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					September 2008 Volume 1, Issue 2

NAMB Commercial Mortgage
Your source for commercial real estate finance information, news, and ideas.

How Do We Remain Relevant Until The Next Up Cycle?
by Joe Caton

FOCUS
In This Issue
Commercial Mortgage Market: How to Stay Relevant in Changing Times Informing your investors. p. 1-2 Webinar Summer Series Now Available 24-7! NAMB’s summer webinar series is over, but members can listen to any recorded session for only $29. Email kwallace@namb.org to get this special rate! (Nonmember price: $49) p. 3 Become a Commercial Sponsor Contact Kristi Wallace for complete information. Join NAMB Join before December 31, 2008, and lock in your commercial membership dues for the next three years! Visit www.joinnamb.org for complete information. Also, take advantage of half-price entrance to all NAMB events and gain access to NAMB memberonly services. Download an application and join as a commercial member today!

Until originations come back and lenders open up the purses again, both brokers and loan officers can become a valuable asset to mortgage investors How do brokers and loan officers stay in business while the market works through its liquidity, credit, and property de-leveraging process? Well, in the first place, the name of the game is loan investors—particularly those B piece buyers from Wall Street who are now on strike. They are holding the trump cards for getting everything from small-balance commercial to the large-loan commercial mortgage backed securities (CMBS) deals back in business. They also hold the key, at the end of the day, to the stabilization of the residential and collateralized debt obligation space (CDO). And they are not ready to make a move until they either see a base and a turnaround or they get paid a high enough return to take the risk. The current market dislocation is not due to the absence of available investment capital. It is a crisis of confidence in the quality and value of loans and the securities they back. And we should closely watch the movement of market spreads between fixed- and adjustable-rate loans, as well as spreads between high-quality and high-yield debt and securities. Watch these spreads because on any given day their movements determine if the market equilibrium for buying loans is closer to the buyers’ bids or sellers’ asking price. Residential Contrary to what many commentators may say, I don’t think that we (as professional real estate finance and investment professionals) need to see home prices stop declining in order for the residential mortgage market to stabilize. I know that sounds crazy, but think about it. When home prices stop falling, a lot of the upside investment potential for value-add and distress buyers will evaporate very quickly, and sellers will almost immediately gain the upper hand. Private equity and hedge funds will begin throwing large blocks of capital at these businesses, and the result, to be sure, will be chaos, and will lead to a lot of bad loan purchases. In addition, most of the fund managers who will be on a buying binge when the rest of the world says that residential properties have reached a bottom, may be inexperienced investors who may have no concept of how to evaluate or price mortgages, let alone how to service them. The due diligence shops will be overwhelmed, and lots of mistakes, i.e., improper pricing, will occur. What we need to see is the emergence of investors willing to buy paper on the street at something that resembles a reasonable bid—based on achieving a reasonable risk-adjusted return, and a plan to “work” the real estate asset. For example, investors who can hire a local real estate agent to rent the property behind the loan until that property can be sold when the market comes back. But until that happens, the banks and lenders will have to continue writing down assets even though they have no intention of selling at those prices. Interesting to note, that even though these banks and lenders are writing down assets, they are usually not willing to sell them off at anything close to the value they are being given on paper. The exceptions of course, are the cases in which the loan holder is in distress and is willing to deal. A case in point is the massive writedown by UBS and subsequent portfolio sale to a buyer that issued mostly an IOU for the portfolio. continued on p. 2 National Association of Mortgage Brokers
7900 Westpark Drive, Suite T309 McLean, Virginia 22102 W: www.namb.org P: 703.342.5900 F: 703.342.5905

