBA (5/30/2006) Murray, Michael
Strong underwriting will most likely provide a smooth landing for lenders as they turn off the capital spigot on an overflowing condo conversion market. Brian Stoffers, president of capital markets at CB Richard Ellis Inc. in Houston said that condo converters will see less capital coming in from lenders.

"Those [condo converter lenders] that are out there already have their places picked in the market," Stoffers said. "Until they sell out, they're not going to make additional loans that they are already heavily invested in."

Stoffers said stalled sales could lead to "fractured condos," in which half of the units are sold and half are empty. Stoffers observed this phenomenon in San Diego during the 1980's during a previous condo- conversion cycle.

"If the deal goes under, the bank will start renting out those unoccupied units until the markets come back," Stoffers said. "There is a mixture of rental and owned units."

"On a unit-by-unit basis, [condo units] can re-enter the rental stock," said Jamie Woodwell, senior director of commercial/multfamily research at the Mortgage Bankers Association. "A building could also be purchased from the condo owners who are the residents themselves. I think that would be a much tougher situation because a large group of residents would need to agree to sell the condo to the investor."

Downtown San Diego, Las Vegas, South Florida and Phoenix are some of the most notable markets affected by condo conversions and cities "to watch," according to industry experts.

"Lenders have tightened up on condo conversion loans, especially in Florida, and mezzanine loans are also becoming more difficult to obtain," White said.

The Las Vegas office of CB Richard Ellis reported 65 mixed-use permits with a condo component last year pulled in Clark County and the office estimated 10 percent to 15 percent of those permits would start.

"That translates to six or nine versus 65, so the market is self-regulating," Stoffers said.

Look for last year's record flow of investment dollars into commercial real estate to spur rising demand for space and to improve commercial real estate markets in 2006, predicted the National Association of Realtors (NAR), Chicago.

NAR's Commercial Real Estate Outlook noted that investment in commercial real estate rose 44 percent in 2005, to a record $268 billion of investments-grade real estate, not counting transactions value at less than $5 million.

Looking ahead, NAR Chief Economist David Lereah predicted solid fundamentals in commercial real estate forecast.

"Vacancy rates are declining in all of the major commercial sectors, and rents are rising at healthy rates," said Lereah. "Job growth and international trade are fueling demand for space and facilities." In the office market, by the end of this year office vacancy rates are projected to drop to an average of 11 percent from 13.6 percent in the fourth quarter of 2005, while office rents are expected to rise 5 percent.

In the industrial market, new industrial construction should rise 20 percent this year to accommodate specific distribution requirements and replace structures that are now obsolete. The areas with the lowest industrial vacancies include West Palm Beach, Florida, Los Angeles, Las Vegas, and Riverside and Orange counties in California.

Retail vacancy rates are forecast to decline to an average of 7.8 percent by the end of the year from 8 percent in the fourth quarter of 2005. Retail markets expected to have the lowest vacancies this year include San Francisco, Las Vegas, San Diego, Seattle, and West Palm Beach, which are expected to have year-end vacancies of 3-4 percent.

Arguably the most inspiring coach of all time, Vince Lombardi turned the also-ran Green Packers into a football dynasty.

Under Lombardi's leadership in the early 1960's the Packers collected six division titles, five NFL championships and two Super Bowl victories.

Fortunately, Lombardi was not shy about expressing his leadership philosophy, which comes across strong and clear in these quotes:

"A leader must back up the group, even at the risk of displeasing superiors."

"Leaders are made, they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile."

"Perfection is not attainable. But if we chase perfection, we can catch excellence."

"Winning isn't everything, but wanting to win is"

- Adapted from www.vincelombardi.com

Cornerstone Commercial Mortgage specializes in commercial real estate finance. We act as mortgage consultants, focusing on providing the appropriate financing solutions for each client. We work with investors and developers on all product types from Land loans to permanent loans providing the best financing option available.

John P. Lloyd, President
Phone: (702) 385-2658
Cell: (702) 379-3468
Email: john.lloyd@cmlv.net