Commercial Property Distress to Rise Amid Wave of Maturing Debt.

Commercial Property Distress to Rise Amid Wave of Maturing Debt. Even if government programs aimed at restarting the securitization market (CMBS) are successful and constraints on debt capital ease (not likely until the banks get pushed by the regulators), the combination of deteriorating property fundamentals, declining values and tighter underwriting will make it impossible for many owners to refinance maturing loans without considerable equity contributions. During the first quarter of 2009, the distressed component of the marketplace increased by more than 50 percent, and with nearly $400 billion in commercial mortgage debt due to mature at the end of 2009 and 2010, distress will rise further. We see this distressed debt causing owners to sell at depressed prices or banks foreclosing and then selling at heavily discounted prices. Either way we will see many great buying opportunities at the end of 2009 and into 2010.

Delinquenct rates on California commercial loans more than doubled

The delinquency rate on California commercial loans has more than doubled on $60 billion worth of loans in the second quarter 2009, according to the California Mortgage Bankers Association in a report released recently. This report shows that the delinquency rate continues to climb each quarter. Our projection is that over the next 12-24 months we will see a substantial number of loan foreclosures which means the lenders will be selling properties they have foreclosed upon at substantial discounts. We have a number of bank/lender relationships and we are just starting to see these properties hit the market. Over the next 1 to 2 years we expect to purchase numerous highly discounted properties from commercial lenders as they move these assets off their balance sheet.

Great article in the Wall Street Journal about the challenging environment for REITS

An article in the WSJ focuses on the tough environment for REITS that is just around the corner. challenging

--tons of debt coming due over the next two years
--lower commercial property values
--dwindling occupancy
--lack of buyers

Major REIT players have staggering debt levels. Maguire Properties, has 94% debt to capital. Despite the 60% run up in the REIT share market, they are still more than 65% off the highs of February 2007.

This will clearly lead to a buyers market for the typical property that a REIT owns....Class A office towers, shopping malls, etc. The advantage to us is that it will trickle to our target markets, where there are very few buyers like us. Most of the large real estate buyers will be cherry picking the portfolios of distress REITS, not paying any attention to our target market....$2 million to %15 million. We're flying below the radar screen