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But things are starting to stir in the residential space now. A number of buyers in the default loan acquisition and servicing space have starting to kick the tires of loan portfolios over the past few weeks. Their investors are getting antsy about not buying into what they see as good value in real estate and mortgage portfolios, and even some securities. They intuitively know they have to take some risk to achieve the ridiculous returns they are demanding. But the headline news from the general consumption media is not helping. Residential brokers, who have a good outreach to their market, should be seriously thinking about using that reach to help service the loans of their current clients and get paid for it. There is a premium today for a broker who can do on-the-ground field work that leads to a loan modification, refi, or other workout effort. Brokers may consider calling on their clients and asking what can they (brokers) do to help them (clients) stay in their homes and avoid foreclosure, or relieve their fears of some day not being able to afford their homes. Brokers may find a new career as a field service agent and loss mitigation consultant—and make a good living at it too. Commercial The commercial market is not likely to get nearly as bad as the residential market did for a simple reason; too much capital is still chasing commercial. According to data compiled by PrivateEquityRealEstate.com, capital raised by private equity, pension and endowments, and hedge funds earmarked for real estate ventures, now stands at over $70 billion in the US alone, and is sitting on the sidelines to get into commercial. Right now, there really isn’t much for these investors to buy in terms of properties being offered at fire-sale prices, so they just sit and wait. But they can’t and won’t wait for very much longer. Investors will soon demand action from their fund managers. Investment funds continue to open or even close—sometimes raising as much as $10 billion at a clip—usually raising on average $3-5 billion at a time. And the vast majority of those funds label themselves as “opportunity funds.” That is code for, “looking for distressed mortgages or properties to buy at dirtcheap prices.” But the big players such as the REITs have been able to refi good assets so far, and what’s left are either the weak properties with weak sponsorship or deals that are so big, only a limited universe of people

can go after them. Case in point is a firm like Boston Properties taking out Harry Macklowe’s New York portfolio that included the GM Building. The seller in this case simply couldn’t refinance the portfolio, and its bridge lenders (Fortress Capital Partners and Deutsche Bank) were not willing to wait. These opportunity funds know that the good pickings are getting slim. So distress buyers may blink first, and start buying, albeit cautiously. In fact, many of these funds—which are usually looking for investment returns of over 25%— may have to modify their investment objectives. They may have to settle for numbers closer to the low to mid teens, to begin with. Right now, anything that resembles decent mezzanine or bridge deals are getting snapped up before they are even put out on the street for bid. And the mezzanine and bridge funds that are doing well are the ones with very strong asset management attached to them. If a broker has capabilities as a proven asset manager, that broker should become friendly with these investment fund managers. New Paradigm A very good place for brokers and loan officers to be today is to become cozy with fund investors—people who want to buy loans, but are not necessarily established lending brands. Some of these investors may have to go the route of actually funding loans, instead of relying on buying them from increasingly hardliner lenders/sellers. If a broker can make himself or herself an origination partner for a fund manager—originating only deals that manager wants to buy—that broker can have a good place in this business right now and going forward. But this business is not going to just any broker shop with a nice business card and a slick sales pitch. These deals will go to people who can present a brand with an asset management shop to boot. Brokers who have asset management experience may wish to polish up their resume and skills, and start pitching those skills to fund managers and investors. The broker may have to approach high-quality borrowing clients, and ask them to lend their good name and property management skills and history to the broker’s pitch, in order to win business from investment funds. Joe Caton is managing director of Oxford, Connecticutbased Hartford One Group, a leadership training and development firm focused on the real estate finance arena. He can be reached at (203) 405-2330 or jcaton@hartfordone.com.

Upcoming NAMB Commercial Events
Did you miss our summer webinar series? It’s not too late. Listen to these sessions anytime, on demand, 24 hours a day! Click on any course title to register.
Listen to the recorded session for only $29*. Members save $20 over the nonmember price of $49 on all recorded sessions by using a coupon code. Email commercial@ namb.org to get the special code for a buy-one, get-onefree offer! Click on the session title to register! Attend any session, but it may be useful to note that (N) = session is geared for residential brokers seeking to learn more about commercial mortgage lending; (E) = session is geared to seasoned, commercial-only brokers. Recorded Webinars “Thinking of Doing Commercial Loans? Commercial Mortgage Basics” (N) This course is an introduction to adding small-balance commercial loans to your residential book of business. “Essential Commercial Mortgage Concepts” (N) If you are new to commercial lending, this course is an outstanding guide to understanding some basic concepts before you take on too many new loans. “Finding the Fit: Getting the Right Loan for Your Commercial Client” (N & E) Three seasoned experts guide you through this session. Find out about basic loan types recommended courses of action to take in our hypothetical loan examples. Then look at some scenarios where low-balance and highbalance hard money loans are the way to go. “Commercial Appraisal Primer” (N) There are significant differences between residential and commercial appraisals. Learn about those differences, commercial property valuation methods, how that affects the loan amount, and how to avoid some common commercial appraisal pitfalls. “New Opportunities in SBA Commercial Financing” (E) Learn about the SBA 504 program and the savings difference it can make to your customer...provided your customer and the property fit into the program’s lending guidelines. This session is lead by an expert in the SBA 504 program.

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NAMB Commercial Mortgage FOCUS

September 2008 p. 2

Webinar Summer Series Online
Our commercial webinars have something for everyone, from the seasoned commercial mortgage broker to those who are new to the business or who want to learn more about commercial lending. Why leave your office? Your next learning opportunity is virtually at your fingertips. Why leave your office when you can learn right at your desk? Save valuable time and money by staying at your office and taking advantage of these seminars without traveling anywhere. What’s in it For Me? Knowledge. Enhanced business. Potential income. That’s what’s in it for you. We have assembled some of the most experienced leaders in the industry to act as your instructors. Each month we will provide one webinar for experienced commercial mortgage brokers and one for residential brokers seeking information about commercial lending. Sessions marked (N) are for novice learners in the field. Webinars with (E) next to them indicate sessions for experienced, seasoned commercial brokers. NAMB Members Reap the Benefits If you are already a member of NAMB you receive half price admission to these seminars. Your cost to attend a full hour webinar that is packed with new information―without the cost of a single gallon of gas or single minute of travel time―is ONLY $29 for each recorded session. Nonmembers pay $49 per recorded session. Members need a coupon code to get the special rate. Contact Kristi Wallace by email to get your coupon code today at kwallace@namb.org. SAVE TIME and SAVE MONEY by becoming a NAMB member. See our website at www.joinnamb.org for complete information and to download a membership application. Register Today and Get $20 Off ! Simply contact Kristi Wallace to receive your coupon code. Then register for the webinars you want to attend at the member rate of $29 for a recorded webinar. Register today and get started on your next opportunity to learn about commercial lending... at your fingertips, at your desk, at your office! Watch your email for the next series of webinars coming this fall!

Advanced Commercial Class at NAMB/WEST

Separate Yourself from the Next Guy

Advanced Commercial Loan Brokering Course #5030 8 CEs* Sunday, November 16 8 a.m. to 5 p.m. MGM Grand Hotel Las Vegas, Nevada Instructor: Kevin Fuko This course aims to further develop the participant’s skills, knowledge, and business strategies required for successful origination of commercial mortgage transactions for multi-family, retail, office and mixed use properties through comparative discussion of the analytical elements, case study, and practical skill exercises. Course instructor Kevin Fuko is a seasoned commercial mortgage broker who injects multiple real-life examples and practical ideas into this course. He is a national instructor for NAMB and has taught Advanced Commercial Loan Brokering numerous times. *This course is worth eight (8) NAMB CEs. However, MANY state regulators DO NOT accept commercial courses for residential broker and originator continuing education course requirements. To the best of our knowledge, the following states DO accept commercial courses for residential broker/originator license compliance with regard to continuing education requirements: California, Illinois, Iowa, Kansas, Nevada, Oklahoma, Oregon, South Dakota, North Dakota, and Wisconsin. This specific course and in some cases, this instructor, must also be approved for credit in your state by your state regulator. Please check with your state regulator to make sure this specific course is approved for CE credit. The course WILL count toward your NAMB Certification points if you are working toward a certification level of GMA, CRMS, or CMC. Sign up for NAMB/WEST today!

Q: What’s the difference between you and the next guy?
A: Sometimes the only difference, is the head on your shoulders. Tough Times Call for Tough Measures Sure times are tough, but when times are tough, you have to get an edge over your competition. That’s why we have created a great series of webinars to help residential brokers learn more about commercial lending. Right now you could learn something new, put it into action, and add to your business’s bottom line...without ever leaving your desk. Why don’t residential brokers do more commercial loans? Most brokers think commercial loans are too complex, too time consuming, or don’t know which lenders to use. The truth is, there is a certain level of fear involved in trying something new. Smash that fear by learning about commercial loans in the comfort of your office, without spending one minute in traffic or spending one penny on gas. Buy one, get one FREE! Send us an email to get a free recorded webinar when you buy one. We’ll send you a coupon code for your free webinar. Separate yourself from the next guy by learning something they don’t know. Quell your fear and add commercial lending to the services you offer. You will learn just where to start so that you avoid some beginner’s pitfalls and how to market yourself to your existing clients for maximum growth opportunity. Email us today for your FREE recorded webinar coupon.
For information about the Commercial Mortgage Professional Program, contact: Kristi Wallace E: kwallace@namb.org P: 703.342.5884 F: 703.342.5905

This newsletter is interactive! Click on any underlined text to be taken to a corresponding website or link.

NAMB Commercial Mortgage FOCUS

September 2008 p. 3